Quoine, a cryptocurrency exchange based in Singapore, was ordered to pay damages for reversing a user’s transactions.
A new first in regards to cryptocurrency has occurred in Singapore. The country just resolved its first-ever legal dispute involving virtual currencies, although it took several years to wind its way through the legal system. The country’s apex court, the Court of Appeal, ruled that Quoine, a cryptocurrency exchange, is guilty of a breach in contract in regards to the exchange reversing several cryptocurrency transactions.
A Tremendous Bargain
The transactions that were reversed involve a user by the name of B2C2 and were made back in April 2017. Quoine uses software that retrieves information from other cryptocurrency exchanges in regards to prices in order to set prices for trading between Bitcoin and Ethereum on its platform.
B2C2 is actually a company that uses software of its own, which pulls the first 20 market prices to determine whether it should buy or sell. If B2C2 is unable to gain the market data needed for its buy/sell calculations, its software sets up a “deep price” of 10 bitcoins to one Ethereum.
This “deep price” was triggered in April 2017 after a glitch in Quoine’s software occurred, which led to the exchange unable to access market data. This led to the platform to stop creating new orders. Seven trades were then carried out on April 19, 2017, with B2C2 operating on its “deep price” contingency.
The trades resulted in B2C2 gaining 3,092 bitcoins in exchange for only 309 Ethereum. This was quite the bargain as the going rate at the time was 0.04 BTC for one ETH. Overall, this represented an exchange rate of 250 times the actual exchange rate at the time. Quoine stepped in and reversed the transactions, and B2C2 took the case to court, saying the actions of Quoine represented a breach of contract.
Singapore Sets Precedent
The basis for Quoine’s defense was that the transactions were evidently a mistake due to the insane exchange rate and that B2C2 was aware of this mistake. However, that defense fell on deaf ears in March 2019 when the Singapore International Commercial Court ruled against the cryptocurrency exchange, saying the exchange was guilty of a breach of contract and a breach of trust.
Quoine appealed, and the Court of Appeal took up the case using a five-judge panel. The majority of the judges ruled to dismiss Quoine’s appeal on the breach of contract.
The court said its decision was made in the context of both companies using sophisticated computer programs to create and fulfill contracts. The court found that it is the programmer’s knowledge in regards to the initial programming up to the contract formation that is relevant. In essence, the question of whether either programmer (for Quoine and B2C2) was looking to exploit the other and intentionally take advantage of any mistake was the key.
The Court of Appeal ruled for B2C2 as its software was not aware of the glitch in Quoine’s programming and was, therefore, not trying to exploit the glitch. Therefore, B2C2 did not intentionally exploit the matter as the program acted automatically and within its parameters.
The court is now determining how much in damages B2C2 should get. A single bitcoin was worth US$1,211 on April 19, 2017, but is now worth $9,336 today. 3,092 bitcoins would be worth $3,774,412 by April 2017 standards but worth $28,886,912 using current prices.
The one silver lining for Quoine is that the Court of Appeal for Singapore allowed the appeal for breach of trust as the court found there was no trust created over the bitcoins.
Images courtesy of Pxhere and Pixabay.
