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Chinese Court Rules Bitcoin Mining Contract Invalid

Mon, 17 Jan 2022
Categories: China Legal Trends

On 15 Dec. 2021, the Chaoyang District People’s Court in Beijing (hereinafter “the Court”) heard a service contract dispute over delayed returns from bitcoin mining.

The Court declared the contract to be invalid and dismissed the plaintiff’s request demanding the payment of income derived from Bitcoin mining.

This marks the first time that bitcoin mining contracts being declared null in China.

“Mining” refers to the process that virtual currencies being issued not by monetary institutions, but through a large number of calculations based on specific algorithms, which is costly and energy-intensive. For example, mining a Bitcoin consumes 38,800 kWh of electricity.

The Court held that,

“1. both parties knew that the transaction involved was in fact mining activity of creating virtual currency through mining machines, which would consume a massive amount of energy and they were aware of the risk of false assets in the production and trading of virtual currency;

2. both parties made the mining contract under the acknowledgment that Chinese authorities had clearly banned Bitcoin-related transactions; the contract undermined social and public interests, and thus should be deemed void; and,

3. as a result, the interests and rights associated with the contract were not subject to legal protections.”

In August 2021, China has processed strict regulatory rules on Bitcoin, which resulted in related transactions being deemed illegal. For a detailed discussion, please read an earlier post “China Toughen Rules for Virtual Currency Supervision”.

 

 

Cover Photo by Ewan Kennedy on Unsplash

Contributors: CJO Staff Contributors Team

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