Case Analysis: BTC mining machine was stolen, does Chinese law provide protection?

Author: Xiao Sa Legal Team

Mining machines are computers used to produce Bitcoins. Most of them use graphics cards to input computing power and work, which consumes a lot of electricity. Due to this feature, Sichuan, Xinjiang and other regions in my country with relatively cheap electricity have become the first choice for domestic and foreign main mining machine hosting. However, due to many factors such as the long distance of the depositor and the ambiguity of the qualitative definition of virtual currency, the theft and loss of mining machines have occurred frequently in recent years. How to achieve relief through domestic laws has become the focus of attention in the mining circle.

Today, the Sister Sa team hopes to use a public case to explain the civil remedies for the loss of mining machines, summarize their experience and make appropriate expansion analysis, and remind you of the legal points when hosting mining machines.

Basic facts

The plaintiff Chen purchased 520 bitcoin mining machines from a Shenzhen company outside the case, spending a total of RMB 2,117,000. In order to ensure that the mining machines could operate normally to mine bitcoins, the plaintiff Chen contacted the defendant company to discuss hosting services.

The two parties signed the Mining Machine Service Contract in 2018, with the following main provisions: "1. Party A (the plaintiff Chen) places the mining machine it owns in the operating environment of Party B (the defendant), and Party B provides custody and storage services for Party A's mining machine. The mining machine custody location is located in Shihezi, Xinjiang, with a quantity of 500 units; 2. Party A entrusts Party B to custody for 24 months; 3. Party B provides Party A's mining machine with operating space, power supply, power equipment, broadband network, security monitoring, etc. services; 4. Party B shall ensure the safety of Party A's mining machine during the custody period, and ensure that it is not lost or damaged. If Party A's mining machine is lost, damaged by human factors, or searched by the regulatory authorities, Party B shall bear the corresponding responsibility and compensate Party A for its losses; 5. Party B's account name: ... 6. Electricity fee: Party A custody The equipment only needs to pay the electricity fee of 0.36 yuan per kWh. Each mining machine consumes 35 kWh of electricity per day. In addition, each mining machine has a management fee of 30 yuan per month. Party A's mining machine will be used after paying the fee for the first time after entering the mine. Party A pays the electricity fee as agreed and pays the electricity fee in advance before the 15th of each month. 7. Custody service fee: Party B promises to provide Party A with free custody service, but Party B is not exempted from the custody obligations agreed in this contract. If Party B fails to perform the custody obligations as agreed in the contract, Party A may require Party B to bear the corresponding responsibilities. 8. If Party A terminates the entrustment during the custody period, it shall notify Party B 15 days in advance, and the electricity deposit shall be compensated to Party B as the vacant mining machine fee. After all fees are settled, Party A does not constitute a breach of contract with Party B. "The contract also stipulates other rights and obligations of both parties.

From August 2018 to January 2019, the plaintiff Chen paid a total of 1,130,969.5 yuan in electricity bills and management fees to the defendant company.

In February 2019, the plaintiff Chen was unable to contact the defendant's person in charge, so he asked someone to conduct an on-site inspection of the mining machines and found that the mining machines had been moved. In March of the same year, the plaintiff wanted to take back the mining machines. In order to assist the plaintiff Chen in taking back the mining machines, the defendant company issued a "Certificate" to the plaintiff. The main content is as follows: "The company has entrusted Chen's 520 mining machines to a certain place in Xinjiang for operation. Now Chen needs to take back the above mining machines and prove that the 520 Bitcoin mining machines in the mine are Chen's own products."

Now the mining machines owned by the plaintiff Chen are missing. In order to protect his own rights and interests, the plaintiff sued the court, demanding that the defendant company compensate the plaintiff for the losses, with the amount of compensation being equal to the purchase price of the mining machines , and requiring the defendant's shareholders to bear joint and several liability for this .

Controversy

The main points of dispute in this case are as follows:

1. What is the validity of the contract involved in the case?

2. Whether the defendant shareholders should bear joint and several liability for the company’s debts.

Verdict

In the Civil Judgment No. (2019) E0111 Minchu 3929 , the Hongshan District People's Court of Wuhan City supported all the plaintiff's claims .

