As South Korea prepares to implement its 'Virtual Asset User Protection Law' on July 19, regulatory authorities have released guidelines on the classification of Non-Fungible Tokens (NFTs) as virtual assets. This move aims to provide clarity and transparency to businesses and individuals operating in the NFT market.

Previously, financial authorities had announced through the 'Virtual Asset User Protection Law Enforcement Order' that NFTs would not be considered virtual assets. However, the new guidelines retain this principle while acknowledging that NFTs with characteristics of virtual assets may be subject to the law.

Companies issuing NFTs are now required to declare their business as a virtual asset business to the competent department. This requirement ensures that NFT issuers comply with the necessary regulations and provide protection for users.

The Financial Services Commission has outlined specific criteria for determining whether an NFT should be classified as a virtual asset. NFTs generally traded for the purpose of 'content collection' will be excluded from the scope of virtual assets. For ambiguous NFTs, the application of the law depends on the substance of the NFT, determined in the order of 'securities → virtual assets'.

The guidelines provide a clear framework for assessing whether an NFT should be considered a virtual asset. The criteria include factors such as large issuance or large-scale series with high substitutability, divisibility with significantly weakened uniqueness, direct or indirect payment methods for specific goods or services, and the ability to conduct virtual asset exchanges between unspecified persons or make payments for other virtual asset-related goods or services.

These guidelines are expected to provide much-needed clarity to businesses and individuals operating in the NFT market in South Korea. By establishing clear regulations and criteria for classifying NFTs as virtual assets, the government aims to protect users and ensure the responsible growth of the NFT ecosystem.