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NFTs Under New Scrutiny in South Korea

South Korea Nfts

According to Yonhap news agency, the top financial regulator in South Korea released fresh rules targeted at non-fungible tokens on Monday to provide regulatory clarification on NFTs.

NFT Classification Criteria

According to the new rules, some NFTs will be controlled by the Financial Services Commission (FSC) as conventional cryptocurrencies should they lose the special characteristics that set them apart from cryptocurrencies.

Under regulations, the FSC might identify an NFT as crypto if it is mass-produced, reasonably exchangeable, able of being fractionalized, or utilized for payments for goods and services, Yonhap reported, citing the rules.

Conversely, ordinary NFTs would be digital tokens with limited to zero economic value and a non-transferable nature. An NFT ticket for a performance or proof of transaction would be two instances of such.

Case-by-Case Analysis for NFTs

An FSC official informed Yonhap that a collection with around a million NFTs issued may be sold and utilized as a payment method akin to cryptocurrencies. The FSC noted, however, that it would distinguish NFTs as crypto in the regulatory setting by means of a case-by-case analysis and that there would not be one absolute criterion applied to understand NFTs as crypto.

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According to the new rule book published by the FSC, an NFT can also be categorized as a financial security, provided it exhibits matching traits outlined in the Capital Markets Act of the nation.

The new rules come before South Korea’s first crypto-oriented legislative framework, which will be in force starting on July 19. Named the Virtual Asset User Protection Act, the law seeks to abolish illegal market activities, including exploiting unreported information for crypto investments, market price manipulation, and fraudulent transaction participation.

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Protecting User Funds

In order to preserve user funds and register in insurance programs for possible user reimbursement in the case of security breaches, the act also mandates that bitcoin service providers guard over 80% of deposits in cold storage.

Part of South Korea’s two-part legislation aiming at creating a legal framework for the cryptocurrency sector is the new law. Currently under development, the second half of the control centers on standardizing crypto token issuing and information disclosure for investors.

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