Arbitral institutions can support resolving NFT disputes | China

ONE non-fungible token (NFT) is a unique digital proof of rights registered in the blockchain that cannot be copied, replaced or separated. It is similar to bitcoin in that both can be sold and traded, but unlike bitcoin, NFTs are unique and identifiable assets due to the artistic, societal and cultural values ​​associated with them.

NFTs first appeared in May 2014, in the form of a video clip that sold for $4. Although it did not attract much wider attention, NFTs began to be traded by some buyers on the blockchain. NFT’s big breakthrough came at the beginning of 2021, and since then their artistic, social and cultural qualities have attracted celebrities, businesses and enthusiasts in culture, sports and other areas.

In China, tech giants such as Tencent and ByteDance have ventured into the NFT industry. With the subsequent development of NFT platforms, some literary and artistic bodies in China turned their works into NFTs and distributed them via such platforms.

On November 11, 2022, FTX, an NFT trading platform in the US, unexpectedly went bankrupt, drawing everyone’s attention to the risks of trading NFTs. But there have been controversies regarding NFT’s properties since its inception.

In China, some researchers believe they are a virtual currency, while others claim they are digital works. The NFT Group of Shanghai Law Society suggests that NFTs should not only be taken as currency or civil law objects, nor should they be classified as virtual properties. Instead, they should be defined as encrypted digital certificates.

Nevertheless, regardless of the nature of NFTs, there is broad agreement that they will continue to grow, and that NFT trading markets should be further regulated.

Before 1 January 2023, NFTs could only be distributed. However, with the official launch of China’s first national compliance platform for secondary trading of digital assets, the China Digital Asset Trading Platform, NFT transactions are now regulated.

This measure benefited from the government’s innovation in establishing a secondary market for NFTs. The 14th Five-Year Digital Economy Development Plan in Shanghai, released on July 12, 2022, clearly states that it will “support leading enterprises in exploring NFT trading platforms.”

The policy statement on the development of virtual currencies in Hong Kong also explicitly supports the development of NFTs and cryptocurrencies.

Trading comes with risks, which are managed with professional dispute resolution mechanisms. Arbitration as a resolution mechanism is well suited to resolving disputes about NFTs for the following reasons.

First of all, in the face of new disputes for resolution, arbitral institutions can appoint an arbitrator who is engaged in a related/similar field, or who has the necessary knowledge to decide the corresponding disputes.

Second, due to the inherent characteristics of NFTs, disputes over them are complex and may require the arbitrators to have the ability to handle legal issues involving intellectual property rights, property rights and securities, as well as expertise in such industry sectors as information technology and media .

Arbitral institutions may hold regular salons or seminars for experts in the above fields, providing opportunities for exchange and mutual learning to equip them with a team of arbitrators fully competent to resolve NFT-related disputes.

Finally, when faced with new transactional issues, in the absence of mandatory or effective laws and regulations, arbitrators should be equipped with a clear commercial mindset to regulate, protect and promote the relevant transactions.

Arbitration arises from commercial transactions and is intended to return the favor. The promotion of commercial transactions has always been the starting point for arbitration logic and thinking.

In summary, arbitral institutions have obvious advantages in dealing with new types of trade. In light of the establishment of the Digital Asset Trading Platform in China, and in response to the opinions to promote the implementation of China’s cultural digitization strategy, we should enable arbitration institutions to help ensure the security of NFT transactions and promote their development.

Fu Xiangyu is a cadvice on BAC/BIAC