Beijing has never pretended to be a fan of virtual currencies. A stringent ban on mining activities and ICOs came into place in 2017, and the government has been hostile towards crypto since.
In a recently concluded case in Shanghai, the Fengxian District People’s courts reiterated their stand on the use of virtual currencies. A contract for the purchase of a car denominated in crypto was held invalid for the violation of mandatory legal and administrative thresholds set out for the usage of the currency. The courts held that cryptocurrencies do not carry the same legal status as government-approved currencies.
The dispute originated from an agreement to purchase a car by Huang in 2019. The car, an Audi A6, was priced at 409,000 Yuan, which was deemed to be equal to 1281 Yurimi, a virtual currency.
However, the company failed to deliver the car to the buyer after receiving the crypto, leading to the filing of the suit. The complainant demanded a refund of his payment, delivery of the said car, and a 0.66% daily interest that would accrue each day the car was not delivered.
The contract was however struck off since it had come into effect after the 2017 ICO ban, which expressly forbade the raising of any funds through crypto. The courts, therefore, had no interest in regulating or determining any matter arising from interactions with crypto, even in the interest of a consumer. The buyer was thus denied the car, damages, and a refund of his 1,281 tokens.
It further appears that the token used for payment was a suspicious one, since there have been no developments in its roadmap after funds were raised via a private investor sale in 2017. Reports had surfaced on Chinese social media platforms that it was a scam and that its whitepaper had grossly misrepresented its capacity and the company’s history of operations. The token has no social media accounts, website or development activity going on.
The buyer appealed to a higher court, but the verdict was the same, and the suit was thus dismissed.
Chinese courts have been consistent in their characterization of issues arising from digital currencies. China does not consider crypto as a legal alternative to cash, since it is not issued by a central authority. Users are thus unable to rely on a governmental intervention that is accorded to legally recognized tender. Last year, a suit whereby a party sought compensation from a blockchain firm after failing to make profits was summarily dismissed on the same counts.
A singular exception occurred in 2020, where Ethereum was used to settle a private loan dispute. In this case, the court held that virtual assets were transactional objects under Chinese law, and should therefore be protected.
Quite ironically, China has been at the forefront in championing CBDCs and is already quietly rolling out a pilot project among its major cities. China had already made major strides toward a cashless society, as its most popular social platforms, AliPay and WeChat had already integrated in-app payments linked to a user’s bank account. The crackdown on miners has benefited American miners, as on-chain analytics point towards uptake by mining pools based in the US.
Norman Gabula Commercial & Tech Lawyer | Crypto, Blockchain & Decentralized Finance and Consultant Sheria Online.