The legal connotation and extension of NFT

The surging NFT boom is sweeping the world, how to distinguish the real technology from the pseudo-innovation?

The legal connotation and extension of NFT

NFT seems to be the most likely to comply with the Chinese law under the business involving passwords, and all parties give high hopes. On the one hand, speculators are waiting for an opportunity to speculate and make quick money; on the other hand, the traditional culture and art circle is in urgent need of technology iteration and upgrade to 3.0. The surging NFT boom is sweeping the world, how to identify the real technology and pseudo-innovation? In order to grasp the opportunity of advancement and eliminate the risk of involving the crowd, this article is written for the reference of practitioners and related people only.

The latest definition of NFT

This month, Wechsler’s Dictionary defines NFT as

a) a unique digital identifier that cannot be copied, substituted, or subdivided, that is a recorded in a blockchain, and that is a) a unique digital identifier that cannot be copied, substituted, or subdivided, that is a recorded in a blockchain, and that is used to certify authenticity and ownership (as of a specific digital asset and specifc rights relating to it);

b) the asset that is represented by an NFT.

Translated into Chinese: (1) an NFT is a unique digital representation that cannot be copied, replaced, or sliced, and that is recorded in the blockchain and is used to certify authenticity and ownership (as of a specific digital asset and specifc rights relating to it); (2) the asset that can be represented by an NFT. In other words, an NFT is a unique data representation recorded in the blockchain that cannot be copied, replaced, or sliced to verify the authenticity or rights of a particular digital asset.

Wechsler’s Dictionary defines NFT in terms of its function and nature, which is a relatively complete description of what NFT is and how it functions, and this definition can be absorbed by the relevant industries in China for reference. In fact, as early as before the official release of the definition of NFT in Wechsler’s Dictionary, Chinese companies have already done a market test, NFT translated as non-homogeneous deposit, such as the deposit of images in a union chain, for buyers to “access, study, research, enjoy, download thumbnails, display, share”. At the same time, there are many people who are not right-minded, waiting for the opportunity to cut leeks.

I think, in our country, the definition of NFT is more appropriate: based on blockchain and other cryptographic technology, with (1) irreproducible (2) unmodifiable (3) can not be divided to confirm the ownership and authenticity of the virtual property or property interests of the evidence.

It is worth noting that fragmented NFTs have now emerged with the support of projects such as F-NFTs, a new application that impacts the fundamental nature of NFTs that cannot be sliced and is more similar to homogenized tokens such as ethereum. In order to ensure the compliant development of NFT in China, a conceptual distinction should be made between NFT and F-NFT (Fractionalized NFT), which is essentially a Fractional interest rather than a mere credential.

Civil Code and Virtual Property

About virtual property is it data? Claims? There is a bloody debate in the academic world about whether it is property or intellectual property.

The main view of the data doctrine: electronic data lacks the independence required by civil objects and therefore cannot be treated as property, but can only be protected at the data level.

The main view of the claim doctrine: the right holder of network virtual property must get the technical cooperation of the network operator when exercising the right, which is restricted by the server state and cannot be separated from the nature of claim and cannot rise to the property right.

The main view of intellectual property theory: network virtual property belongs to the intellectual achievements on network application, thus it should be included in the category of intellectual property, and for players, it is limited to the right of use in copyright.

The main view of the doctrine of property rights: network virtual property is an objective existence independent of human subjectivity, not the behavior of civil subjects, and cannot be the object of claims.

Data theory and claim doctrine, both emphasize the dependence of virtual property, subject to the producer or maintainer, while NFT based on encryption technology such as blockchain is precisely distributed, once generated it is not dependent on the producer and maintainer, and can be 100% controlled using private keys, i.e. ownership. Therefore, NFT based on encryption technology and other similar virtual goods are the counter-evidence of the data theory and the claim theory, proving their illogicality.

According to Chapter 5 of the General Principles of Civil Law (now subsumed in the Civil Code) at that time, civil rights, using a systematic interpretation, exclude civil rights, civil rights change attribution, and can only be interpreted as a civil rights object, a kind of property right (see the article “The Meaning and Important Value of Network Virtual Property under the General Principles of Civil Law” by legislator Yang Lixin for details).

In other words, in the end, the Chinese legislator forcefully gave our citizens the right to own virtual property, which is stipulated as a right in rem. And how high is the level of effectiveness of the right in rem, not departmental regulations, local regulations can be arbitrarily restricted and reduced, but must respect and protect. Combined with the 2013 characterization of BTC Bitcoin as a specific virtual commodity, this is a new kind of property right that gives Chinese people the right to legally own virtual property. By the same token, my personal opinion: NFT is also a kind of virtual property, which Chinese people can hold.

The question arises, to stop NFT breeding financial properties

I have written an article about the financialization of second-hand jewelry, the public is not surprised by the hype of sneakers, women’s decorations, male children’s sneakers can be treated as the object of marketing, speculation, futures trading, we can not choke because they will be unscrupulous speculation, and outlaw the production, sale and use of jewelry, sneakers, right.

If we replace the jewelry and sneakers in the physical world with pictures and songs in the digital world, the conclusion is the same. In view of this, what we should really put an end to is the “transfer of personal risk to the social sphere” brought about by the speculation on shoes, paintings and virtual commodities, rather than banning and eliminating the commodity itself.

The path of governance.

First, the direct sale, sell off digital art NFT, only need ICP license, in order to ensure that no risk, can go to the industry self-regulatory organizations for the record, it is recommended to allow blind box sales, etc..

Second, the bidding problem, the use of a professional company with an auction license to franchise the way to deal with, there are already auction companies to try, but should pay attention to the legal nature of the subject of the auction and the specific rights and interests of the contractual agreement.

Third, the secondary market issues, local financial licenses such as provincial reserved exchanges, trading centers can undertake part of the function, but limit the scale of transactions and provide for the transaction price ceiling, adopt a qualified investor system, and strictly control the spread of personal risk to the social sector; if confidence in the local financial license is not enough, you can make relevant attempts under a higher-level license, or do not open the secondary market for the time being, allowing only occasional transactions between individuals (non-information aggregation).

Fourth, for overseas coin issuance ICO and sold back to the Chinese, combined with the 9.4 announcement qualitative illegal, resolutely outlawed.

Fifth, for the use of NFT marketing, fraud and other acts, severely combat with criminal law to protect the holder’s property rights and maintain the order of social management and financial management order.

Written in the end

NFT itself technical issues, the reader is the circle, no need to elaborate. Sister Sa law, or from a legal point of view to analyze the connotation of NFT, as well as in China’s existing legal conditions, NFT as a virtual commodity its more appropriate to qualify as property rights. At the same time, in order to put an end to NFT speculation, gives some possible governance path. I hope to give practitioners and regulators a little reference, and look forward to the combination of technological innovation and popular demand for art in China, can blossom beautifully.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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