For the first time, South Korea has announced it is coming up with a new law that controls the operations of Non-Fungible Tokens (NFTs). The new rules are anticipated to significantly impact platforms, investors, and innovators within the NFT ecosystem in the country. The swift ascent of cryptocurrencies and digital assets has long caused the South Korean government to exercise caution.
The government has acted due to their increasing popularity and the substantial financial stakes. The financial regulatory body of South Korea, the Financial Services Commission (FSC), declared that NFTs would now be categorized as virtual assets. Because of this classification, NFTs are subject to the same laws and regulations as other digital assets, including cryptocurrencies.
The FSC underlined that the action is intended to safeguard investors and stop illegal fraud and money laundering. To comply with the new legislation, NFT platforms must put strict know-your-customer (KYC) and anti-money laundering (AML) procedures in place. Also considered in the new law is that the platforms will have to confirm users’ identity and alert authorities to any questionable transactions.
South Korea To Tax NFTs, As Investors Comment
NFT transactions will be taxable, and platforms are required to ensure these tax laws are followed. These modifications increase security and transparency for creators and collectors in the NFT market. In order to make sure their works adhere to the new regulations, creators will need to navigate the regulatory environment, and collectors may come under more scrutiny for the validity of their transactions and the sources of their funding.
The industry has responded to the announcement in various ways. Some see the laws as an essential first step in protecting investors and legitimizing NFTs. Others worry that the burden of regulations may impede innovation and force NFT operations to less regulated areas.
Commenting on the topic, a self-employed digital artist, Lee Jae-hyun, expressed worries about the possible effects on smaller producers. Lee states, “Small platforms and individual artists may find the regulatory requirements too difficult to adhere to.” Lee suggests government assistance and to successfully manage these changes.
South Korea Considers Strict Regulations, Exclude “General NFTs”
FSC Blockchain is responsible for organizing various NFT applications. It has been deemed reputable for developing special non-divisible NFTs specially designed to operate with a small monetary value. A typical example is seen with those NFTs seen in digital certifications and concert tickets. These NFTs are tagged the “general NFTs” and are not included in the set of NFTs with strict regulations.
The new regulation also allows NFTs to be tagged securities should they have security attributes as described in the Capital Markets Act of South Korea. The approach is created to ensure that the new regulation blends into the changing NFT ecosystem and becomes compact with the global digital space.
Defaulters of this regulation could incur heavy financial penalties, and in most cases, they would be fined based on criminal penalties. South Korean FSC has accepted the NFT industry’s complexity and requested consultation services to help the industry navigate the new regulation.
South Korean NFT Future Looks Positive, Targets $4 Billion By 2028
The South Korean NFT industry is advised to properly scrutinize the FSC rules to determine the authenticity of their product offerings. Every NFT company operating within the country is expected to adhere to the country’s Specific Financial Information Act, which governs the transfer, exchange, sales, brokerage, and storage of all virtual assets.
The request includes the provision of real-time examples and real-world case studies that can assist companies in comfortably allocating their NFT products. Meanwhile, the NFT industry in South Korea is fast gaining weight. In 2022, the industry value was estimated at $938 million, and it has been projected to reach $4 billion by 2028, a yearly Compound Annual Growth Rate (CAGR) of 34%.
South Korea has recently witnessed a considerable increase in NFT ownership. The country’s database records show that NFT holders rose from 10,000 in 2020 to 760,000 in 2021. The numbers are expected to rise to 970,000 by the end of 2024 and 1.02 million by 2025.
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