Judgment Analysis

Sajie’s team believes that the typical significance of this case lies in vindicating the behavior of hosting mining machines for mining , recognizing the legal effect of mining machine hosting contracts , providing judgment ideas for similar cases, and providing a remedy for the industry.

Specifically, because Bitcoin is a virtual item generated in the Internet environment after the development of Internet technology, its default function is: a digital currency circulated globally. The physical form of Bitcoin is: a string of complex digital codes, and the subject matter of the custody contract in the case, the Bitcoin mining machine, is a machine equipment specially used for calculating and generating Bitcoin. Although the Bitcoin mining machine is an emerging product, the laws and administrative regulations of my country do not prohibit the sale or custody of Bitcoin mining machines.

The "Notice" jointly issued by the People's Bank of China and five other ministries on December 5, 2013 only prohibits the circulation of Bitcoin as currency in the market , and clearly defines Bitcoin as a virtual commodity and advocates rational investment by the public; the "Announcement" jointly issued by the People's Bank of China and seven other ministries on September 4, 2017 also only further prohibits the circulation and use of Bitcoin as a virtual currency in the market, and does not restrict the production, holding and legal circulation of Bitcoin or Bitcoin mining machines as commodities , and Bitcoin mining machines themselves have property attributes .

Based on this, the "Mining Machine Service Contract" signed by the plaintiff and the defendant is the true intention of both parties , and the contract is established in accordance with the law. The plaintiff has the right to claim the rights stipulated in the contract and require the defendant company to compensate for the losses.

As to whether the defendant shareholders should bear joint and several liability for the company's debts, according to the relevant provisions of the judicial interpretation of the Company Law, it depends on whether their subscribed registered capital has been actually paid. In this case, the plaintiff was able to provide the details of the defendant's bank account, thereby proving that the defendant shareholders had not actually paid their capital contributions. The court ruled that the defendant shareholders should bear liability based on this, which was not wrong.

Extension and expansion

Since the use of computing power causes great loss to the mining machine, generally speaking, the service life of the mining machine is very short . Therefore, when the entrusted mining machine is stolen, the depositor usually does not demand the return of the original object , but hopes that the custodian will compensate for the purchase loss of the mining machine . The plaintiff in this case adopted this litigation idea.

In addition to this case, it is worth mentioning that when the mining machine is lost, the actual owner of the mining machine usually transfers the mining income to his own wallet. If there is any evidence, the Sajie team believes that the depositor can claim for the return of this part of the income , and the return target is the Bitcoin produced by the mining machine during the period or the legal currency of equivalent value .

Legal advice

Combining the case handling experience of the SAJI team and the judgment tendency of this case, we summarize several legal suggestions for hosting mining machines for your reference:

1. Since the mining machine custody agreement has been recognized as a legal and valid contract in judicial practice, the Sister Sa team recommends that friends who wish to purchase mining machines and entrust them to domestic mining farms sign a complete custody contract with the entrusted party (it is better to sign a contract directly with the mining farm ) to stipulate the rights and obligations of both parties;

2. Considering that part of the payment of the entrustment fee is not a prerequisite for the completion of the entrusted matters, and the trustee’s duty of care is relatively low, we recommend that you try not to sign an entrustment contract ;

3. Keep the contract, payment voucher, invoice and other objective evidence that can reflect the "loss" of the mining machine, and use it as the standard for claiming compensation for the loss of the mining machine;

4. Request the domestic identity information of the custodian to ensure that there is a clear target for accountability;

5. Record the number of each mining machine in advance and attach it to the contract . This will facilitate regular verification of the mining income of the managed mining machine and will also facilitate statistics and claiming of mining losses after the lost mining machine is recovered.

Final Thoughts

As mentioned in the above case, bringing a case to court for custody contract disputes is a more feasible civil legal remedy after the loss of a mining machine. In specific circumstances, it is also acceptable to file a criminal report for crimes such as embezzlement, fraud, and theft . It needs to be reiterated here that China only does not recognize the currency status of virtual currency and the legitimacy of related financing , but does not deny the validity of civil legal acts linked to virtual currency. Whether it is Bitcoin or mining machines, they are all legal property of citizens, and the law should and can protect them.