Due to the growing popularity of NFT tokens (non-fungible tokens), their qualification in light of existing legal regulations has become important. In particular, the possibility of classifying NFTs as "virtual currencies" within the meaning of Art. 1 sec. 2 item 26 of the Act of 1 March 2018 on Counteracting Money Laundering and Terrorism Financing (Journal of Laws of 2022, item 593) (hereinafter referred to as the "AML Act"), where we find the following definition of this term:
"26) virtual currency – this shall be understood as a digital representation of value that is not:
a) legal tender issued by the National Bank of Poland, foreign central banks or other public administration bodies,
b) an international unit of settlement established by an international organization and accepted by individual countries belonging to this organization or cooperating with it,
c) electronic money within the meaning of the Act of 19 August 2011 on payment services,
d) a financial instrument within the meaning of the Act of 29 July 2005 on trading in financial instruments,
e) a bill of exchange or a check
– and is convertible into legal tender in economic transactions and accepted as a means of exchange, and may be electronically stored or transferred or may be the subject of electronic commerce;”
In light of the above definition, how a given asset is used on the market becomes particularly important. Generally, NFTs have particularly high collectible value. A person acquiring a given asset with this characteristic is assured that no one else possesses the exact same good. This is similar to purchasing a painting painted for us by an artist, and only we possess that one specific copy. On the other hand, however, nothing prevents us from selling such a tokenized asset, particularly through cryptocurrency exchanges and other similar venues. If an asset is acquired for payment or investment purposes, this may also change its classification. This dynamic approach can be found in particular in the Financial Action Task Force (FATF) guides:* "Some NFTs that on their face do not appear to constitute VAs may fall under the VA definition if they are to be used for payment or investment purposes in practice. It is difficult to pinpoint the point at which a given NFT becomes more of a means of payment or an investment asset than a collectible.
If individual countries, including Poland, follow the FATF's interpretive path in this regard, it will require an individual assessment of each NFT in terms of its proper legal classification. It is also possible to adopt more general approaches, which, however, will have their advantages and disadvantages.
For example, if every NFT that was sold even once on a secondary exchange were considered a virtual currency, this would certainly constitute a significant abuse, considering that the buyer might have entered into such a transaction with the intention of acquiring a collectible asset. However, we could assess the situation differently if a given NFT were used multiple times to purchase goods or services (just as, for example, Bitcoin was used to pay for goods received). In such a case, it could certainly be considered a virtual currency under the Polish AML Act, as well as in accordance with the FATF position outlined above.
In the current situation, it is certainly difficult to clearly draw the line between NFTs that constitute virtual currencies and those that do not, except in quite obvious cases where a given asset has taken on the role that Bitcoin does in the market, even if on a smaller scale.
This alert is for informational purposes only and does not constitute legal advice.
author:
