Under Chinese law, crypto currencies now have ‘property attributes’ declared by the Shanghai High Court, making it virtual commodities. Last year it reiterated the nation’s ban on the use of crypto for commercial purposes which include token issuance and speculative trading, the ruling said.
The dispute was between a company X the Agricultural Development firm that was suing an investment management firm Company S for a failed token launch. The Songjiang District People’s Court case, adjudicated, shows the thorniness of acknowledging crypto as property while holding back crypto’s financial use.
Crypto Dispute Highlights Risks of Business in China
It began in 2017, during a spectacular boom in cryptocurrency. In March, Company X said it paid 300,000 yuan ($41,000) under an ‘Blockchain Incubation Agreement’ to prepare a white paper and issue its tokens to Company S.
But by 2018, the tokens had not been issued, and Company S says they had incurred additional app development costs for which the contract did not cover. Then, Company X brought a lawsuit against the estimated smart contract to void the agreement and reclaim its payment.
The contract was ruled illegal by the court because of China’s ban on token issuance as an illegal financial activity equivalent to unlicensed fundraising. Fault was assigned to both firms, but Company S was asked to refund 250,000 yuan in the fee.
While cryptocurrencies are legal to keep as personal assets, the court was quick to note that businesses cannot engage in them. This mirroring China’s bigger aim to stop financial instability and related virtual currency crimes of fraud and cash laundering.
The ruling warns those seeking to engage in crypto related business in China, as such contracts can be deemed null and void with few legal options. It also serves as a cautionary tale to entities that seek to navigate the crypto regulations under China’s strict finance laws and fail to do so, that the presiding judge stressed should be adhered to, otherwise, they will end up having outcomes similar to the case.
