Author: Mankun Blockchain
In recent years, virtual currencies have gradually transformed from a novelty that ordinary people had seldom heard of into a 'means to wealth' that everyone occasionally hears about. As a result, many people, with only a superficial understanding of virtual currencies, have, under the recommendation of friends or investment institutions around them, purchased virtual currencies in the hope of becoming rich.
However, the market has risks, and investment must be cautious. The risks in the virtual currency market are greater than those in ordinary financial markets. Besides the market value fluctuations of the products themselves, there are also new risks such as trading platforms going bankrupt and hackers stealing coins. Under such circumstances, ordinary people investing in virtual currencies can easily lose all their funds and encounter disputes with introducers. So, can the lost investment funds be recovered? Today, we focus on this question and study it through representative cases from courts across Zhejiang.
If I entrust a friend to operate and invest in virtual currency, can my friend compensate for the loss of principal?
Case One: (2023) Zhe 0481 Civil First Instance 3094
Xing and Shen are friends. Shen informed Xing that investing in virtual currencies can yield guaranteed profits. Based on the trust between friends, Xing handed over 10,000 yuan to Shen for investment operations, from which Xing expected to gain profits. Later, due to operational errors by Shen, Xing lost all of the 10,000 yuan principal. Shen admitted that there were issues with his operations and was willing to compensate Xing for 70% of the investment, but he has yet to fulfill this promise. Xing has filed a lawsuit demanding that Shen return 7,000 yuan of his investment.
During the trial, Xing submitted WeChat chat records as evidence, in which Shen told Xing: "After losing a trade due to strategy, I opened a trade myself with the remaining money and held onto it, resulting in a liquidation. About 70% of the money was lost because of me, let me see how to compensate you."
Case Analysis:
In the eyes of ordinary people without professional legal knowledge, the facts of this case are clear: it was Shen's persuasion that led Xing to believe that investing in virtual currencies would yield guaranteed profits. After suffering losses, Shen acknowledged that 70% of the losses were due to his operational errors and promised to provide compensation. Xing's current lawsuit is merely to reclaim the compensation that Shen has failed to provide, and the court should support Xing's claim. However, the court's judgment was not as such; the court dismissed Xing's litigation request.
The court believes:
On September 4, 2017, the People's Bank of China and other departments issued an announcement (regarding the prevention of risks in token issuance financing), reminding investors to bear investment risks themselves. The investment project involved is similar to Bitcoin's network virtual currency. According to notifications and announcements issued by the People's Bank of China and other departments, virtual currencies are not issued by monetary authorities, do not possess legal compensation and compulsion attributes, and are not truly considered currency in a real sense. In nature, the virtual currency involved is actually a specific virtual commodity sold and circulated by virtual currency platforms, which does not have the same legal status as currency and cannot and should not be circulated as currency in the market. Although citizens' investment and trading in such illegal items is their personal freedom, they are not protected by law. In this case, the plaintiff entrusted the funds to the defendant for investment and financial management in virtual currencies, and these behaviors are not protected by law in our country; the consequences of these actions should be borne by the plaintiff.
The court ultimately ruled:
The court dismissed all of Xing's litigation requests.
Lawyer Mankun's Analysis:
In short, after the announcement on September 4, 2017 (regarding the prevention of risks in token issuance financing), the buying and selling of virtual currencies as an investment behavior is illegal in our country. Although it is not a crime, it is not protected by law. If one suffers a loss of principal due to entrusting investment in virtual currencies, and requests compensation from the entrusted person, even if the entrusted person promises to ensure the principal, they cannot gain support from the court.
So, does it mean that as long as virtual currency is bought, any losses can only be accepted, and there is no way to seek legal remedy?
If I entrust someone to purchase virtual currencies, but they do not purchase the full amount, can I request a refund?
Case Two: (2019) Zhe 0726 Civil First Instance 2357
Ying met Zhu through an introduction and learned that Zhu was engaged in virtual currency trading. On April 26, 2018, Ying handed 13,000 yuan in cash to Zhu, asking Zhu to help purchase 10,000 IBOT coins at a price of 1.3 yuan each on the Caesar website. Later, Zhu credited Ying with over 9,000 IBOT coins. The Caesar website for purchasing IBOT coins has now been closed. Unable to retrieve the principal, Ying sued Zhu for the return of the 13,000 yuan principal.
Case Analysis:
At first glance, this case is extremely similar to Case One, where it also involves citizens entrusting investment in virtual currencies and losing the principal for various reasons, suing to demand compensation from the entrusted person. Logically, the court should also dismiss all of Ying's litigation requests. However, careful readers should notice the difference: Ying entrusted Zhu to purchase 10,000 IBOT coins, but Zhu only purchased over 9,000 IBOT coins.
The court believes:
Illegal debts are not protected by law. According to notifications and announcements issued by the People's Bank of China and other departments, the virtual currencies purchased by the plaintiff and entrusted to the defendant are not issued by monetary authorities, do not have legal tender attributes such as legal compensation and compulsion, and are not truly considered currency in the real sense. In nature, virtual currencies like Bitcoin are a type of specific virtual commodity, which does not have the same legal status as currency and cannot and should not be circulated as currency in the market. Although citizens' investment and trading in virtual currencies are personal freedoms, they are not protected by law.
