Protection of Non-Fungible Tokens in Singapore
NFTs are now the newest digital treasures in the entertainment, sports, art, esports, and gaming industries thanks to their recent growth in popularity. Non-Fungible Tokens ("NFTs") are a class of blockchain-based digital assets that best describe ownership of a digital good. The fact that NFTs represent a unique item existing in the digital world sets them apart from other digital tokens. In other words, because each NFT is distinct, you cannot just make several clones of a single NFT. A rare original arcade gaming console, for instance, is not fungible. In-game objects, artwork, pictures, films, GIFS, and other media are more examples (such as an avatar or a rare gaming asset).
Because of the invention of NFTs, there is now a market where digital football trading cards, music CDs, and clips of NBA basketball games are bought and sold directly between digital artists and customers on various NFT marketplaces or platforms. The ability to get royalties each time a buyer sells the NFT that represents their work to another person makes NFTs a useful alternative avenue for artists and producers of digital material to commercialise their work. The buyer will need to pay with cryptocurrency that has been approved by the market in order to make a purchase (often in the form of Ethereum as the majority of NFTs are Ethereum-based).
One of the most distinguishing characteristics of NFTs is that they are typically unique, meaning that the purchaser of an NFT receives exclusive ownership rights (i.e., an NFT can only have one owner at any given time) and that, unlike other types of digital assets, NFTs cannot be exchanged with one another because they are not valued equally (i.e., NFTs are non-fungible).
Although there aren't any specific rules governing NFTs in Singapore right now, depending on the traits and function of a given token, it may fit within an existing legal category and be subject to a particular regulatory framework. The Monetary Authority of Singapore (MAS) is responsible for ensuring that laws governing monetary policy, securities, banking and finance, and insurance are followed by the industry.
Digital tokens and cryptocurrencies are not recognized as a form of legal tender under Singapore's Currency Act (Cap. 69) (CA) (Currency Act) and are thus not governed by the rules established by the MAS under such Currency Act.
As a result of NFTs' non-fungible nature, which only permits an exchange for certain products, it is generally agreed that the Payment Services Act 2019 of Singapore (PSA), which governs cryptocurrency service providers and digital payment tokens, does not apply to them. The PSA exempts tokens that fall under the category of "limited purpose digital payment tokens" from its applicability. A "limited purpose digital payment token" is defined as follows:
"Any non-monetary customer loyalty or reward point(s), any in-game asset(s) or any similar digital representation of value that:
- cannot be returned to its issuer, transferred, or sold in exchange for money; and
- may only be used:
- in the case of non-monetary customer loyalty or reward point(s) - for the payment or part payment of, or in exchange for, goods or services, or both, provided by its issuer or any merchant specified by its issuer; or
- in the case of an in-game asset - for the payment of, or in exchange for, virtual objects or virtual services within an online game, or any similar thing within, which is part of or in relation to, an online game".
Therefore, based on the definition provided above, it is likely that NFTs may fall within the scope of limited purpose digital payment tokens, which are exempted from the application of the PSA.
Furthermore, NFTs are also not recognized as an approved mode of payment for goods and services, which means that they are not likely to fall within the definition of "digital payment tokens" regulated under the PSA. In this respect, the definition of a "digital payment token" is as follows:
"Any digital representation of value that is expressed as a unit, not denominated in any currency or pegged to any currency, intended to be a medium of exchange accepted by the public as payment, and which can be transferred, stored or traded electronically".
The sale or issuance of digital tokens may be subject to regulation by the MAS in accordance with the law on securities, provided that they qualify as "capital markets products" under Singapore's Securities and Futures Act (Cap. 289). (SFA). In this regard, the issuing of a digital token shall be subject to the regulations on the offering of securities and the licencing requirements for dealing in securities when it is determined that a digital token constitutes a type of capital markets product due to its characteristics or purpose.
However, it is unclear if NFTs would be governed by any laws or regulations because the competent authority has not issued any explicit regulations or decisions regarding the legal standing of NFTs. Therefore, it remains to be seen how NFTs will be regulated under the laws of Singapore.
Conclusion
In one of the first cases of its kind that could have significant implications for digital assets, a court in Singapore has issued a freezing injunction prohibiting the sale of a Bored Ape nonfungible token. The NFT case is a consistent application of the same premise. The law does recognize both fungible and non-fungible tokens as a form of property to which court injunctions can attach. However, it is the first time in a business dispute that NFTs have been found to be valuable assets that merit protection. The inference is that NFT is a digital asset with rights that can be protected and is more than just a collection of numbers and codes stored on a blockchain. NFT issuers (especially those of high value NFTs) or key NFT marketplaces may increasingly be encouraged to have an open registry of NFTs where the ownership of the specific NFT is formally disputed in courts of law.
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