The Shenzhen Court of International Arbitration ruled this week that bitcoin should be legally protected as a property with economic value, even though China’s central bank has banned cryptocurrency trading.
Statement of Facts
In a case analysis published via WeChat, the court explained its ruling in a recent case involving a business contract relating to possession and transfer of cryptocurrency assets. According to the case analysis, the unnamed plaintiff claimed to have signed a contract agreement with the defendant, allowing the defendant to trade and manage a nearly USD $500,000 pool of cryptocurrencies (including ~20 bitcoin (₿), ~50 Bitcoin Cash (BCH), and ~13 Bitcoin Diamond (BCD)) on the plaintiff’s behalf. The plaintiff further claimed that the defendant subsequently refused to return the cryptocurrencies after an agreed upon deadline, and consequently the plaintiff brought the case to an arbitrator seeking the return of the assets with interest.
The case was brought before the Shenzhen Court of International Arbitration — one of the Arbitration Committees established in China after the country enacted a law in 1995 enabling city governments to form such entities to rule on economic disputes relating to contract issues in areas such as business, finance and real estate.
There is no specific law in China governing cryptocurrencies, thus the arbitrator’s analysis in this case offers invaluable insights into the judiciary’s stance on emerging financial technology.
In this case, one of the defendant’s primary arguments was that the active ban by the People’s Bank of China (PBoC) on cryptocurrency trading and initial coin offering (ICO) activity means that cryptocurrency payments and transactions should be illegal in China, and that accordingly the entire contract between the plaintiff and defendant should be declared invalid. The defendant further argued that because of the PBoC’s cryptocurrency trading ban, the defendant had no means with which to trade and send the cryptocurrency assets to the plaintiff.
The arbitrator disagreed with the defendant on both of these arguments, explaining the nature of the case is the contractual obligation for the defendant to return the cryptocurrencies to the plaintiff, which does not fall within the scope of cryptocurrency trading or initial coin offering as specified in the PBoC’s September 2017 cryptocurrency ban.
The arbitrator also noted that currently there is no law in China prohibiting the possession of bitcoin, nor bitcoin transactions between individuals, and that from a technical standpoint there should be no problem with sending bitcoin to an individual as long as that individual has a bitcoin address and private key.
The court concluded that whether bitcoin is a legal tender or not does not have an impact on the fact that bitcoin ownership should be protected legally based on China’s contract law. “Bitcoin has the nature of a property, which can be owned and controlled by parties, and is able to provide economic values and benefits.”