NFT collections, which have become popular in China, are now facing new guidelines after the country banned cryptocurrency trading.
China’s top legal prosecution agency has cautioned that non-fungible token (NFT) digital collections possess characteristics similar to virtual assets, which are prohibited in the country.
The highest legal prosecution agency in China, called the Supreme People’s Procuratorate, issued guidelines on Monday for dealing with NFTs. The guidelines suggest conducting thorough research on risks and making accurate punishments for any related crimes.
After China implemented strict measures against local cryptocurrency trading and restricted banks from providing crypto-related services in 2021, the domestic crypto industry nearly disappeared. However, NFTs emerged as a new trend and gained popularity in China as “digital collectibles,” which were considered separate from high-risk cryptocurrencies. Nevertheless, the recent report from the prosecution agency warns that NFTs may not be as distinct from cryptocurrencies as previously thought.
The report from Monday stated, “Despite its popularity, there is a significant likelihood that NFTs can lead to financial risks, management risks, network security risks, and especially legal risks. Prosecutors are closely monitoring the situation.”
NFTs use a special digital ID to connect with virtual or physical items, which helps record proof of ownership on a blockchain. However, China’s prosecution agency argues that NFT owners may not truly “enjoy” ownership, especially when it comes to digital art, as it can still be copied and shared.
According to one author of the report, from a property rights perspective, consumers do not fully possess the NFT digital assets they buy in the same way as under civil law. They cannot prevent others from accessing, copying, or sharing the digital assets associated with NFTs. Instead, consumers have an exclusive right to prevent tampering with the ownership recorded on the blockchain.
Even though China is not fond of cryptocurrencies, the country is interested in utilizing the underlying blockchain technology to develop its national digital infrastructure.
The prosecution agency mentioned that NFT, as a new use of blockchain technology, has promising potential for development.
This information is for general knowledge only and should not be considered as advice for investing or making financial decisions.