Economy & Business
NFTs in Taiwan
NFTs are one of the "new kids on the block" in the world of investment but how are they being received and likely to be developed in Taiwan?
By Paul Shelton
Non-fungible tokens (or NFTs), are blockchain-based tokens that each represent a unique asset like a piece of art, digital content, or media.
An NFT can be thought of as an irrevocable digital certificate of ownership and authenticity for a given asset, whether the asset is digital or physical.
The first real sign of NFTs in Taiwan that caught the writer’s attention was in late March and involved a Swiss foundation issuing NFTs as incentives to attract donations to a Taiwanese account established by the government to help refugees forced to flee the Russian invasion of Ukraine.
The Humanity Token, produced by the Swiss non-profit foundation DECENT, issued NFTs of digital art by Ukrainian artist Maria Moroz.
These Ukrainian related NFTs are said to be a way to reflect a spirit of unity with Ukraine and to say "thank you" to the Taiwanese people who donated to the Ukrainian humanitarian relief efforts.
The Ukrainian NFTs were then followed on 18 April when low-cost carrier Tigerair Taiwan announced plans to sell NFTs of images of its tiger mascot. These Tigerair NFTs, which are being produced in cooperation with Taiwan's largest cryptocurrency trading platform MaiCoin, are expected to go on sale in May.
The buyers of Tigerair NFTs will also get the chance to go on a trip to France to take part in the delivery of an A320neo and will also get the right to fly with Tigerair in unoccupied seats as a crew member by paying taxes only.
So, are NFTs seemingly restricted to art and/or digital images? Apparently not, and although not directly related to Taiwan, it has been reported that a group of TikTok- and Instagram-famous physicians say they have a solution for the "red tape" of the current medical system (presumably the US system): NFTs of cartoon doctors.
These NFTs, called MetaDocs, are supposed to give buyers access to real doctors. When MetaDocs was launched in December 2021, it claimed that its legion of celebrity doctors, who were reported to have a collective social media following of 70 million would all be available via DM, group "ask me anything" sessions, or one-on-one video chats to those who buy in.
Unsurprisingly, MetaDocs is facing backlash from the US medical community, in part because it is not actually licensed as a telemedicine service and thus its doctors cannot legally make diagnoses, write prescriptions, or give personalised medical advice to anyone who buys a MetaDocs NFT. It is difficult to imagine how MetaDocs would play out in Taiwan’s healthcare system, at least as it is currently structured.
Currently, there are no regulations specifically addressing the rise and development of NFTs in Taiwan (as opposed to cryptocurrencies and related exchanges), and the regulator (the Financial Services Commission, FSC) does not seem to have revealed any official view on this trend. But it would be prudent to believe the FSC is maintaining a "watching brief" on new trends such as NFTs.
The classification of any Taiwan affiliated NFT and related activities or transactions should be determined on a case-by-case basis.
As noted above, NFTs are commonly structured to represent digital artworks and this has extended to musical works, collectables, sports cards and photo albums, and their classification would depend on the structure and the linked assets or interests, among other factors.
At present, it does seem that, in Taiwan, an NFT would not be deemed to be a security, or any other financial instrument that falls under existing financial instruments regulation, as long as the NFT is linked to or represents a unique underlying asset. However, neither this article, nor the author cannot completely rule out the applicability of financial law and securities regulations due to any particular NFTs possible investment character.
It really all depends on the terms and conditions attached to the NFT. The NFT purchaser might only be entitled to view the digital artwork and will not acquire its ownership in any form. This restriction of "entitlement" may even extend to the artwork’s electronic files.
The purchaser of an NFT should carefully assess and understand all the legal rights, titles and interests in and to the NFT before making the decision, from the perspectives of the NFT itself and the assets and/or interests linked to it.
The NFT creators or issuers should also specify the rights the NFT holder would acquire in the offering terms (or equivalent to it), with a focus on the accuracy of the product descriptions and warranties, as well as the avoidance of any form of "over-promise".
For example, the terms should not suggest to offer a form of digital ownership behind the NFT, while in reality the holder merely has the right to view the asset and does not own the content. Failure to be clear would leave the buyers and creators open to civil, or consumer disputes or even the potential of some form of criminal liability (especially in the case of some fraudulent misrepresentation). Should sufficient negative "noise" concerning NFTs arise, this would undoubtedly raise the attention level of the FSC and relevant government authorities.
In practice, it can be expected that NFT marketplaces, platforms or exchanges where NFTs can be listed and traded will expand and even proliferate in a tech savvy market such as Taiwan, and as with ordinary electronic commerce platforms, the standard terms and conditions for these marketplaces should specify the rights and obligations of the registered users or members.
NFT marketplace operators should be expected to carry out necessary due diligence investigation, commercial and legal, on the NFT to avoid any potential liability due to any law violation or third-party claim by the NFT creator or issuer. The agreement between the marketplace operator and the NFT creator or issuer should, for the avoidance of doubt clearly state the division of liabilities that may arise.
In this day and age, we must also be alert to the possibility of NFT related technology risks, such as security breaches, unauthorised intrusions or breach by hackers, service disruptions or technical malfunctions of relevant networks, which may even cause the unavailability of the offering. What happens when a buyer cannot even view what they believe they have bought, for example?
And finally, at least for the purposes of this article, intellectual property (IP) rights, especially copyright, also pose a critical issue for NFTs if the underlying assets involve artworks, photographic works, musical works, and recordings. NFT creators or issuers must ensure that they have the necessary licences or authorisation from the IP owners before issuing any NFT.
It will be interesting to watch the NFT market in Taiwan and see how it develops.
Paul Shelton is a consultant with 30 years of experience in the international financial services and related industries with skills in all aspects of legal and financial crime compliance and regulatory relationship advisory and management.