China’s leading consumer watchdog, the State Administration for Market Regulation, released a new report indicating a spike in consumer complaints linked to non-fungible tokens (NFT) in 2022.
The report ranged from criminal actions involving price manipulation, failure to receive products after making payments, and benign issues like high transaction fees and refund challenges. The regulator’s report serves as a precursor to World Consumer Rights Day, designed to raise consumer protection awareness.
According to the Chinese regulator, the number of NFT-related complaints rose by an astronomical 30,000% to settle at 59,700 separate complaints in 2022. In 2021, the regulator only recorded 198 complaints pertaining to digital collectibles, with the figures almost non-existent in 2020.
Several reasons have been offered to explain the surge in the number of NFT-related complaints in China, including the self-regulatory nature of the local industry. Without government control, the Chinese NFT market is steered by a coalition of tech giants united in their stance against the practice of secondary trading.
Since Chinese authorities imposed a blanket ban on digital currencies in the country, the local NFT market has grown by leaps and bounds without any limiting regulation. Considered a grey area, some policymakers have voiced their concerns over the sector, while others are keen on tapping into the economic potential of digital collectibles.
Chinese parliament member Feng Qiya is keen on establishing a semblance of regulatory control over the industry by making NFTs a main topic of discussion at the country’s most important political gathering called Two Sessions. Feng’s proposal is pining for the nationwide ban on the “financialization and securitization” of NFTs.
The recent moves are coming at a time when Huanhe, the NFT marketplace of Tencent Holdings (NASDAQ: TCTZF), is bringing down the curtains on its services following internal turmoil. Other Chinese NFT firms are migrating to Hong Kong and other jurisdictions in search of regulatory clarity to innovate and offer services to new clients.
Uncertain but still protected by the law
A recent judgment from the Hangzhou Internet Court stated that digital collectibles in China could enjoy protection under extant property laws, given their value, scarcity, tradability, and controllability characteristics.
“NFTs condense the creator’s original expression of art and have the value of related intellectual property rights,” said the court.
By virtue of the court’s decision, legal pundits have submitted that digital collectibles can be considered to be virtual assets, a decision that will lay a precedent for other courts with the same jurisdiction.
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