Hubei Court rules that the virtual currency mining contract is invalid due to the purchase of IPFS storage servers for mining Filecoin.

Hubei Court invalidates virtual currency mining contract due to purchase of IPFS storage servers for mining Filecoin.

Recently, the People’s Court of Wuchang District, Wuhan City, Hubei Province, issued a judgment on a dispute over a virtual currency “mining” contract, ruling that the contract in question is invalid and requiring the seller to return part of the funds to the investors.

In this case, the plaintiff, Mr. Zhou, signed a storage server purchase contract with the defendant, a certain technology company, on July 7, 2021. According to the contract, Mr. Zhou purchased an IPFS storage server for a price of 179,800 yuan and entrusted the certain technology company to manage it. The certain technology company promised that the server provided would provide services on the IPFS network and obtain Filecoin rewards. If the amount of cryptocurrency produced is lower than the market average, the certain technology company will bear the compensation responsibility. However, Mr. Zhou realized that virtual currency mining is explicitly prohibited by the country, so he invalidated the contract and demanded the return of all contract payments and payment for the use of funds.

Specifically, the main contents of the contract include: friendly negotiation between Party A and Party B, agreement on Party B’s purchase of IPFS storage servers and related hosting services from Party A, and a commitment to jointly abide by the contract.

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Product Information: The contract is priced in blockchain assets, with the product model being the DZ storage server, with a capacity of 48T, and a total price of 179,800 yuan or the equivalent in USDT. The payment method is 100% USDT, to be paid to the blockchain wallet designated by Party A.

Delivery Date and Location: The contract stipulates that the delivery date of the storage server is within 30 days after Party B completes the payment, and the server will be installed in the data center. The storage server is entrusted to Party A for management by Party B.

Non-refundability: The contract clearly states that the IPFS storage server is a customized product and cannot be returned once purchased.

Commitments and Responsibilities: Party A promises that the IPFS storage server provided can provide services on the IPFS network and obtain Filecoin rewards. Party A also promises to carry out hardware iteration and upgrade according to network needs and guarantees that the amount of cryptocurrency produced is not lower than the market average. If the amount of cryptocurrency produced is lower than the market average, Party A will bear the compensation responsibility.

Hosting Method and Costs: Party B needs to place the storage server under the custody of Party A and pay the relevant fees. The hosting service period is 3 years, starting from the date when the machine is formally installed in the data center. If Party B cancels the hosting in advance, a penalty will be paid.

Hosting Service Fee: Party A will deduct 20% of the Filecoin mined by Party B’s server as the hosting service fee.

Withdrawal and Trading: Party B can submit a withdrawal application to Party A to withdraw Filecoin tokens to a designated address, and then can trade them on a third-party digital asset exchange.

Project Risks: The contract explicitly states that the income and configuration of Filecoin mining are determined based on the information published by the project party, and Party A does not guarantee the income. Party B is reminded that the investment carries risks and is required to have received training on blockchain knowledge, commit to using funds from legal sources, and have a certain understanding of the Filecoin project.

Ultimately, despite the terms stipulated in the contract, the storage server equipment purchased by Mr. Zhou was not delivered to him. Instead, Zeting Company hired professional technicians to operate on behalf of Mr. Zhou and ensured that the storage server produced Filecoin tokens on schedule. According to the account screenshots provided by Mr. Zhou, the number of tokens mined by his account ranged from 0.10 to 0.015 Filecoin each time, with a total output of 186.7236.

Zeting Company claims that they have an internet protocol with IPFS, and requires pledging storage space to obtain Filecoin tokens. Zhou Xiaole can submit a withdrawal application through the “Zeting Technology” application software, and then the IPFS Protocol Laboratory will pay Filecoin tokens based on the information of the receiving address in the application. However, at the time of the trial, Zhou Xiaole had not yet withdrawn or traded the Filecoin tokens he obtained.

This contract involves virtual currency mining activities and carries multiple risks, including invalid contracts, violations of policy regulations, failure to comply with public interests, and violations of green development principles. In the end, the court ruled the contract invalid and held both parties responsible accordingly, with Zeting Company required to return part of the funds to Zhou Xiaole.

After trial, the court determined that the contract was actually aimed at virtual currency “mining” activities, rather than a buying and selling contract for storage servers. This kind of mining activity carries multiple risks, including energy consumption and carbon emissions, which violates national policies and regulations and harms public interests. Therefore, the contract is considered invalid.

As the seller, a certain technology company should have been aware of the mining activities involved in the contract and therefore has a high duty of care regarding the legality of the contract. Zhou, as the buyer, should also have been aware of the legal risks of investing in virtual currency, but still signed the contract and made the payment out of the motivation for profit. Therefore, both parties are at fault and should bear corresponding civil liability.

The court decided that the technology company should return 120,000 yuan of the contract payment to Zhou. Since the parties did not agree on the interest on the funds used, the court did not support Zhou’s claim for interest on the funds used.

The court’s ruling once again emphasizes the risks of investing in virtual currency, reminding investors to be cautious and fully understand relevant regulations and risks when participating in such activities to avoid losses. The relevant departments of the country have also issued policy documents multiple times to prevent and regulate the risks of virtual currency and “mining” activities, emphasizing the risk prevention awareness of investors.

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