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Court in China rules 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 levels of investor protection as traditional investments, urging players to carry out due diligence before investing, according to the court’s ruling. The case arose in a Shanghai court concerning Alexie, a blockchain-based game that became popular in 2021.

Case facts showed the plaintiff Li Xiang invested nearly 700,000 yuan ($101,700) with Wang Meng, the defendant, to create accounts and play on Xiang’s behalf. After the first month’s return of 80,000 yuan ($11,724), Meng failed to remit any more funds to Xiang, citing the general decline facing the virtual currency markets.

Meng was discovered to have sold in-game assets worth 113,000 yuan ($16,485), which he says is to be construed as a loan from the plaintiff. However, the court ruled that the initial 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 113,000 yuan ($16,485) profit arising from the sale of the tokens will be repaid because it amounts to a misuse of property. It is crucial to note that since the blanket ban on digital assets in China, all investments in the asset class are not protected under the law.

“The relevant contracts signed thereby damage the public interest and should be invalid. The people should enhance risk awareness, establish correct investment concepts , and stay away from illegal financial activities such as virtual currency trading speculation,” said the court.

Despite the court’s ruling, a decision of 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 judicial system, but the ruling on P2E gaming strongly suggests that the law still perceives them as illegal.

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

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

Experts have argued that the reason for the surge in digital asset activity in the country lies in the “ineffective and loose” enforcement of the ban by late enforcement. One investigative piece noted that not all Chinese miners migrated from the country as some simply went underground, masking their activity with Virtual Private Networks (VPN) and mining pools.

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