Chinese Court Recognises NFTs as Virtual Property Protected by Law

A court in the Chinese city of Hangzhou has determined that NFTs represent virtual property protected by the laws of the People’s Republic. The court pointed out that NFT digital collections possess characteristics like value, scarcity, controllability, and tradability and belong to the category of online virtual property.

The ruling comes from a case over a dispute between a client and a local digital art platform which cancelled a sale of NFTs on his behalf. The user sued the company claiming the operation was terminated without his consent. The platform, which issued a refund, explained that its move had to do with the inaccurate personal information it received from the user. According to its know-your-customer procedures, orders placed without real-name authentication should be cancelled.

The contract involved in the case does not violate the laws and regulations of our country, nor does it violate the actual policy and regulatory guidance to prevent economic and financial risks, and should be protected by the law… As a virtual artwork, an NFT digital collection itself condenses the creator’s original expression of art and has the value of related intellectual property rights. At the same time, NFT digital collections are unique digital assets formed on the blockchain based on the trust and consensus mechanism between blockchain nodes.

Therefore, the Hangzhou court concluded that NFT collections belong to the category of virtual property. It also expressed its position that the transaction in this case represents the business activity of selling digital goods through the internet, hence it belongs to e-commerce activities and should be regulated as such under China’s “E-commerce Law.”

China’s legal system appears to have adopted a similar stance toward Bitcoin by placing it subject to property rights despite the blanket ban. Although the legal system might have shown a favourable stance toward digital collectibles, the country’s regulators have not hidden their dislike for speculative investments in NFTs. While allowing NFTs to be issued, regulators tried to curb speculation with them. To avoid associations with the crypto space, they are often called “digital collectibles” rather than “non-fungible tokens.”

In April, the popular Chinese messaging app Wechat began suspending accounts linked to NFTs. And in September, it became known that the National Copyright Administration of China (NCAC) had launched a campaign to crack down on copyright infringement and piracy of digital collectibles.

Zooming out from China, it is easy to see an emerging trend of different jurisdictions opting to place NFTs under property laws. For instance, the High Court of the Republic of Singapore designated digital collectibles as physical property akin to luxury items like watches and wine. Moreover, the regulators worldwide are separating categories of NFTs and use cases that need to be regulated differently. We continue to observe.