Do NFTs qualify as crypto(virtual) assets?

Interest in NFTs is increasing recently. We are working on linking practical assets using NFTs and Web3 marketing in various industries such as the art industry, game industry, finance industry, and restaurant industry. Individuals to large corporations issue and sell NFTs for different purposes.

Meanwhile, various financial companies such as credit card companies and PG companies are partially restricting NFT sales. In particular, when an online platform service provider sells NFTs or NFTs related to real assets, approval is often not obtained.

The reason is that if NFTs are virtual assets and you can pay and purchase virtual assets in Korean won, they can in principle correspond to virtual asset operators and there are concerns about money laundering. In Korea, virtual asset operators are regulated by the Act on the Reporting and Use of Certain Financial Transaction Information (“Special Act”).

So, do NFTs qualify as crypto assets?

The Financial Services Commission of Korea is in the position that "the use of NFT as a means of payment or investment can be subject to regulation as a virtual asset, so it can be regarded as a virtual asset subject to regulation."

This position appears to be in accordance with guidelines issued by the FATF. On October 28, FATF said, “NFTs can be defined as non-replaceable unique digital assets that are used as collectibles rather than for actual payment or investment.

These assets do not fall under the “generally” FATF definition (which should be subject to regulation) of virtual assets. However, it is important to consider the nature and function of NFTs in reality, rather than just looking at the definition of NFTs or marketing phrases (whether NFTs are virtual assets).

Even if a NFT does not appear to be a virtual asset on the outside, it may fall under a virtual asset if it is used for payment or investment purposes.”

In the end, whether NFTs fall under virtual assets should be individually judged according to specific circumstances, taking into account their purpose and function. In other words, even NFTs using the same blockchain technology may or may not be subject to regulation depending on their substance.

Specifically, when purchasing NFTs, whether fiat money or virtual assets are used, whether NFTs are sold as a means of raising funds, and whether they are managed as a centralized wallet are carefully reviewed and judged.

Source: Hyunsoo Jin, Lawyer