Decision of Court Voids Crypto Mining Contracts in China

According to a court in Beijing, the three investment agreements are ‘invalid’ that were made for bitcoin mining operations in Sichuan. It rejected a claim for compensation and this indicates that the Chinese judiciary is not going to offer any protection where crypto-related assets are concerned. The Chaoyang District People’s Court has rejected a lawsuit that was recently filed for getting damages from a crypto firm. One of the clients filed the lawsuit, as they had failed to get a return on investment via bitcoin mining. The plaintiff was Beijing Phonf Marketing Technology, which had entered into three agreements back in May, 2019 with Zyzc Blockchain Technology. 

The agreement was worth 10 million yuan ($1.6 million) and the payment was for deploying mining hardware in Sichuan. The central government had still been tolerant of crypto mining at that time. Likewise, local authorities, including the ones in Sichuan, had also permitted bitcoin farms to make use of the surplus hydropower. Back in 2017, a ban had been imposed on crypto-related activities in China, which included crypto trading. However, the government had not taken any steps related to crypto mining until spring of this year. The State Council decided in May to clamp down on the crypto mining industry.

This came after the pledge of President Xi Jinping to achieve carbon neutrality within four decades. Since then, the government’s approach has spread to provinces like Sichuan. Beijing Phonf said in its plea that they had earned around 18.35 BTC, which was valued at $904,000 at the time of writing. It added that it had earned less in previous periods and it had demanded compensation of an additional 278.17 BTC. According to the report, this is the first case of its kind and the court has declared the mining contracts to be invalid. This decision indicates that the Chinese judicial system will not recognize or protect crypto-related interests. 

The Chaoyang District Court rejected the lawsuit and informed Sichuan’s National Development and Reform Commission (NDRC). The economic planner’s officials took steps for closing down the remaining mining facilities that were part of the case and also aimed at other coin mining projects. There have been inspections elsewhere as well for identifying illegal mining activities. For instance, nearly two dozen government-run organizations were raided by authorities in Zheijang, which include universities. They established that almost 14 of them had been engaged in crypto mining activities.

Other than Zheijang and Sichuan, a number of other provinces have also been affected by the government’s crackdown this year. These include Inner Mongolia, Yunnan, Qinghai, Anhui, Hebei and Xinjiang. The NDRC also announced in November that it will start going after industrial enterprises that are run by the government and also suspected of being engaging in mining activities related to digital currencies. The clampdown on crypto mining in China had had an impact on the global mining industry, but it appears to be catching up relatively quickly, as miners are moving their operations to other areas that offer cheap sources of power.