Web3 Lawyer: It's already 2024, can we still start a NFT digital collectible business?

Two days ago, two senior practitioners who have been working in the domestic NFT digital collectibles industry for many years came to Mankiw Law Firm to communicate. They shared various magical stories they have experienced in this industry in the past two or three years, and also discussed many issues that platform owners and entrepreneurs are concerned about. Many topics can represent the confusion of friends who want to start a business in the NFT field facing the current industry regulation.

Based on the idea of positive industry development, under the premise of desensitization, Mankiw Law Firm has compiled the content of the communication between Lawyer Liu Honglin and two friends into text, hoping to provide some ideas or inspiration for entrepreneurs in related fields.

 

The current situation and policies of the domestic NFT industry

First of all, everyone will generally worry that at this stage, the country does not allow NFT digital collections?

Many entrepreneurs worry that the projects they invest in will be directly recognized as illegal or even face criminal risks. However, Honglin Lawyer'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 sales of NFT digital collectibles, nor has there been any document denying their market value.

* Source: Xuhui District People's Government official website

On the contrary, some local governments have introduced relevant support policies. Taking 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 name of NFT is sensitive to domestic regulation, it does not mean that there is no commercial survival space. The attempt of monetization combined with industry and digital economy is actually encouraged by policies. Of course, entrepreneurs need to pay attention that the NFT field is still in a relatively early stage, and the lack of regulation does not mean that there is no risk.

 

The relationship between NFT and digital e-commerce

From the personal perspective of Lawyer Honglin, I suggest that entrepreneurs regard NFT digital collections as a new generation of digital e-commerce .

Compared to directly talking about decentralization and assets truly belonging to users, comparing NFTs with virtual currencies is somewhat abstract. For the general public and consumers, it is more reasonable to understand them as virtual goods. For example, if you purchase an NFT digital collectible, whether its content itself is digital art or virtual souvenir, there is essentially no difference from buying a set of QQ skins or virtual props online. They are all virtual commodity transactions conducted through digital platforms.

Some friends may say that the legislation of China's NFT digital collectibles industry is not perfect, and they hope that there will be specialized legislation to regulate it in the future. I say this is not necessary. The reason is simple. The current legal norms are actually very complete. All the problems encountered in this industry are either stipulated in the Civil Code or explained in the Criminal Law. Regulatory authorities will not specifically legislate for NFT technology. The core focus of the law is still the transaction and consumption behavior of these products. Just as you will not encounter special legal problems when buying skin, the same logic applies to buying NFT. As an entrepreneur, NFT should be regarded as a part of Internet e-commerce, rather than a separate special track. As long as the operation strictly complies with the standards and norms of the e-commerce platform, such as consumer rights protection, advertising compliance, etc., legal risks can be greatly reduced.

 

Trends in legal disputes: an increase in civil disputes

In recent years, disputes surrounding NFTs have indeed increased, especially cases of infringement and consumer contract disputes. Previously, we talked about platform runaways and consumer fraud, but with the exposure of more and more NFT-related proceedings, you will find that consumer rights protection has gradually become the focus . This actually proves from the side that NFTs are being treated as a regular virtual property, and the legal environment is gradually being standardized.

However, entrepreneurs should also be aware that due to the virtuality of NFTs, some problems are indeed more likely to occur. For example, some platforms use the virtual attributes of NFTs for improper marketing and infringement. In order to avoid these legal disputes, companies must strengthen compliance construction in the operation process, especially strict control over platform transaction transparency, fund security, and user data protection.

 

One yuan purchase "and legal risks of battle royale mode

In the industry, there were several popular gameplay methods before, such as "one yuan purchase" or "battle royale". From our perspective, this is a typical high-risk business model. These methods are not naturally illegal, but they are indeed prone to crossing some legal red lines.

Many platforms allow users to extract high-value NFT collections at extremely low prices through the one-yuan purchase method. Especially when the platform involves the two-way exchange of fiat currency and virtual property, the risk will greatly increase. For example, users purchase platform chips through fiat currency, use these chips to extract NFT collections, and then complete the withdrawal and exchange through official or cooperative third parties. If the platform operates improperly, it is easy to be suspected of criminal legal risks of opening a casino. Therefore, I suggest that when adopting these models, it is necessary to evaluate the risks from a legal compliance perspective to avoid falling into legal difficulties due to momentary negligence.

 

The importance of choosing a company registration location

For current NFT digital collectibles entrepreneurs, choosing the registration location of the company is crucial. We can see that in the past, many companies chose to register their companies in places such as Hainan and Chengdu, taking advantage of the policy dividends in these areas. However, with the gradual tightening of policies in some places, many companies choose to migrate. On the contrary, cities like Shanghai, Shenzhen, and Hangzhou, due to the dense gathering of internet companies and the relative understanding of law enforcement agencies towards new technologies, the local policies and law enforcement environment are more suitable for the landing and development of NFT companies.

For example, Shanghai's blockchain policy is not only open, but also the local court has a high understanding of blockchain technology, which is beneficial for entrepreneurs to resolve legal disputes. The difference in city selection determines that entrepreneurs will have different legal environments and policy support in the business process. Therefore, choosing a suitable registration location can not only help companies avoid the risk of policy changes, but also benefit enterprises in obtaining better development opportunities.

In addition, maintaining a good relationship with local regulatory authorities to avoid unnecessary negative social impact is also a point that entrepreneurs must pay attention to. We have seen many companies that have had significant disputes online, but have not been subject to administrative penalties or other adverse legal consequences. This is often because these companies can communicate with regulatory authorities in a timely manner, respond quickly to user complaints, solve problems through negotiation or settlement, and help regulatory authorities reduce unnecessary burdens. Maintaining good interaction with regulatory authorities is very important. This not only helps the long-term development of the enterprise, but also effectively reduces legal risks. For entrepreneurs, this is a long-term strategy. They should always maintain compliance awareness in the business process and avoid touching regulatory red lines.

 

Summary by Lawyer Mankiw

NFT entrepreneurs have opportunities in the current policy and legal environment. In fact, as long as they pay attention to compliance, there is still a large market space. It is important not to be confused by the current market impetuosity, especially when operating platform models, and to have a clear legal awareness of prevention and control. I hope this article can bring some inspiration to entrepreneurs in the NFT field. If you have further legal issues, please feel free to discuss.

 

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