In daily work, Lawyer Mankun encounters many clients involved in disputes arising from virtual currency transactions: "A friend is having financial difficulties, so the client generously lends out tens of thousands of USDT. Several months pass, and there is no news; or they see others enjoying good investment returns and impulsively entrust someone else to invest, only to suffer heavy losses due to sudden market changes; there are also some novice investors who, not understanding the ways and tricks of the crypto world, directly enter the market, ultimately losing everything.

During consultations, we learned that many transactions occur while surfing the internet or during casual conversations with friends, so formal written contracts are rarely signed. Due to our country's policy reasons, contracts involving virtual currencies are highly likely to be deemed invalid. Some people might think, since the contract is invalid, why should I sign? This article will combine Mankun's past case experiences to discuss in detail virtual currency transactions and what role contracts can still play.

Will the court look at the contract?

First, let's look at two cases:

In case (2024) Hu 0117 Minchu 5661, in May 2021, the defendant Zhu promoted high returns from virtual currency investments to the plaintiff Peng, encouraging the plaintiff to invest. Under the defendant's guidance, the plaintiff transferred a total of 1,000,000 yuan to purchase virtual currency. The defendant then transferred these virtual currencies into a designated wallet for trading. However, five months later, the plaintiff learned that the invested virtual currency had suffered severe losses, nearly worth nothing. After multiple demands from the plaintiff, both parties signed an "Agreement" on December 5, 2021, which stated that the defendant acknowledged the 1,000,000 yuan as a loan and promised to repay it either through a mortgage or directly.

The court confirmed the mutual agreement on the loan based on the "Agreement" provided by the plaintiff, and since the plaintiff had actually paid the amount, the civil lending relationship between the two parties was also confirmed. The agreement specified the loan amount lent by the plaintiff, the repayment method, date, interest, alternative plans if the original plan could not be executed, and breach of contract responsibilities. Therefore, the plaintiff's rights were fully protected during the case hearing.

However, in case (2024) Lu 03 Minzhong 781, the plaintiff Zhao filed a lawsuit against the Zhangdian District People's Court in Zibo, accusing the defendant Wang of a dispute over a virtual currency entrusted investment contract between the two. Zhao requested Wang to return the entrusted investment funds and compensate for economic losses.

However, due to the lack of a written contract, the rights and obligations of both parties lacked clear written agreements. In this situation, the court could only rely on other evidence (such as WeChat chat records, transfer records, and call recordings) to determine whether there was an entrusted investment relationship, even doubting whether the two parties had reached a clear agreement. Therefore, when determining the contractual relationship between the two parties, the court was more inclined to believe that the contract had defects or was invalid.

Disputes over virtual currency transaction contracts can easily be hindered at the filing stage, as contracts serve as significant evidence to assist in filing. During substantive hearings, not all contracts are deemed invalid. A good contract can give you the initiative in court hearings.

Additionally, in criminal cases, if the contract specifies the true identities of both parties, the identity information matches the bank statements, and the purpose of buying and selling virtual currencies is legal, with clear responsibilities for subsequent frozen bank cards, then even if the civil part of the contract is invalid, it can still play a significant role in criminal cases.

Invalid contracts can still restore the essence of transactions

In case (2023) Gan 01 Minzhong 8416, the plaintiff Ma Ping filed a civil lending lawsuit based on transfer vouchers from financial institutions, while the defendant Ma Zhen argued that the transfer was due to an entrusted investment relationship between the two. However, the WeChat chat record screenshots submitted by Ma Zhen alone could not prove that there was an entrusted investment relationship between him and Ma Ping, so the court did not accept Ma Zhen's defense. In litigation practice, the boundary between lending contracts and entrusted investment contracts is not clear, and many parties do not even reach an agreement on the type of transaction represented by the transfer at that time. This is specifically reflected in one party believing it was a lending contract, later demanding repayment; while the other party believes it was an entrusted investment, bearing the risk themselves. The rights and obligations of both parties behind these two types of contracts are vastly different. In this case, if both parties had signed a written contract, it could have reduced many unnecessary disputes.

Recently, a case involving a currency dispute that Lawyer Mankun represented also showed a similar situation. The plaintiff entrusted the defendant to buy virtual currency, while the defendant argued that no written contract was signed, and no entrusted contract relationship was formed, merely a gratuitous assistance act.

This case went through first instance, second instance, and retrial procedures, always entangled in the essence of the transaction, incurring significant litigation costs. Imagine if both parties had clearly stated the type of contract in a written agreement from the beginning, restoring the scene of the transaction, they would not have needed to spend a lot of effort later to argue about the essence of the transaction.

