Court in China rules that blockchain-based P2E games are not protected by law

A Chinese court has ruled that virtual currencies held in blockchain-based games are not protected under the law.

Play-to-earn (P2E) games and their in-game assets do not have the same level of investor protection as traditional investments, and encourage players to conduct due diligence before investing, according to the court ruling. The case arose in a Shanghai court regarding Alexie, a blockchain-based game that became popular in 2021.

Case facts showed that plaintiff Li Xiang invested nearly 700,000 yuan ($101,700) with Wang Meng, the defendant, to set up accounts and gamble on Xiang’s behalf. After the first month’s return of 80,000 yuan ($11,724), Meng was unable to transfer more funds to Xiang, citing the general downturn faced by the virtual currency markets.

Meng was found to have sold in-game assets worth 113,000 yuan ($16,485), which he says should be interpreted as a loan from the plaintiff. However, the court ruled that the original 700,000 yuan ($101,700) invested with Meng is not protected under Chinese law and the plaintiff has no legal claim to it.

The court also declared that the profit of 113,000 yuan ($16,485) arising from the sale of tokens will be returned because it amounts to misappropriation of property. It is important to note that since the blanket ban on digital assets in China, not all investments in the asset class are protected under the law.

“The relevant contracts thus signed harm the public interest and should be void. The people should raise risk awareness, establish correct investment concepts and stay away from illegal financial activities such as speculation in virtual currency trading, the court said.

Despite the court’s ruling, a ruling by The First Intermediate People’s Court of Beijing ruled that virtual currencies can be protected under the law because there are no rules that “negate the protectability of cryptocurrency itself as virtual property.”

It remains unclear whether the court’s ruling will be adopted by the rest of China’s legal system, but the ruling on P2E games strongly suggests that the law still sees them as illegal.

China’s ban fails to kill digital asset activity in the country

Contrary to popular belief, China’s ban did not halt digital currency activity in the country. The country managed to take a top ten spot in Chainalysis’ 2022 Crypto Adoption Index, beating the top European countries along the way.

Experts have argued that the reason for the increase in digital asset activity in the country lies in the “ineffective and loose” enforcement of the ban by late enforcement. An investigative article noted that not all Chinese miners migrated from the country, as some simply went underground and masked their activity with virtual private networks (VPNs) and mining pools.

See: Play2Earn with BSV Blockchain

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