Chinese regulators continue to eye non-fungible tokens (NFTs) with skepticism, with the latest show of doubt coming from the Supreme People’s Procuratorate of China.
In a publication, Supreme People’s Procuratorate of China highlighted several risks associated with investing in digital collectibles, urging consumers to stay away from the asset class. The May 15 report noted that NFTs are subject to several illicit vices like unauthorized fundraising, scams, and price manipulations that put investors at risk.
The absence of proper industry regulations has transformed it into the “wild west” of Web3, requiring immediate government action, according to the report. Wang Xia-fen, one of the publication’s authors, added that some NFTs in the industry are not even minted on distributed ledgers and are total fakes.
“It’s widely recognized that digital collectibles have the potential to protect intellectual property rights, boost content creation, and enrich the digital economy,” Wang opined. However, the government “will have to find the distinction between real innovation and criminal activities.”
The report offered several solutions, beginning with a major crackdown on all criminal activities linked with digital collectibles. The report urges law enforcement agencies to cooperate with other bodies to conduct proper investigations of NFT projects to prevent loss of funds.
NFTs have been on the rise despite a blanket ban on digital currencies in China back in 2021. The Chinese government seems to have given the nod to NFTs in the country, provided that users abstain from engaging in speculation trading, a rule that investors have largely ignored.
Rising adoption has an unintended effect, as the State Administration for Market Regulation confirmed that it recorded 59,700 complaints related to NFTs in 2022. The figures from 2021 barely amounted to 1,000 complaints, with the new spike related to grave issues such as fraud and the benign concerns of high transaction fees.
A ruckus for the local NFT industry
Investors in China’s NFT space are bracing for sweeping changes in the industry following increasing regulatory interest. The first such changes came in December 2022 after a court in Hangzhou confirmed that NFTs can enjoy legal protection under Chinese law as property.
The topic of NFTs featured prominently in China’s Two Sessions meeting as lawmakers around the country pushed for broader regulations for the asset class. While regulators were urged to collaborate on new rules, NFT firms and industry stakeholders were advised to promote “self-discipline and self-regulation” among their ranks.
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