The rise of blockchain technology and digital assets has introduced complex legal challenges, particularly in the area of virtual currency disputes. As these decentralized assets gain traction globally, courts and legal practitioners are faced with novel questions about jurisdiction, property rights, and enforceability. This article explores the legal landscape surrounding virtual currency litigation, drawing insights from a recent case involving the return of Bitcoin. We examine how traditional legal principles apply to digital assets, analyze prevailing judicial attitudes in China, and offer strategic guidance for resolving such disputes.
Understanding the Legal Nature of Virtual Currencies
Virtual currencies, such as Bitcoin, are digital representations of value that operate independently of central banks. According to the European Central Bank, they are unregulated digital money typically issued and controlled by developers and accepted within specific virtual communities. Key characteristics include decentralization, pseudonymity, traceability, immutability, and capped supply.
In China, while no comprehensive legislation governs virtual currencies, several regulatory documents shape their legal treatment:
- 2013 "Notice on Preventing Bitcoin Risks" – Clarifies that Bitcoin is not legal tender and lacks sovereign backing.
- 2017 "Announcement on Preventing Risks of Token Issuance Financing" – Prohibits initial coin offerings (ICOs) and bans financial institutions from facilitating crypto transactions.
- 2018 Joint Risk Alert – Warns against fraudulent schemes using blockchain and virtual currency as cover.
Despite these restrictions, virtual currencies are not outright illegal. The 2013 Notice explicitly recognizes them as virtual commodities, which implies they can be treated as protected property under civil law.
Under Article 127 of China’s Civil Code, network-based virtual property is entitled to legal protection. For an asset to qualify, it must possess value, scarcity, and controllability—all of which Bitcoin satisfies. However, due to the principle of legality of property rights (wujiaofa), virtual currencies do not currently constitute "objects" under Chinese property law unless formally recognized by statute.
Judicial Trends in Virtual Currency Disputes
Chinese courts have developed nuanced approaches to virtual currency cases, often distinguishing between activities that violate public policy and private civil arrangements.
1. Virtual Currency Transfer Disputes
Transactions between individuals involving direct transfer or sale of cryptocurrencies often face skepticism. In Tan v. Qin (2019 Hainan Court), the court ruled that π Coin transactions were invalid due to the underlying asset’s illegitimacy. While the first instance ordered mutual restitution, the appellate court corrected this by stating: “Although individuals may freely engage in virtual currency trading, such activities are not legally protected, and risks lie solely with the participants.”
A landmark case emerged in Shenzhen Intermediate Court (2018) Case No. 719, where an arbitration award requiring compensation in USD equivalent to Bitcoin was overturned. The court held that converting crypto value into fiat currency violates public interest, as it effectively facilitates prohibited exchange between virtual and legal tender—contrary to the spirit of the 2013 and 2017 regulatory notices.
This precedent underscores a critical distinction: holding or transferring crypto as property may be acceptable; monetizing it through fiat conversion is not.
2. Unjust Enrichment and Return Claims
Courts show greater willingness to enforce return claims when one party gains cryptocurrency without legal basis.
In Li v. Beijing Putao Technology Co., Ltd. (2018 Beijing Court), the defendant mistakenly credited five extra Bitcoins to the plaintiff’s account. The court rejected the argument that operating a crypto platform was illegal per se, affirming: “The lack of lawful basis for obtaining benefits triggers restitution obligations regardless of the nature of the asset.”
This ruling reinforces that virtual currencies can function as compensable property in unjust enrichment claims, aligning them with traditional civil remedies.
3. Investment and Entrustment Disputes
Disputes arising from entrusted crypto investments reveal judicial caution.
In Shi v. Fu (2019 Tianjin Court), a contract for managing CVB (a Bitcoin-like token) was deemed invalid because the subject matter involved illegal financial activity. Similarly, in Chen v. Chen (2018 Fujian Court), the entrustment agreement was invalidated, leading to return of unutilized funds.
However, some courts adopt a more pragmatic approach. In Huang v. Guo, partial performance was acknowledged: completed investment actions were considered binding on the principal, while unexecuted portions required fund return. This reflects a proportionate liability model, balancing risk allocation without outright invalidating private agreements.
Key Legal Principles and Strategic Considerations
Resolving virtual currency disputes requires careful navigation of both technical and legal dimensions:
- Characterization Matters: Framing Bitcoin as a commodity rather than currency increases chances of judicial protection.
- Avoid Fiat Conversion: Seeking monetary compensation tied to crypto value risks being seen as circumventing regulatory bans.
- Focus on Property Rights: Emphasize ownership, control, and unjust enrichment rather than monetary equivalence.
- Jurisdictional Clarity: Given cross-border nature of blockchain projects, parties should consider arbitration clauses with neutral venues.
Frequently Asked Questions
Q: Can I sue someone to get back my lost or stolen Bitcoin in China?
A: Yes, if you can prove ownership and the other party received it without legal justification. Courts may recognize your claim under unjust enrichment principles, provided no fiat conversion is sought.
Q: Are all crypto-related contracts void under Chinese law?
A: Not necessarily. Contracts violating mandatory regulations (e.g., ICOs, exchanges) are invalid. However, private agreements treating crypto as property may still be enforceable if they don’t trigger systemic financial risks.
Q: Can I enforce foreign judgments or arbitration awards involving cryptocurrency in China?
A: Enforcement depends on content. Awards demanding fiat equivalents of crypto are likely rejected as violating public policy. Pure return-of-asset orders may have better prospects.
Q: Is holding Bitcoin illegal in China?
A: No. While financial institutions are barred from handling crypto, individuals may hold Bitcoin as a virtual commodity under personal risk.
Q: How does Chinese law compare to other jurisdictions on crypto recognition?
A: Unlike Japan or Singapore, which regulate crypto exchanges and treat tokens as legal payment instruments, China takes a restrictive stance focused on financial stability and anti-money laundering.
Toward a Forward-Looking Legal Framework
While current jurisprudence remains cautious, the trajectory points toward greater recognition of digital assets. The People's Bank of China’s ongoing digital yuan pilot demonstrates institutional openness to innovation—albeit within controlled environments.
To keep pace with technological change, lawmakers should consider:
- Establishing clear classification systems for digital assets
- Defining ownership, transferability, and inheritance rules
- Harmonizing civil remedies with financial regulations
- Adopting tiered regulatory models based on use cases
As blockchain reshapes data governance and economic interaction, legal systems must evolve from mere regulation to adaptive governance—fostering innovation while safeguarding public trust.
The future of law lies not in resisting technological progress but in shaping it responsibly. By embracing flexible interpretations and forward-thinking policies, China can position itself at the forefront of blockchain-enabled legal reform.