Borrowing and repaying debts is only natural. But when lending virtual currency, can you always get it back? Today, let’s take a look at how the court handles a case that actually happened.
01. Basic Case Information
Xu and Lin are both friends in the cryptocurrency circle. On December 3, 2015, Lin orally requested a loan from Xu. Since Xu didn’t have cash, he lent 341 bitcoins to Lin on the same day, transferring the lent bitcoins to the address provided by Lin through the Huobi platform. On December 9, Xu urged Lin to return the bitcoins and sent him the receiving address with the ending “7X1c”. On December 11, Lin replied to Xu, saying that there were no coins in the mining pool server wallet and that he had used the previous BTC for fundraising, and it would be in place in a few days. Since then, Xu has repeatedly urged Lin, but Lin has not returned the bitcoins.
In desperation, in February 2018, Xu sued Lin in court, demanding the return of the bitcoins. In order to present more favorable evidence, Xu emailed the customer service of the Huobi platform to inquire and download his transaction records from 2014 to 2016. At the same time, Xu also submitted the relevant chat records between him and Lin to the court.
During the court hearing, Lin admitted that he had borrowed bitcoins from Xu, but claimed that he had already returned them all. Lin submitted transaction records from December 20, 2015, at 19:44 and December 22, 2015, at 20:47, with hash values, confirming the transfer of 100 and 241 bitcoins to the address ending with “7X1C”, proving that he had returned 341 bitcoins to the address ending with “7X1c”.
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However, Xu did not agree with this. Xu argued that the repayment records mentioned by Lin were actually transfers from Xu’s Huobi platform account to his own address ending with “7X1c”, not the repayment from Lin. At the same time, Xu believed that the records he submitted showed that he transferred 100 bitcoins on December 20, 2015, at 17:14, and 241 bitcoins on December 22, 2015, at 17:27. The confirmation times of these transactions from the blockchain were December 20, 2015, at 19:44 and December 22, 2015, at 20:47, respectively. From the connection of time, Xu’s transaction records fully comply with the rules of bitcoin transaction confirmation time, as a bitcoin transaction usually takes about an hour from initiation to confirmation. The transaction records submitted by Lin are obviously not within this time range, and their authenticity is more questionable.
After the first-instance court trial, Xu’s request for Lin to return the bitcoins was rejected on the grounds that it did not fall within the scope of the court’s jurisdiction over civil litigation.
The specific reason is that although the Civil Code explicitly provides for the protection of data and virtual property on the Internet, according to its provisions; bitcoin can be regarded as a specific “virtual commodity”, but our country currently does not have relevant laws and regulations clearly defining it as an object under civil law, and both parties have explicitly stated that bitcoin is operated by overseas platforms; the Financial Stability and Development Committee of the State Council held its 51st meeting on May 21, 2021, which clearly cracked down on bitcoin mining and trading activities and resolutely prevented individual risks from spreading to the social sphere.
In addition, the relevant regulatory documents involving virtual currencies only explicitly classify Bitcoin as a specific “virtual commodity”. Not only are there no provisions for its protection, but it is also stipulated that Bitcoin cannot and should not be used as a currency for circulation in the market. Financial institutions, payment institutions, and so-called token financing trading platforms are prohibited from engaging in the exchange business between legal tender and tokens or “virtual currencies”, and they are not allowed to buy or sell tokens or “virtual currencies” as central counterparty.
Therefore, the court believes that in this case, Xu and Lin, as Bitcoin investors, their transaction behavior involving the use of Bitcoin is currently not protected by law. Moreover, Bitcoin does not possess the characteristics of a specific object, and in this case, it does not have a realistic possibility of return and cannot be quantified using legal tender. Therefore, Xu’s lawsuit demanding Lin to return 341 Bitcoins does not fall within the scope of civil litigation accepted by the People’s Court.
Xu was dissatisfied and appealed to the second instance court.
The second instance court affirmed the views of the first instance court, considering that relevant departments have already prohibited financial institutions, payment institutions, and any token financing trading platforms from providing pricing services for Bitcoin, which means that Bitcoin, as a virtual property, lacks a legitimate economic evaluation standard. Therefore, the dispute over the claim for the return of Bitcoin does not fall within the scope of civil litigation accepted by the People’s Court.
02. Court Trial Summary
In this case, the parties involved are Bitcoin investors, and the transaction behavior between the two parties involving the use of Bitcoin is currently not protected by law. At the same time, although Bitcoin can be considered as a specific “virtual commodity”, there are currently no relevant laws and regulations in our country that clearly classify it as a civil law object. Both parties also explicitly state that Bitcoin is operated by overseas platforms; moreover, it does not possess the characteristics of a specific object, and in this case, it does not have a realistic possibility of return and cannot be quantified using legal tender. Therefore, Xu’s lawsuit demanding Lin to return 341 Bitcoins does not comply with Article 119(4) of the Civil Procedure Law of the People’s Republic of China, which defines the scope of civil litigation accepted by the People’s Court, and should be dismissed.
03. Tips from Lawyer Man Kun
In practice, although activities related to virtual currencies among individuals have not been completely prohibited, the associated risks are everywhere.
This risk not only comes from the trading activities of virtual currencies but also from the different attitudes of different courts towards virtual currencies. In the aforementioned case, the court directly rejected the lender’s request for return on the grounds that it does not fall within the scope of civil litigation accepted by the People’s Court. However, the Man Kun team has also handled cases where some courts ruled that contracts involving currencies are invalid, and therefore ordered return or compensation based on the degree of fault of both parties.
Therefore, it is recommended that friends in the cryptocurrency community pay attention to relevant legal policies and the attitudes of local courts in practice, and assess their own involvement in cryptocurrency activities, so as to avoid ending up with nothing after originally intending to help.
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