Chinese Court’s Verdict on $230k Rental Crypto Mining Fraud

The Changsha Intermediate People’s Court of Hunan Province, China, has recently released a series of typical cases involving environmental and resource trials, with one case concerning crypto “mining” garnering significant attention.

The case underscores the legal and environmental implications of cryptocurrency activities and serves as a stern warning to those involved in high-energy consumption projects that violate public order and good morals.

Case Background

According to reports, the dispute began when the plaintiff, Luo, entered into three “Server Equipment and Software System Purchasing Service Contracts” with a Hunan-based company on May 7, May 8, and May 18, 2021. According to the contracts, the defendant company was to provide Luo with five servers to mine crypto, for which Luo paid a total of 1.65 million yuan. The company also guaranteed that the “crypto mining” income generated would not fall below the average level across the network and assured that any fines resulting from technical issues would be covered by the company.

However, after receiving the full payment, Fan, the actual owner of the defendant company, failed to deliver the promised crypto mining server equipment and software systems, nor did Luo receive any of the investment returns that had been promised. Consequently, Luo sued the company, seeking to terminate the contract and claim compensation for the losses incurred.

The Verdict

The Tianxin District Court of Changsha City ruled that the contract between Luo and the defendant was invalid as it violated public order and good morals. It was found that the defendant company had spent 60,000 yuan to rent a cabinet from a third-party company, but had not fulfilled the primary obligations of the contract.

Since both parties were deemed at fault for the contract’s invalidity, the court ruled that each party should bear a loss of 30,000 yuan. The defendant company was ordered to return 1.62 million yuan to Luo, with the company owner, Fan, held jointly and severally liable for the payment obligations.

Luo’s other claims were dismissed. Dissatisfied with the ruling, the defendant appealed to the Changsha Intermediate Court, which upheld the original judgment in the second instance.

Legal and Environmental Implications

The Changsha Intermediate People’s Court emphasized that “crypto mining” activities involve using specialized equipment to generate cryptocurrency through computational processes. These activities have significant environmental impacts due to their high energy consumption and are considered to threaten national interests in areas such as environmental protection and financial security.

On September 15, 2021, several Chinese authorities, including the People’s Bank of China, the Central Cyberspace Affairs Commission, and the Supreme People’s Court, issued the “Notice on Further Preventing and Dealing with the Risks of Crypto Trading Speculation.” This notice highlighted that investments in virtual currencies and related derivatives by any legal or natural person violate public order and good morals, rendering the associated civil legal acts invalid. The notice also stipulated that any losses resulting from such investments should be borne by the investors themselves.

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