Lee Bok-hyun, the governor of South Korea’s Financial Supervisory Service (FSS), is set to have a meeting with Gary Gensler, the chair of the U.S. Securities and Exchange Commission (SEC), in May. The purpose of their meeting is to discuss whether to classify non-fungible tokens as virtual assets. Currently, NFTs are not seen as virtual assets in Korea, but there is a high likelihood of them being acknowledged as such following the meeting in May, local financial media outlet Edaily reported.
Lack of definition for Non-Fungible Tokens
An NFT is a digital certificate of authenticity that is not fungible or replicable. NFTs tokenize content or assets of various types – from images, music, videos, games and artworks to real-estates – by assigning a unique token ID to them. Many see 2018 as the year NFT technology was first introduced.
Despite its wide range of applications, no legal definition has been made for NFTs. Some view NFTs as technology, and others as virtual assets or securities. The Korean government decided not to recognize NFTs as virtual assets under the Virtual Asset Protection Act (Virtual Asset Act), effective in July. Behind this decision is a perception that NFTs are less likely to pose significant risks to the market, as a large portion of Non-Fungible Tokens are now traded by collectors seeking to expand their private collections.
However, NFTs are increasingly seen as speculative destinations by many investors over time, as prices of virtual assets including BTC surge. This shift backs the local movement to recognize Non-Fungible Tokens as well as spot bitcoin ETFs as virtual assets.
Opposition from NFT businesses
Blockchain industry insiders say defining Non-Fungible Tokens is of utmost importance, noting that classifying NFTs as virtual assets headfirst could deal a heavy blow to businesses in this sector. One finance insider mentioned that defining Non-Fungible Tokens comes down to understanding their purposes and how they are utilized. If NFTs are primarily used for speculative purposes or as currency, they could be recognized as virtual assets, the person said.
The biggest resistance is coming from NFT-related businesses. That is because recognizing NFTs as virtual assets would require these businesses to obtain a virtual asset service provider (VASP) license from the financial authority, which takes significant costs and workforce in the process.
A CEO of a blockchain startup, who preferred to remain anonymous, expressed concerns about the possibility of NFTs becoming virtual assets, saying that such recognition would enable NFT transaction tracing, potentially leading to severe violations of human rights.
While many industry insiders expect that the financial authorities will bring NFTs under the forthcoming Virtual Asset Act, the FSS stated that no decisions have been made regarding details of the upcoming meeting with the U.S. SEC.
