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Amid the war on cryptocurrency waged by the Chinese authorities, the Hangzhou Internet Court (HCI) recognized non-fungible tokens (NFTs) as property protected by law. The landmark ruling specifies key attributes that contribute to NFTs' proprietary character. "NFT digital collections have the object characteristics of property rights such as value, scarcity, controllability, and tradability," reads the Google-translated verdict posted on the court's official WeChat account.
"Wang" vs. "Company A" in an NFT case
The ruling concludes the case brought by an unnamed user, referred to as "Wang," against a digital platform based in Hangzhou, referred to as "Company A." The platform offered a limited number of NFT artwork collections for purchase.
The sales announcement contained a fine print clause requiring a buyer to provide their personal details, including a real name and a phone number. Failure to do so would result in an invalid order. The purpose of the clause was to prevent a single user from snapping up more than one collection.
Long story short, Wang paid for the goods which the company didn't deliver, and the company didn't deliver the goods because the KYC details provided by Wang were incorrect. The court ruled in favor of the platform.
NFTs belong to the category of virtual property
The more interesting part of the story concerns the court's opinion on NFTs in general. The judge clearly stated that "NFT digital collections belong to the category of virtual property."
However, according to the verdict, "the nature of the digital collection transaction" and how it should be treated by law must be settled in the proceeding since Chinese law currently doesn't specify the legal status of crypto tokens.
The ruling points to the fact that an NFT artwork collection is a result of the creator's artistic effort and "has the value of related intellectual property rights." It also stresses that NFTs are unique digital assets secured on the blockchain.
According to another phrasing used by the court, NFTs fall into the category of digital commodities. Therefore, trading in NFTs should be classified as e-commerce and regulated under e-commerce law.
Chinese government goes easy on NFTs
The recent ruling is an interesting follow-up on the judgment concerning NFT passed by the same court in October this year. The judge found a copyright infringement, thus, implicitly recognizing NFT as intellectual property.
Both rulings are the first of their kind in China and align with the government's approach to NFTs. Chinese authorities have been trying to adapt to the developments in the global NFT market while simultaneously maintaining a hard line against cryptocurrencies as a means of payment potentially evading Big Brother's watchful eye.
Why did China ban cryptocurrency anyway?
In September 2021, the People's Bank of China (PBOC) criminalized all cryptocurrency transactions, citing the role of "blockchain money" in facilitating fraud and posing a growing threat to China's financial system.
A less official reason for the China crypto ban is an attempt to prevent capital flight from the country amid the Covid-related crisis, economic slowdown, and ever-growing power of the communist regime combined with waning civil liberties.
According to the data from Chainanalysis, in the years 2019–2020 over $50 billion worth of cryptocurrency was transferred from East Asia to addresses overseas.
More Chinese courts recognize digital assets as property
The government's war on crypto, however, didn't prevent the Shanghai High People's Court from proclaiming Bitcoin as virtual property in May this year.
The declaration was made in the case reference book titled "Does Bitcoin Have Property? How to perform return delivery?". The document asserted that "Bitcoin, as a virtual property, has property attributes and is subject to legal regulation of property rights."
The statement is the outcome of the court's ruling in the lawsuit concerning a 1 Bitcoin loan repayment. It doesn't have any effect on China's cryptocurrency regulations. Yet, it – along with the most recent verdict – strengthens the status of digital assets as virtual property, which should be protected by law.
