01 Introduction

During the process of legal consultation related to virtual currency, one of the most frequently asked questions by our clients is “Can I get my coins back?” and “What methods can I use to recover my coins?” The above questions often arise when individuals have given their virtual currency to someone else due to reasons such as borrowing, project investment, mistaken transfers, or scams, and they hope to retrieve their virtual currency through legal means.

The question is: Will the court support it?

This article attempts to summarize the judicial judgments on the enforcement of virtual currency in China, hoping to provide some inspiration to readers. It should be emphasized that this article discusses “enforcement of virtual currency” only in cases where the court orders the return of virtual currency, and does not discuss situations where virtual currency is used to evade enforcement.

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02 China’s cases involving the enforcement of virtual currency

In the judicial practice in China, it is often found that courts either do not accept or cannot advance the enforcement of cases involving virtual currency. The former is because China has strict regulations on the supervision of virtual currency, and the latter is due to the difficulties in law enforcement domestically and internationally caused by the encryption, semi-anonymity, decentralization, and other characteristics of virtual currency, especially in terms of supervision and investigation of the flow of virtual currency.

By conducting keyword searches on the China Judgment Online, we found a total of 15 execution case documents related to virtual currency. Most of these execution cases were adjudicated in 2022, with the highest level of jurisdiction only reaching intermediate courts.

Upon closer examination, it can be inferred that in cases involving the return of virtual currency, the judgments often order the return of money rather than virtual currency, and there are even fewer cases that reach the enforcement stage. However, virtual currency has high value and price volatility, and people often prefer the currency over money. However, based on data analysis, it is unlikely to be successful in retrieving virtual currency through legal means.

(1) What is the legal basis for enforcing virtual currency?

Although cases involving virtual currency are numerous, there is no special legal provision for them. The legal classification of virtual currency in academia includes various theories such as the “property theory” and the “debt theory”, which are mainly based on the characteristics of virtual currency. However, excessive focus on conceptual definitions is likely meaningless. In terms of judicial practice, courts often classify virtual currency as “network virtual property”, so there is no legal obstacle to treating virtual currency as the subject of enforcement.

From publicly available judgments, the courts generally refer to existing legal provisions related to litigation procedures.

As stated in Article 492 of the Judicial Interpretation of the Civil Procedure Law, if the subject matter of execution is a specific object, the original object should be executed. If the original object has been destroyed or lost, with the agreement of both parties, it can be compensated at a discounted price. If the parties cannot agree on the discounted compensation, the people’s court should terminate the execution procedure. The applicant for execution can file a separate lawsuit;

Article 517 of the Judicial Interpretation of the Civil Procedure Law also frequently appears: if no property available for execution is found after a property investigation, and after the applicant for execution signs and confirms or the court organizes a collegiate bench to review and verify, and with the approval of the president, the execution procedure can be terminated. After the execution is terminated in accordance with the preceding paragraph, if the applicant for execution discovers property available for execution by the person subject to execution, the applicant can apply for execution again. The subsequent application is not subject to the time limit for applying for execution.

On April 13, 2023, the Supreme People’s Court issued the “Summary of the National Court’s Financial Trial Work Conference (Draft for Solicitation of Comments)” (hereinafter referred to as the “Summary of the Conference”). Article 87 of the “Summary of the Conference” provides answers to the execution issues of virtual currencies: for litigation requests from parties demanding the delivery or return of virtual currencies such as Bitcoin, the people’s court should ascertain the holding status of the virtual currency, clarify whether there is a possibility of delivery or return, and state it in the document. If it is determined in the trial that it cannot be returned or delivered, the parties should be guided to make reasonable claims and encouraged to reach an agreement on property rights. If it is determined in the trial that there is a basis for actual performance, the people’s court shall specify the delivery or return of virtual currencies in the judgment upon the party’s request, and if the party obligated to deliver or return refuses to perform the obligations determined by the effective judgment, the people’s court may take corresponding measures in accordance with the relevant provisions of the Civil Procedure Law execution procedure.