In this case, the plaintiff entrusted the defendant with the amount of 13,000 yuan to purchase 10,000 IBOT coins at a price of 1.3 yuan each. The defendant was supposed to deliver 10,000 IBOT coins to the plaintiff as agreed. According to the statements of the plaintiff and other parties, the defendant only credited the plaintiff with over 9,000 IBOT coins. Since the defendant failed to provide evidence confirming that they had purchased 10,000 IBOT coins for the plaintiff, the adverse consequences should be borne by the defendant. Although the risks arising from investing in virtual currencies are not protected by law, the defendant has not provided evidence confirming that the funds obtained from the plaintiff were all used for investing in virtual currencies. Therefore, regarding the natural debt formed by the 1,300 yuan received without completing the entrusted matter, the plaintiff has the right to request termination of the performance, and the defendant should return the corresponding unjust benefits and pay interest for the use of the funds.
The court ultimately ruled:
The judgment requires Zhu to return 1300 yuan to Ying, and dismisses Ying's other litigation requests.
Lawyer Mankun's Analysis:
The behavior of investing in virtual currencies is not protected by law, but judicial practice in our country recognizes the virtual commodity nature of virtual currencies. Legal relationships derived from their commodity attributes are protected in judicial practice. This explanation may still be too abstract; let's use in-game equipment, which is also a virtual commodity, as an example. Readers can liken virtual currencies to in-game equipment. When buying and selling in-game equipment, if the buyer pays but the seller does not deliver, the buyer can naturally sue the seller in court to demand a refund or delivery. However, if the buyer purchases in-game equipment and the seller delivers as agreed, but two days later the version updates and the equipment's value crashes, if the buyer sues the seller to return part of the purchase price, the court will not support it. Of course, virtual currencies are still different from in-game equipment, and the current judicial regulations on virtual currencies are still in exploration; this analogy is only for ease of understanding and should not be taken to mean that they are equivalent.
Additionally, apart from the above situation, lawyer Mankun also discovered an exceptional case.
If I entrust someone else to purchase virtual currencies and incur losses, can I really not get any compensation?
Case Three: (2022) Zhe 0182 Civil First Instance 2506
On July 30, 2019, Ye met Jin through a friend's introduction. Subsequently, Jin lured Ye into investing by promising returns from promoting the digital currency VRT, claiming that the platform coin VRT generated from investments in VRBank could be exchanged for mainstream digital currencies like Bitcoin and USDT and could be liquidated on exchanges. With Jin's help, Ye registered a VRBank account and purchased a total of 669,390 yuan worth of digital currency VRT. By the end of December 2019, Ye could no longer log in to the VRBank account registered by Jin via the mobile app, so he requested a refund from Jin. When Jin refused to refund, Ye filed a lawsuit demanding Jin return 669,390 yuan.
Case Analysis:
The facts of this case are almost completely consistent with Case One. The losses caused by currency price fluctuations and platform bankruptcies have no legal distinction, and the defendant has not even promised stable profits or compensation for losses, yet the final judgment results are vastly different.
The court believes:
Network virtual currencies are not issued by monetary authorities, do not possess legal compensation and compulsion attributes, and do not have the same legal status as legal tender. They also cannot achieve circulation functions through cashing out into legal tender. Accordingly, the buying and selling of virtual currencies between the plaintiff and defendant is essentially an unauthorized illegal financing behavior that seriously disrupts the economic and financial order, and should be declared null and void. The defendant was aware or should have been aware that network virtual currencies should not be bought or sold, yet still recommended relevant information to the plaintiff and assisted in the purchase. Meanwhile, the plaintiff, knowing or should have known that network virtual currencies should not be bought or sold, voluntarily registered a VRBank account and repeatedly transferred money to the defendant requesting the purchase of corresponding virtual currencies. Both parties bear fault in this transaction and should bear corresponding responsibilities; this court determines that the defendant shall bear 50% of the responsibility.
The court ultimately ruled:
The judgment requires Jin to return 334,695 yuan to Ye and dismisses Ye's other litigation requests.
Lawyer Mankun's Analysis:
Since our country is not a common law country like Europe and the United States, and in order to balance legal principles and emotions, judges have considerable discretion. In this case, it can be seen that the judge fully exercised their discretion. I speculate that it may be due to the large amount of money involved in this case, leading the judge to rule that the defendant should also bear 50% of the responsibility based on the principle of fairness.
Lawyer Mankun's Summary
From the above case, we can see that, in principle, after the announcement in September 2017 (regarding the prevention of risks in token issuance financing), the buying and selling of virtual currencies as an investment behavior is not illegal in our country, but it is also not protected by law. If one entrusts others to invest in virtual currencies, the losses incurred from that investment cannot be protected by law. This principle was further emphasized in the notification jointly issued by multiple ministries in September 2021 (regarding further prevention and handling of risks from virtual currency trading speculation). Investment in virtual currencies and related derivatives that violate public order and good morals is invalid, and the losses arising from this shall be borne by the investor themselves.
However, our country recognizes the value of virtual currencies as virtual goods in judicial practice. Other legal relationships arising from their commodity attributes, such as buying, selling, and lending, may be recognized and protected. Ultimately, even if there is indeed an investment loss, although the possibility is low, there is still a chance to obtain certain compensation based on the judge's discretion.
