With the recent ban on cryptocurrency trading, non-fungible tokens (NFTs) have surged in popularity, becoming the new frontier for digital collectors in China. However, recent guidelines issued by the country’s top legal authority suggest that this rising tide may face significant regulatory hurdles.
The Emergence of NFTs in a Crypto-Adverse Landscape
After a nationwide crackdown on cryptocurrency trading in 2021, the Chinese digital market witnessed an unexpected revival – the rise of NFTs as sought-after “digital collectibles.”
Unlike their high-risk cryptocurrency counterparts, this novel class of virtual assets navigated through the existing legal frameworks unscathed.
Nevertheless, the recent publications from the Supreme People’s Procuratorate of the People’s Republic of China warn of potential pitfalls.
Legal Perspectives: NFTs and the Shadow of Virtual Assets
The Supreme People’s Procuratorate, the highest prosecutorial office in the country, underscored in its guidelines that NFT collections bear striking resemblances to “virtual assets,” a category currently outlawed in China. The guidelines, issued on a recent Monday, stressed the necessity for rigorous “risk assessment and judgment” while urging the judicial system to “penalize crimes precisely.”
As NFTs continue to surge in popularity, they also carry many potential risks, spanning financial, administrative, cyber security, and especially legal concerns. “Despite its popularity, it could give rise to many risks, most significantly, legal hazards. As a result, prosecutors are on high alert,” the Monday report cautioned.
NFTs, by design, assign unique digital identifiers to virtual or tangible objects, enabling the recording of ownership proof on a blockchain. However, the Chinese prosecutorial agency has contested the full extent of such “ownership,” especially concerning digital art, which can be duplicated and disseminated freely.
A Shift in Property Rights: The Unique Case of NFTs
The report further elaborated, “Regarding property rights, consumers purchasing NFT digital assets do not necessarily enjoy full ownership in the civil law sense. They cannot prevent others from accessing, duplicating, or sharing the digital assets linked by the NFT. What they possess is an exclusive right to deter others from altering the ownership of the NFT recorded on the blockchain.”
Despite its crypto-skeptic stance, China is keen on leveraging the underlying blockchain technology of these virtual assets to bolster its national digital infrastructure.
The legal body acknowledged, “As a novel application of blockchain technology, NFTs hold substantial potential for growth.” This suggests that while the country grapples with the legal and financial complexities of this emergent digital phenomenon, it remains open to the revolutionary potentials of blockchain technology.
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