Whether it is a civil lending contract, a sales contract, an entrusted investment contract, or other contracts, once it involves virtual currency, it cannot escape the dispute over validity or invalidity. In most cases, such as in case (2024) Hu 0115 Minchu 45503 involving Chen and Luo's civil lending dispute, the court often rules that the civil lending relationship between the two parties is invalid due to "violating national regulations on financial supervision of virtual currencies, harming public interests, and violating public order and good customs," thus the civil lending contract is naturally invalid.

The trading situation of virtual currencies in the country actually presents a dance with shackles. Although contracts are easily deemed invalid, the invalidity of contracts also involves issues such as the consequences of invalidity and whether returns are required, etc. However, it does not affect their function of restoring the transaction scene and essence. In the aforementioned case, the contract existed in the form of an IOU, and although the IOU provided by the defendant was deemed invalid by the court, the court confirmed the essence of the transaction between the two as a lending contract dispute and recognized the property attributes of virtual currencies. The court ordered the defendant to return the virtual currency owed to the plaintiff, and if the defendant could not return it, to compensate the plaintiff with the corresponding amount in RMB.

Moreover, there are numerous virtual currency transaction lawsuits, with the focus of disputes revolving around whether the transaction behavior is a sale or a loan, whether entrusted investment is investing in virtual currencies or acting on behalf of project parties, etc. This is all due to the lack of a well-written contract in advance, leading to a continuous stream of troubles and disputes afterward. Even if the court deems the contract invalid, it can still use the contract to restore the essence of the transaction behavior and provide a fairer judgment.

Clarifying the responsibility allocation through contracts

In case (2023) Qian 0103 Minchu 769, the plaintiff transferred money to the defendant to purchase virtual currency, and the court ruled that the entrusted contract was invalid. A major point of contention in the case was the allocation of fault between the parties, which could not be reflected due to the lack of a written contract. Given that the plaintiff was an educator in blockchain digital economy, it was presumed that he was aware of the risks of investing in virtual currencies. The defendant recommended virtual currency investment projects to the plaintiff, participated in and guided the plaintiff's operations, and made a capital preservation promise, thus failing to fulfill the prudent duty of a trustee. The court comprehensively considered that both parties bore a comparable degree of fault for the plaintiff's losses and should each bear 50% of the losses.

However, both the plaintiff and defendant were dissatisfied with this ruling. The plaintiff believed that although he understood blockchain technology, he had no knowledge of cryptocurrencies, so his previous industry experience was actually irrelevant to this case, and all fault should be borne by the defendant; the defendant argued that he was merely helping to purchase coins without any benefit, and that the investment behavior should be considered as the plaintiff willingly taking on the risk, with all losses to be borne by the plaintiff.

Without a contract, the allocation of responsibility between the parties remains unclear. Virtual currency transactions involve multiple fields, with varying risks and returns. For example, in an entrusted investment contract relationship, whether the entrusting party undertakes obligations such as fund delivery, information disclosure, investment risk bearing, assistance obligations, and clear supervision rights in the contract; whether the entrusted party clearly fulfills obligations such as diligence, risk disclosure, and property independence protection, all of these will affect the judge's judgment and present different results in fault allocation. When signing contracts, all parties should carefully choose based on their own needs and risk tolerance, and ensure that the contract content is clear and complies with relevant legal provisions.

How to write a contract?

Based on practical experience and relevant cases, if a virtual currency transaction contract aims to effectively protect rights, it should at least include the following clauses:

· True identity information: Require both parties to provide identity information to ensure the authenticity of the contract. This can prove the legality of the transaction and help restore the real transaction scenario if it involves a criminal investigation.

· Clear description of transaction terms: Clearly define the type of transaction; if it is a lending contract, it must include key terms such as loan amount, purpose, repayment method, interest, and repayment period. It is best to use a traceable method (such as bank transfer) for repayment to keep records. In virtual currency transactions, due to the non-legal tender nature and significant value fluctuations of virtual currencies, we recommend that both parties agree to use legal tender for repayment.

· Breach of contract liability clause: Agree on the specific responsibilities the breaching party must bear once a breach occurs, such as paying overdue interest, additional compensation, etc., to ensure the rights of the creditor are protected.

· Alternative solutions: In case of performance obstacles, preset feasible solutions, such as third-party guarantees or installment repayments, to reduce repayment risks.

Summary by Lawyer Mankun

In the high-risk field of virtual currency transactions, signing a written contract is a key step to reduce risks and protect one's rights. Although our country’s regulatory policies on virtual currencies are becoming increasingly strict, by clarifying transaction terms, responsibility allocation, and identity information, contracts not only play an important role in civil litigation but can also provide necessary protection for parties in criminal investigations.

In the face of the uncertainties of virtual currency transactions, it is essential to act cautiously and not assume that an invalid contract is of no use.

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