According to the “Summary of the Conference,” in future cases of compulsory execution of returning virtual currencies, the people’s court needs to proactively ascertain the holding status of the returning party. Therefore, the court will have specialized technical departments to assist in the execution process, using technical means to ascertain the circulation of virtual currencies, which may greatly reduce the difficulty for parties to find clues about virtual currencies.

(2) What is the result of executing virtual currencies?

The law is comprehensive, but the actual execution is challenging.

In theory, the client’s demands should be supported by the court’s judgment. However, it is unfortunate that the process of recovering virtual currencies is often difficult, time-consuming, and does not guarantee the retrieval of their encrypted currencies. From public cases involving virtual currencies, we can see several common situations in cases involving the execution of virtual currencies.

1. The virtual currencies are still with the returning party, and the court orders the seizure of the virtual currencies.

There are relatively few cases where virtual currencies are seized. The seizure of virtual currencies often requires the cooperation of virtual currency exchanges, prohibiting the user from trading virtual currencies on the platform. However, due to the strict regulation of virtual currency trading platforms in China, most virtual currency trading platforms are overseas companies without a business address in China, so this method of seizure cannot be implemented.

Typical case: Chen Jingliang, Feng Qiaohong, etc. loan contract dispute enforcement implementation class enforcement ruling (2022) Zhejiang 0702 Execution 2906. The enforcement ruling states that although the court attempted to freeze the virtual currency of the executed person, the virtual currency cannot be realized temporarily.

Another feasible method of freezing is to isolate the return party from disposing of the virtual currency, that is, judicial control of the private key. This specific measure of enforcement has not been found in publicly available judgments, but it exists in practice. We know that private keys can be stored in “hot wallets” and “cold wallets”. People’s courts can seize relevant cold wallets in civil enforcement (such as computers, hard drives, and other storage devices). In the case where the return party refuses to disclose the specific storage medium of the cold wallet, in principle, an application for a search order can be made to the people’s court to conduct a hidden search of the executed person’s residence or property. However, in general, private key mnemonics and the storage of cold wallets are more confidential, and the probability of court approval of investigation orders is also extremely low. In this case, it can only be deterred by further informing the executed person of the serious legal consequences of refusing to execute the ruling, and making them hand over the cold wallet or private key.

2. The executed person is unable to return the virtual currency, and there is no property available for execution. The court rules to return the virtual currency at a discounted price.

When the virtual currency has unfortunately been transferred to unknown hands, the court cannot investigate the relevant virtual currency, or the applicant for enforcement cannot provide property clues. The latest judicial attitude of domestic first-tier city courts towards virtual currency transactions is consistent with the trend of policies. The strict supervision of virtual currency by the courts has led to a tendency for the courts to judge that the risks of buying and selling virtual currency are borne by the parties.

Therefore, when the original virtual currency cannot be repaid, the party to be repaid cannot claim to purchase an equivalent virtual currency at the current market price for repayment, but needs to negotiate the price for repayment, that is, subjective pricing. Although the market price of virtual currency changes rapidly, if it is allowed to purchase virtual currency separately or exchange it for RMB at the current value for repayment, then the court will become an invisible channel for trading virtual currency.

Typical cases: Lu Bin and Lu Hao’s other contract dispute enforcement ruling (2022) Shanghai 0104 Execution 3999; Yang Nannan, Yu Weihu, and other contract dispute enforcement objection execution ruling (2021) Guangdong 0304 Execution Objection 1212. The enforcement ruling states that although the court attempted to freeze the virtual currency of the executed person, the virtual currency cannot be realized temporarily.

In the case of Lu Bin and Lu Hao’s other contract dispute, the plaintiff lent 60 Bitcoins to the defendant, and the two parties signed a note to confirm the loan relationship. The court determined that the defendant did indeed control the plaintiff’s account and made transactions. In September 2021, the court ruled that the defendant should return the 60 Bitcoins. If unable to return, the defendant should return RMB 4,830,000 at a discounted rate, which is significantly lower than the exchange rate on the date of the judgment.

3. The debtor is unable to repay the virtual currency and there is no property available for execution. The court has ruled to terminate this execution procedure.

Typical cases include: Chen Yao and Zhu Yao entrusted wealth management contract dispute execution ruling (2022) Hu0104Zhi5449; Gong Zhizheng and Sun Liujun possessive return dispute execution ruling (2021) Zhe0782Zhi6272.

