Quick take:
- Malta wants non-fungible tokens off its crypto law ahead of EU legislation.
- The regulator argues the uniqueness of NFTs prevents them from being used for payment purposes or as investments.
- Meanwhile, a Chinese court just ruled NFTs are virtual assets.
Just as the European Union moves closer to launching new crypto legislation, the Malta Financial Services Authority (MFSA) is taking a proactive measure in readiness for the new rules. The Mediterranean country announced on Monday it will be removing service providers for non-fungible tokens (NFTs) from laws governing virtual assets transactions.
The decision refers to Malta’s 2018 Virtual Financial Assets (VFA) Act, which requires firms to issue investors with product whitepapers before issuance. The document published on Monday is seeking feedback from stakeholders about the proposed treatment of NFTs going forward.
NFTs are blockchain-based digital representations of JPEGs, collectibles, artwork or virtual goods. Several countries around the world including, the US, India, Singapore and Israel have issued guidelines for NFT regulation.
The IRS recently changed the working around NFTs in its latest instruction for the 2022 tax year, classifying them under digital assets. Earlier in the year, India categorised NFTs under virtual assets, also announcing a 30% tax, while Israel and Singapore updated their tax policies to tax profits made from the sale of NFTs.
Malta’s decision to remove NFTs from its crypto laws is based on the fact the uniqueness of non-fungible tokens, which makes them difficult to transact with or invest in.
“The Authority notes that the typical features borne by NFTs, namely their uniqueness and lack of interchangeability, limit the extent to which such assets may be used for investment or payment purposes,” the document reads.
Yet, while Malta searches for a way out, another economic power could be about to join the “Wild West” of NFTs.
China, one of the biggest critics of non-fungible tokens, may be about to re-enter the arena. That’s at least according to one court ruling reported on Monday. The ruling refers to a digital company (the defendant) headquartered in Hangzhou which offers a digital artwork platform for creators and a user (the plaintiff) of the platform.
The company announced a blind action NFT project in February 2022 that the plaintiff participated in spending 999 yuan. However, after failing to deliver the product, it refunded the 999 yuan to the plaintiff.
The plaintiff did not accept the refund and instead sued the company to complete the contract, or pay 99,999 yuan.
After the trial, the court ruled that “the transaction objects involved in the case were NFT digital collections, not NFT equity certificates. The special feature of this case is that the subject matter of the transaction between the two parties is an NFT digital collection, so it is necessary to confirm the legal attributes of the NFT digital collection first.”
In defining the legal attributes of an NFT, the court described NFTs as having characteristics of a property such as value, scarcity, controllability, and tradable adding, “at the same time, they also have the unique attributes of network virtual property such as network virtuality and technology and belong to network virtual property.”
“The contract involved in the case does not violate the laws and regulations of our country, nor does it violate the actual policy and regulatory guidance of our country to prevent economic and financial risks, and should be protected by the laws of our country.”
The court likened selling NFTs to virtual property “e-commerce goods”, which are protected by the E-commerce Law.
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