Author: Lawyer Mei Mei
In recent years, from the myth of wealth in the cryptocurrency world to project teams running away, the fervor of the Web3 world has left Chinese investors with a significant legal void due to the rise and fall of virtual currencies.
Platforms have run away, exchanges have frozen withdrawals;
Funds entrusted for trading have vanished;
Friends borrowed coins and refuse to return them.
Investing in the cryptocurrency world is inherently a high-risk, high-reward game, but when one steps on a landmine and loses everything, many will wonder: can legal rights be protected? Unfortunately, when you try to recover losses through legal means, you will quickly hit a wall of Chinese-style legal barriers: Chinese courts typically make negative evaluations of civil actions related to virtual currency transactions. The vast majority of civil lawsuits based on investment losses are futile. Note that the vast majority, so you must be concerned about how to become one of the few lucky ones.
To be honest, among the cases handled by Lawyer Mei Mei's team, there are both wins and losses. In practice, all actions to recover losses must confront a core legal fact: China's classification of virtual currencies.
Why is your contract deemed "invalid" by the court?
After researching cases, I found that in 90% of the cases ruled invalid, judges cited the core basis during the reasoning phase, which is the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" (referred to as the "924 Notice") issued by the People's Bank of China and ten other departments in 2021. The core clause states: "Any legal person, unincorporated organization, or individual investing in virtual currencies and related derivatives that violates public order and good morals shall have their related civil legal actions deemed invalid, and any resulting losses shall be borne by themselves." This statement directly blocks the civil litigation path for the vast majority of investors.
The premise of invalidity is "violating public order and good morals." Do all civil transactions involving virtual currencies violate public order and good morals? Clearly not!
According to Article 17 of the "Interpretation of Several Issues Concerning the Application of the Contract Section of the Civil Code of the People's Republic of China" by the Supreme People's Court, when determining whether a contract violates public order and good morals, the people's court should be guided by the core socialist values, comprehensively consider the subjective motives and transaction purposes of the parties, the intensity of government regulation, the frequency of similar transactions by the parties within a certain period, the social consequences of the behavior, and provide sufficient reasoning in the judgment document. It also clearly states exceptions: If the parties indeed conduct transactions out of necessity for living, do not cause significant impact on social public order, do not affect national security, and do not violate good morals, the people's court should not deem the contract invalid. This provision plays an important guiding role in adjudicating scenarios related to virtual currency transactions.
Lawyer Mei Mei's in-depth interpretation: What are the exceptions to "public order and good morals"?
Transactions involving virtual currencies are often deemed to violate public order and good morals by the courts due to their disruption of financial management order and national macro policies. However, for those transactions that do not significantly impact the interests of third parties, financial order, public interest, or social stability, they should not be deemed invalid as they do not "violate public order and good morals."
The "Three Gates" of Civil Recovery
In practice, we usually categorize civil disputes involving cryptocurrencies into three common types. Under the current policies and judicial environment, the first two are almost "dead ends" for recovery:
Since civil litigation offers almost no solution for "investment losses" and "entrusted wealth management," we must find a "breakthrough" that can change the legal classification. Based on practical experience, we have summarized the possible exceptional circumstances that may allow for the recovery of property or compensation for losses as follows:
Lawyer Mei Mei's Guide to Recovery Actions
If you unfortunately "hit zero" and wish to recover your losses, please be sure to follow these steps to increase your chances of becoming one of the few "lucky ones":
Evidence First: During the transaction process, be sure to retain the following evidence: fund transfer records, chat records, and all materials proving the purpose and process of the transaction. Before both parties have "torn their faces," have the other party sign a repayment commitment to turn the virtual currency dispute into a "debt."
Do not fight an unprepared battle; avoid wasting litigation opportunities: Remember, in a state of panic, do not hastily submit a lawsuit that is certain to be rejected.
Consult a professional Web3 lawyer: Have a professional conduct a legal classification assessment of the entire case to determine if there are any of the aforementioned "breakthroughs."
The law does not protect those who sleep on their rights!
What type of experience do you have in the cryptocurrency world? Have you found your "breakthrough"?
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