Overall, there are quite a few cases where the court rules to terminate the execution, mainly based on the reason that “the virtual currency involved in the case is not managed or operated by any specific company in China,” and it is determined that “there is no property available for execution.”

4. Issue a restriction on consumption order and include the debtor in the list of dishonesty subjects in accordance with the law.

In the case where the debtor refuses to deliver the virtual currency, the court will generally consider taking measures such as restricting high consumption, listing in the dishonesty list, or imposing other relevant penalties based on the specific circumstances.

Typical cases include: Tang Jinfu and Zhu Peimin private lending dispute execution ruling (2023) Hu0112Zhi1043; Chen Jingliang, Feng Qiaohong, and others loan contract dispute execution implementation execution ruling (2022) Zhe0702Zhi2906, among others.

03. How should virtual currency be executed?

A case involving the execution of virtual currency released by the Shanghai High People’s Court on May 5, 2022 (Cheng Hong vs. Shi Yulian other ownership dispute first instance civil judgment (2020) Hu0113Minchu23704) is highly compatible with the court’s thinking in the “Financial Trial Summary” regarding the execution of virtual currency under Article 87. In our opinion, it can serve as a reference case for the execution of cases involving virtual currency.

The defendant Shi borrowed a bitcoin from the plaintiff Cheng on the grounds of investment needs, and agreed to repay it at any time. The plaintiff transferred a bitcoin, purchased on Huobi, to the defendant’s receiving address. On October 10, 2020, the plaintiff Cheng filed a lawsuit with the Baoshan District People’s Court of Shanghai, demanding that the defendant Shi return a bitcoin. After trial, the court rendered a civil judgment on February 23, 2021: the defendant Shi shall return one bitcoin to the plaintiff Cheng within ten days from the effective date of this judgment.

After the judgment became effective, the judgment creditor Cheng applied for execution to the court on May 7, 2021, requesting the judgment debtor Shi to return one bitcoin. The court accepted the application and issued an execution notice to the judgment debtor on May 8, 2021, ordering him to fulfill the obligations of the judgment and declare his property, but the judgment debtor failed to comply.

On May 8, 2021, the executing court conducted a search on the property of the judgment debtor through the National Court Network Execution and Control System (hereinafter referred to as the “network control system”), but failed to find any bitcoin owned by the judgment debtor. Subsequently, the executing court planned to issue an execution ruling and a notice of assistance in execution to the bitcoin trading platform where the judgment debtor intended to open an account, requesting the platform’s assistance in execution. The executing court did not find a valid address and contact information for the platform within China. It was also found that all the bitcoin owned by the judgment debtor had been transferred to a third party, and the whereabouts of the third party were unknown. The judgment debtor reported the case to the public security authorities and the case was registered for investigation on August 27, 2020.

The executing court informed the applicant of the situation. At the same time, both parties expressed their willingness to negotiate. In view of the parties’ intention to settle, the Baoshan District People’s Court of Shanghai organized the parties to carry out execution and reached a consensus on May 27, 2021:

1. The applicant no longer requests the respondent to return one bitcoin.

2. After consultation, the parties agreed that the respondent shall compensate the applicant at the purchase price of RMB 84,000 when it was borrowed from the applicant.

3. If the respondent fails to perform, the applicant may claim separate rights.

The overall idea is shown in the following figure.

04 Conclusion

In the absence of clear legal attributes of virtual currency, the execution of virtual currency is also full of difficulties. Factors such as the negative attitude of the judiciary due to tightening regulatory policies and the complexity of tracking technology have made it difficult to recover virtual currency. The final result is often “the court decides to terminate the execution procedure due to difficulties in property execution”. In the case of virtual currency fraud, it usually involves multiple jurisdictions, not to mention the complexity of cross-border coordination and cooperation. From a technical perspective alone, it is even more difficult to execute the return of virtual currency.

Therefore, when trading virtual currency in China, it is necessary to carefully evaluate the trading risks of virtual currency and form certain expectations for the recovery of virtual currency, and take preventive measures in advance.

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