Title: Discussion on the Six Forms of NFT Positioning and Related Regulatory Policies

Author: 01 Blockchain

This year is referred to as the "first year" of NFTs, with artists, celebrities, and major companies entering the NFT space, and the soaring prices of NFTs have made them a focal point of public attention. 01 Blockchain has launched a series of special studies on NFTs, summarizing and reviewing the issuance market, investment and financing status, hot products, policies, and other related content to help readers gain a more comprehensive understanding of the NFT market.

This article mainly explores NFTs from a policy perspective. Currently, there is no legal definition or regulation of NFTs in our country. Given the diverse forms of NFTs, such as digital artworks, music, videos, text, and game props, this article will discuss the legal policies of various similar form products based on the existence of NFTs, providing references for the potential legal development of NFTs.

## 1. Blockchain Products

Blockchain is the underlying technology of NFTs, and NFTs are a typical application of blockchain. It is important to note that blockchain, with its characteristics of transparency, openness, traceability, and immutability, has become one of the most important foundational technologies in the digital economy era and has risen to the national level. Although NFTs utilize blockchain technology, legal policies have not provided explanations for NFTs themselves.

As early as 2019, the development of blockchain technology has become a national strategy. General Secretary Xi Jinping emphasized during the 18th collective study of the Political Bureau of the Central Committee that "we must take blockchain as an important breakthrough for independent innovation of core technologies, clarify the main direction, increase investment, focus on overcoming a number of key core technologies, and accelerate the innovation and development of blockchain technology and industry."

In addition, local governments are continuously proposing various supportive and regulatory policies to promote the development of blockchain technology. Since the beginning of this year, policies related to blockchain have continued to be introduced. In March, blockchain was included in the "14th Five-Year Plan for National Economic and Social Development of the People's Republic of China and the Outline of Long-term Goals for 2035," which proposed creating new advantages in the digital economy and accelerating the promotion of digital industrialization. It aims to promote blockchain technology innovation, focusing on developing blockchain service platforms and application solutions in financial technology, supply chain management, government services, etc., and improving regulatory mechanisms.

In June, the Ministry of Industry and Information Technology and the Cyberspace Administration jointly issued the "Guiding Opinions on Accelerating the Application and Industrial Development of Blockchain Technology," pointing out the need to focus on supply chain management, product traceability, data sharing, and other areas of the real economy, promoting the integrated application of blockchain to support the digital transformation of industries and high-quality industrial development. It promotes the application of blockchain technology in public service areas such as government services, evidence preservation, and smart cities, supporting the transparency, equality, and precision of public services.

Regarding the provision, use, and management of blockchain information services, the "Regulations on the Management of Blockchain Information Services" issued by the National Internet Information Office on January 10, 2019, requires that blockchain information service providers must file for record, and any changes or termination of services must go through the appropriate procedures. Service providers developing and launching new products, applications, or functions must conduct security assessments in accordance with relevant regulations. Those who violate the "Regulations" will be punished according to these regulations and relevant laws and administrative regulations; if a crime is constituted, criminal responsibility will be pursued according to law.

Related Policy Documents

• "Guiding Opinions on Accelerating the Application and Industrial Development of Blockchain Technology"
• "Regulations on the Management of Blockchain Information Services"
• "Liaoning Province Intellectual Property Protection Regulations"
• "14th Five-Year Plan for National Economic and Social Development of the People's Republic of China and the Outline of Long-term Goals for 2035"
• "Cybersecurity Law"
• "Regulations on Several Issues Concerning the Trial of Cases by Internet Courts"

## 2. Virtual Currency

Tokens can be divided into fungible and non-fungible types, but there is an essential difference between the two. Fungible tokens can be exchanged indiscriminately, such as Bitcoin and Ethereum, which are fungible tokens. The non-fungible nature of NFTs distinguishes them from virtual tokens, as NFTs carry the value of physical or digital assets attached to them. Given the high-pressure policies on virtual currencies in our country, it is crucial to clarify the distinction between the two.

Due to the ease with which virtual currencies can be used for illegal activities such as money laundering and the lack of exchange mechanisms, they can easily lead to inflation and market chaos. Our country has consistently adopted a suppressive policy towards virtual currencies. As early as 2013, the People's Bank of China and five other ministries issued a notice on preventing Bitcoin risks, clarifying that Bitcoin is a specific virtual commodity not issued by monetary authorities, does not have legal tender status, and should not be circulated as currency in the market.

In 2017, the issuance of virtual tokens disrupted market order, prompting the People's Bank of China and seven ministries to jointly issue a notice on preventing risks from token issuance and financing, immediately halting all types of token financing activities and requiring that no organization or individual engage in illegal token issuance and financing activities; strengthening the management of token financing trading platforms, prohibiting the exchange of legal currency with tokens or "virtual currencies"; and requiring financial institutions and non-bank payment institutions not to engage in businesses related to token issuance and financing transactions.

