A few days ago, two seasoned practitioners with years of experience in China’s NFT digital collectibles industry visited Mankun Law Firm for discussions. They shared various remarkable experiences from their past two to three years in the industry and addressed many concerns raised by platform operators and entrepreneurs. Many of these topics reflect the confusion faced by those seeking to launch ventures in the NFT space amid the current regulatory landscape.

With the aim of promoting positive industry development, and subject to appropriate anonymization, Mankun Law Firm has transcribed the discussions between Attorney Liu Honglin and the two guests into this article, hoping to provide some insights or inspiration for entrepreneurs in related fields.

 

Current Status and Policies of China’s NFT Industry

First, there is widespread concern:Does the state currently permit the operation of NFT digital collectibles? 

Many entrepreneurs worry that their projects might be directly deemed illegal, or even expose them to criminal risks. However, Attorney Honglin’s view is that, from a legal perspective, the state has not explicitly prohibited NFT digital collectibles. Neither two years ago nor today in 2024 has the state issued any policies restricting the development and sale of NFT digital collectibles, nor has any document negated their market value.

On the contrary, some local governments have introduced supportive policies. Taking Shanghai as an example, support policies for blockchain enterprises have been successively released over the past two months. This indicates that although certain practices under the guise of NFTs are sensitive under domestic regulation, they do not lack commercial viability. Commercial attempts integrated with industries and the digital economy are even somewhat encouraged by policy. Of course, entrepreneurs should note that the NFT sector remains in a relatively early stage; the absence of specific regulation does not mean absence of risk.

 

The Relationship Between NFTs and Digital E-commerce

From Attorney Honglin’s personal perspective, it is recommended thatentrepreneurs regard NFT digital collectibles as a new generation of digital e-commerce.

Compared to abstract concepts such as decentralization or true user ownership of assets, which often draw parallels between NFTs and cryptocurrencies, it is more reasonable for the general public and consumers to understand them as virtual goods. For instance, purchasing an NFT digital collectible, whether its content is digital art or a virtual souvenir, is essentially no different from buying a QQ avatar skin or virtual items online. Both constitute transactions of virtual goods conducted through digital platforms.

Some may argue that legislation governing China’s NFT digital collectibles industry is imperfect and expect specialized legislation in the future. However, this is unnecessary. The reason is simple: existing legal norms are quite comprehensive. All issues currently encountered in this industry are either addressed in the Civil Code or covered under the Criminal Law. Regulatory authorities are unlikely to enact specialized legislation targeting NFT technology specifically; the core legal focus remains on the transactional and consumer behaviors associated with these products. Just as purchasing game skins does not entail special legal issues, the same logic applies to buying NFTs.Entrepreneurs should view NFTs as part of internet e-commerce, rather than as a separate, specialized track.By strictly adhering to standard e-commerce platform regulations in operations—such as consumer rights protection and advertising compliance—legal risks can be significantly reduced.

 

Trends in Legal Disputes: Increase in Civil Disputes

In recent years, disputes involving NFTs have indeed increased, particularly cases concerning infringement and consumer contract disputes. Previously, discussions focused on platforms absconding with funds or consumer fraud. However, as more litigation cases involving NFT enterprises become public, you will find thatconsumer rights protection has gradually become the focal point. This indirectly demonstrates that NFTs are being treated as conventional virtual property, and the legal environment is progressively becoming more standardized.

However, entrepreneurs must also recognize that due to the virtual nature of NFTs, certain issues are more prone to arise. For example, some platforms may exploit the virtual attributes of NFTs for improper marketing or infringing activities. To avoid such legal disputes, enterprises must strengthen compliance measures during operations, particularly ensuring strict control over platform transaction transparency, fund security, and user data protection.

 

Legal Risks of 'One-Yuan Purchase' and 'Battle Royale' Models

Within the industry, certain models such as 'One-Yuan Purchase' or 'Battle Royale' were highly popular at one stage. From our perspective, these represent typical high-risk business models. While these practices are not inherently illegal, they easily tread upon legal red lines.

Many platforms use the 'One-Yuan Purchase' model to allow users to draw high-value NFT collectibles at extremely low prices. The risk increases substantially when the platform involves bidirectional exchange between fiat currency and virtual property. For instance, if users purchase platform chips with fiat currency, use these chips to draw NFT collectibles, and subsequently cash out through the platform or cooperating third parties, improper platform operations may easily incur criminal liability for operating a casino. Therefore, it is advisable to assess risks from a legal compliance perspective when adopting such models, avoiding legal predicaments caused by oversight.

 

The Importance of Choosing Company Registration Locations

For current NFT digital collectible entrepreneurs, selecting the company’s registration location is crucial. We have observed that many companies previously chose to register in places like Hainan or Chengdu to leverage policy dividends. However, as some local policies have tightened, numerous enterprises have chosen to relocate. Conversely, cities such as Shanghai, Shenzhen, and Hangzhou, due to the dense aggregation of internet enterprises and law enforcement agencies’ relatively better understanding of new technologies, offer policy and enforcement environments more suitable for the establishment and development of NFT businesses.

For example, Shanghai’s blockchain policies are not only open, but local courts also demonstrate a higher level of understanding of blockchain technology, which facilitates entrepreneurs in resolving legal disputes. Such differences in city selection determine the varying legal environments and policy support entrepreneurs encounter during operations. Therefore, choosing an appropriate registration location can help companies mitigate risks from policy changes and secure better development opportunities.

Furthermore, maintaining good relationships with local regulatory authorities and avoiding unnecessary negative social impact is another critical aspect for entrepreneurs. We have seen many companies facing significant online controversy without suffering administrative penalties or other adverse legal consequences. This is often because these companies communicated promptly with regulators, responded quickly to user complaints, and resolved issues through negotiation or settlement, thereby alleviating unnecessary burdens on regulatory authorities. Maintaining positive interaction with regulators is vital. This not only aids long-term enterprise development but also effectively reduces legal risks. For entrepreneurs, this is a long-term strategy requiring continuous compliance awareness throughout business operations to avoid crossing regulatory red lines.

 

Summary by Mankun Lawyers

NFT entrepreneurs are not without opportunities under the current policy and legal environment. In fact, provided compliance is maintained, there remains considerable market space. It is important not to be misled by short-term market volatility, especially when operating platform models, where clear legal risk prevention awareness is essential. We hope this article provides some inspiration for entrepreneurs in the NFT field. If you have further legal questions, feel free to discuss them with us.

 

 

This article is an original work of Mankun Law Firm. It represents only the personal views of the author and does not constitute legal consultation or legal advice on specific matters.

 

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