Author: Liu Honglin, ManKun Law Firm

A couple of days ago, two senior practitioners who have been working in the domestic NFT digital collectibles industry for many years came to ManKun Law Firm to exchange ideas. They shared various miraculous stories they had experienced in the industry over the past two to three years and discussed many issues of concern to platforms and entrepreneurs. Many of the topics they discussed represent the confusion faced by friends who want to start a business in the NFT field in the face of industry regulation.

With the idea of positive industry construction in mind, and under the premise of desensitization, ManKun Law Firm has compiled the content of the exchange between Lawyer Liu Honglin and the two friends into text, hoping to provide some ideas or inspiration to entrepreneurs in the relevant field.

The Current Situation and Policies of the Domestic NFT Industry

First of all, everyone is generally concerned about whether the country currently allows the creation of NFT digital collectibles.

Many entrepreneurs are worried that their projects will be directly deemed illegal and even face criminal risks. However, Lawyer Honglin's view is that from a legal perspective, the country has not explicitly prohibited NFT digital collectibles. Whether it was two years ago or today in 2024, the country has not introduced any policies to restrict the development and sale of NFT digital collectibles, nor has it issued any documents denying their market value.

*Image Source: Xuhui District People's Government Official Website

On the contrary, some local governments have introduced relevant support policies. Take Shanghai as an example, support policies for blockchain enterprises have been successively released in the past two months. This indicates that although some gameplay under the guise of NFT is sensitive in domestic regulation, it does not mean that there is no commercial space. Commercial attempts combined with industry and digital economic integration are actually somewhat encouraged by policies. Of course, entrepreneurs need to be aware that the NFT field is still in a relatively early stage, and the lack of regulation does not mean there is no risk.

The Relationship Between NFT and Digital E-commerce

From Lawyer Honglin's personal perspective, I recommend that entrepreneurs view NFT digital collectibles as a new generation of digital e-commerce.

Compared to directly discussing decentralization and assets truly belonging to users, and comparing NFT with virtual currency, it may be somewhat abstract. For the general public and consumers, it is more reasonable to understand it as virtual goods. For example, when you purchase an NFT digital collectible, regardless of whether its content is digital artwork or virtual memorabilia, it is essentially no different from purchasing a set of QQ skins or virtual props online. They are all virtual goods transactions conducted through digital platforms.

Some friends may say that the legislation for the Chinese NFT digital collectibles industry is not perfect and hope that there will be specialized legislation to regulate it in the future. I say this is unnecessary for a very simple reason: the current legal regulations are actually quite comprehensive. All the problems encountered by this industry at the moment are either covered in the "Civil Code" or addressed in the "Criminal Law". Regulatory authorities are unlikely to carry out specialized legislative operations specifically for NFT technology. The core focus of the law is still on the transactions and consumption behavior of these products. Just as you do not encounter special legal issues when buying game skins, the same logic applies to purchasing NFT. As an entrepreneur, NFT should be regarded as part of internet e-commerce, rather than a separate special track. As long as operations strictly adhere to the standard norms of e-commerce platforms, such as consumer rights protection and advertising compliance, it can significantly reduce legal risks.

Trend of Legal Disputes: Increase in Civil Disputes

In recent years, there has indeed been an increase in disputes surrounding NFT, especially cases of infringement and consumer contract disputes. Previously, we talked about platform closures and consumer fraud, but with the increasing exposure of litigation cases related to NFT enterprises, you will find that consumer rights protection is gradually becoming the focus. This indirectly proves that NFT is gradually being treated as a conventional virtual property, and the legal environment is gradually being standardized.

However, entrepreneurs also need to be aware that due to the virtual nature of NFT, some problems are indeed more likely to occur. For example, certain platforms may engage in improper marketing and infringement activities using the virtual properties of NFT. In order to avoid these legal disputes, companies must strengthen compliance in their operations, especially strict control over platform transaction transparency, fund security, and user data protection.

Legal Risks of "One Yuan Purchase" and Battle Royale Models

In the industry, there were previously popular gameplay models such as "one yuan purchase" or "battle royale". From our perspective, these are typical high-risk business models. These gameplay models are not inherently illegal, but they are indeed prone to crossing certain legal boundaries.

Many platforms allow users to draw high-value NFT collectibles at extremely low prices through the "one yuan purchase" method. Especially when the platform involves the two-way exchange of legal tender and virtual assets, the risk is significantly increased. For example, if users purchase platform chips with legal tender, then use these chips to draw NFT collectibles, and subsequently complete the withdrawal and exchange through official or third-party cooperation, if the platform is not operated properly, it is easy to be suspected of engaging in criminal legal risks of operating a gambling establishment. Therefore, I recommend that when using these models, it is essential to assess the risks from a legal compliance perspective and avoid falling into legal predicaments due to negligence.

The Importance of Choosing the Location for Company Registration

For current NFT digital collectible entrepreneurs, the choice of company registration location is crucial. We can see that many companies in the past chose to register their companies in Hainan, Chengdu, and other places, taking advantage of the policy dividends in these areas. However, as some local policies gradually tighten, many companies choose to relocate. On the contrary, cities such as Shanghai, Shenzhen, and Hangzhou, due to the concentration of internet enterprises and the relatively understanding of new technologies by law enforcement departments, have policies and law enforcement environments more suitable for the landing and development of NFT enterprises.

For example, Shanghai's blockchain policies are not only open but also the local courts have a higher level of understanding of blockchain technology, which is conducive to entrepreneurs in resolving legal disputes. The difference in city selection determines that entrepreneurs will have different legal environments and policy support during the operation process. Therefore, choosing a suitable place for registration can help companies avoid the risk of policy changes and also benefit the company in obtaining better development opportunities.

In addition, maintaining a good relationship with local regulatory authorities and avoiding unnecessary negative social impact is also something that entrepreneurs must pay attention to. We have seen many companies that, despite significant controversies online, have not been subject to administrative penalties or other adverse legal consequences. This is often because these companies are able to communicate with regulatory authorities in a timely manner, respond quickly to user complaints, and resolve issues through negotiation or settlement, helping regulatory authorities reduce unnecessary burdens. Maintaining good interaction with regulatory authorities is extremely important. This not only helps the long-term development of the company but also effectively reduces legal risks. For entrepreneurs, this is a long-term strategy that requires maintaining compliance awareness throughout the business process and avoiding crossing regulatory red lines.

ManKun Lawyer's Conclusion

NFT entrepreneurs are not without opportunities in the current policy and legal environment. In fact, as long as compliance is observed, there is still a considerable market space. The important thing is not to be misled by the current market frenzy, especially when operating platform models, there must be a clear legal risk control awareness. I hope this article can bring some inspiration to entrepreneurs in the NFT field. If you have further legal questions, please feel free to discuss them at any time.

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