In September of this year, the People's Bank of China issued a notice on further preventing and addressing the risks of virtual currency trading speculation, further clarifying the attributes of virtual currencies and related activities, and explicitly proposing a work mechanism to address the risks of virtual currency trading speculation, strengthening the regulation of trading speculation risks. This policy serves as a warning to NFTs; if they develop relying on token issuance for financing and speculation, NFTs will follow in the footsteps of virtual currencies. Therefore, it is crucial to distinguish between virtual currencies and NFTs, as developing NFTs with the mindset of virtual currencies is incorrect.

Related Policy Documents

• "Notice on Preventing Risks from Token Issuance and Financing"
• "Notice on Preventing Bitcoin Risks"
• "Notice on Further Preventing and Addressing Risks of Virtual Currency Trading Speculation"
• "Risk Warning on Illegal Fundraising in the Name of 'Virtual Currency' and 'Blockchain'"
• "Opinions on Providing Judicial Services and Guarantees for Accelerating the Improvement of the Socialist Market Economic System in the New Era"

## 3. Virtual Assets/Digital Collectibles

NFTs are generated through human labor and embody abstract human labor. Similar to virtual assets, NFTs support value transfer, trading, and revenue generation. NFT holders can possess, use, dispose of, and benefit from them, indicating their disposability. In October of this year, the Tencent Huanhe APP and the Alipay mini-program "Ant Chain Fan Grain" completely removed the term "NFT," replacing it with "digital collectibles." From this perspective, aligning with virtual assets or digital collectibles may be a feasible form for NFTs within the compliance framework in our country.

Virtual assets are protected by law. According to Article 127 of the Civil Code, the law provides for the protection of data and network virtual property, and according to its provisions, the Civil Code clarifies that data and network virtual property are included in the scope of civil property rights protection.

In today's digital economy, where digital assets are increasingly dominant, they have become an important part of economic activities. The development of NFTs towards digital collectibles or virtual assets may be the most prudent approach at present. Currently, many provinces and cities have introduced policies related to "digital asset trading." The "Three-Year Action Plan for Accelerating the Cultivation and Innovative Application of the Blockchain Industry in Ningbo (2020-2022)" proposes exploring the establishment of a blockchain regulatory mechanism, focusing on strengthening industry regulatory governance mechanisms in finance, digital asset trading, e-government, personal data protection, and other fields.

The "Several Policy Measures for Accelerating the Development of the Blockchain Industry in Hainan Province" issued in May 2020 pointed out that support should be given to leading enterprises to explore the construction of digital asset trading platforms, explore standards and technical models for asset digitization, digital asset rights protection, global flow of digital assets, and digital asset trading, promoting the trial implementation of related business formats in Hainan.

The "2020 Chengdu Government Work Report" stated that it would accelerate the construction of a blockchain intellectual property pledge financing service platform and promote the establishment of a digital asset trading center, solidly advancing the pilot of legal digital currency.

Related Policy Documents

• "Civil Code"
• "Three-Year Action Plan for Accelerating the Cultivation and Innovative Application of the Blockchain Industry in Ningbo (2020-2022)"
• "Several Policy Measures for Accelerating the Development of the Blockchain Industry in Hainan Province"
• "Copyright Law"

## 4. Artwork

Digital artworks are the primary form of NFTs. Currently, there are generally two ways to create artwork NFTs: one is to create and form NFT artworks directly online, and the other is to mint offline physical artworks into NFT artworks. From the legal nature of NFT artworks, NFT artworks are essentially works presented in digital form. From the legal effect of blockchain storage of NFT artworks, it is essentially a form of electronic data stored on the blockchain. Regarding the rights related to the minting of NFT physical artworks, NFT artworks are related to the rights of the authors, collectors, and users of the artworks.

From the definition of artwork, Article 2, Paragraph 1 of the "Measures for the Administration of Artwork Business" stipulates: "The artworks referred to in these Measures are paintings, calligraphy and seal cutting works, sculpture works, artistic photography works, installation art works, arts and crafts works, and limited reproductions of the above works. The artworks referred to in these Measures do not include cultural relics." Therefore, currently, NFTs do not fall within the category of artworks.

Interestingly, before NFTs became widely popular, a group of pioneering artists utilized them to explore the possibilities of developing digital artworks. For some artwork NFTs, establishing regulations from the perspective of artworks has positive and profound significance for artistic creation in the digital economy era.

Related Policy Documents

• "Measures for the Administration of Artwork Business"
• "Copyright Law of the People's Republic of China"
• "Data Security Law"

## 5. Online Publications

The richness and diversity of online publications are similar to NFTs, and both are presented as digital works, but they are not the same. It is important to note that currently, NFTs do not equal digital works, nor do they equal the proof of digital works; they are merely a cryptographic expression of digital copies on the chain.

