Chinese court rules that NFTs are legally protected virtual property

In a case where the court had to affirm the legal qualities of NFTs, it ruled that NFTs are “unique digital assets” that “belong to the category of virtual property.”

A court in the Chinese city of Hangzhou has ruled that nonfungible token (NFT) collections constitute online virtual property that must be protected by Chinese law.

A report published on November 29 by the Hangzhou Internet Court — a specialized internet court — and uploaded by crypto blogger Wu Blockchain on December 5 contains positive wording for NFTs when the nation begins cracking down on cryptocurrencies in 2021, placing NFTs in a legal grey area.

The translated paper states that NFTs “possess the object qualities of property rights, such as value, scarcity, controllability, and tradability” and “belong to network virtual property,” which “should be protected by our country’s laws.”

The court determined that it was required to “confirm the legal qualities of the NFT digital collection” for a particular instance and acknowledged that “Chinese laws do not yet clearly state” the “legal attributes of the NFT digital collection.”

In a case where the user of a technological platform sued the corporation for refusing to finish a transaction and cancelling their purchase of an NFT from a “flash sale” because the user’s identity and phone number allegedly did not match their information, the court issued the judgement.

The court said, “NFTs condense the creator’s unique artistic expression and have the value of relevant intellectual property rights.” It noted that NFTs are “unique digital assets created on the blockchain based on a process of trust and consensus amongst blockchain nodes.”

Due to this, the court ruled that “NFT digital collections fall to the category of virtual property” and that the transaction in question is seen as the “sale of digital commodities via the internet,” which would be considered an e-commerce enterprise and “controlled by the ‘E-commerce Law’.”

China has tried to segregate non-cryptocurrency NFTs from cryptocurrencies through a government-backed blockchain initiative to facilitate the deployment of non-cryptocurrency NFTs paid for using fiat currency.

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