In terms of form, NFTs are currently closest to online publications. According to the "Regulations on the Administration of Online Publishing Services," online publications refer to digital works that are provided to the public through information networks and have publishing characteristics such as editing, production, and processing. The scope mainly includes:

1. Original digital works in literature, art, science, and other fields that have knowledge and thought, such as text, images, maps, games, animations, and audio-visual reading materials;
2. Digital works that are consistent with the content of published books, newspapers, periodicals, audio-visual products, electronic publications, etc.;
3. Digital works formed by selecting, arranging, and compiling the above works into online literature databases;
4. Other types of digital works recognized by the National Press and Publication Administration.

From an operational perspective, the law has made policy regulations on the generation and circulation of online publications. According to Article 7 of the "Regulations on the Administration of Online Publishing Services," those engaged in online publishing services must be approved by the publishing administrative department in accordance with the law and obtain an "Online Publishing Service License." "According to Article 22 of the Cybersecurity Law of the People's Republic of China, if network products and services have the function of collecting user information, their providers must clearly inform users and obtain consent.

Related Policy Documents

• "Regulations on the Management of the Publication Market"
• "Regulations on the Administration of Online Publishing Services"
• "Measures for the Administration of Internet Information Services"
• "Copyright Law of the People's Republic of China"
• "Implementation Regulations of the Copyright Law of the People's Republic of China"
• "Regulations on the Protection of Computer Software"
• "Regulations on Collective Management of Copyright"
• "Regulations on the Protection of Rights of Communication through Information Networks"
• "Measures for the Administration of Payment for Broadcasting and Television Recording Products"

## 6. Game Equipment

The gaming field is also a typical application of NFTs, including the earliest collectible games like Cryptokitties. However, richer gameplay has now appeared in multiple games, such as the simulation game The Sandbox, the racing game Battle Racers, and even NFT versions of liquidity mining, such as Axie Infinity. NFT-ified game equipment gives these games a more "realistic" feel, and there have even been cases of people relying on playing games to make a living.

Currently, regulations related to the trading of virtual currencies in online games mainly focus on documents issued by the now-defunct Ministry of Culture, such as the now-defunct "Interim Measures for the Administration of Online Games," which stipulated that those engaging in online game virtual currency trading services must obtain an "Online Cultural Business License," and the "Notice on Strengthening the Supervision of Online Game Promotion Activities" issued by the Ministry of Culture, which prohibits online game operating companies from providing users with services to exchange online game virtual currencies or virtual props for legal currency or physical goods.

At present, there are no directly applicable laws targeting assets related to online games and virtual currencies. In judicial practice, in cases of theft of online accounts and equipment, courts have convicted individuals for stealing virtual currencies in online games based on the crime of illegally obtaining data from computer information systems. Some courts believe that items that citizens can exclusively manage and transfer, which have value (including intangible items), can be recognized as private property of citizens, and that online game equipment and virtual currencies belong to virtual property. From this perspective, it is a trend for virtual currencies and equipment within online games to be recognized as virtual property.

Related Policy Documents

• "Civil Code"
• "Interim Measures for the Administration of Online Games" (now defunct)
• "Online Cultural Business License"
• "Notice on Strengthening the Supervision of Online Game Promotion Activities"

## NFT Industry Standards

Currently, although our country has not provided specific definitions and usage regulations for NFTs from a policy perspective, the rapid explosion and crazy growth of NFTs this year have made compliance for NFTs inevitable. Various institutions and enterprises are actively establishing relevant standards for NFTs.

In September, the Standardization Working Committee of the China Technology Market Association under the Ministry of Science and Technology, in conjunction with several industry-university-research institutions, established a working group to jointly develop and draft the "Group Standards for NFT Platforms and Product Evaluation." The aim is to further explore the digital transformation and digital technology application in the field of intellectual property and to quickly establish a set of group standards suitable for China's national conditions and meeting the long-term healthy development needs of the domestic NFT industry.

"Accelerating the development of NFT-related standards has become a consensus in the industry."

------ Wang Bing, Deputy Secretary-General of the China Technology Market Association

In October, the first self-regulatory convention for the NFT industry was released. Led by the National Copyright Trading Center Alliance, along with the China Academy of Art, Hangzhou Internet Notary Office, Ant Group, JD Technology, Tencent Cloud, and others, the "Self-Regulatory Convention for the Digital Cultural Industry" was jointly released, aiming to strengthen industry self-discipline and establish a healthy development ecosystem for the digital cultural industry, supporting the development of China's cultural and creative industry.

The "Convention" states that it is necessary to adhere to the original intention of blockchain technology serving the development of the digital cultural industry, providing innovative solutions for the rights confirmation and circulation of digital cultural works, allowing creators' works to better reach the market, and promoting the prosperity and development of the original cultural industry. It fully utilizes blockchain technology to protect the copyright of digital cultural works on the chain and safeguard the reasonable rights and interests of creators. Among them, resisting speculation is an important consensus of the "Convention."

"Through the release and implementation of the 'Convention,' we hope that more institutions and social forces will participate in the规范化发展 of the digital cultural industry, jointly creating a clean, fair, and healthy development environment for the cultural industry."

------ Li Heng, Chairman of the National Copyright Trading Center Alliance