NFTs have become a fixture in the global tech zeitgeist. In 2021, for the first time, the term ‘NFT’ surpassed ‘crypto’ in global search interest on Google. In China they are rising in prominence too, but, as with many things, this rise has distinctly Chinese characteristics. This article will give an overview of what NFTs are, how the Chinese government is supporting and regulating them domestically, and the key differences in approach between China and the rest of the world.
Quick facts about the NFT market in China:
- Some predictions place the NFT market in China at a growth rate of 150%, meaning it will reach $4.64 billion yuan annually by 2026.
- Large NFT releases sell out in moments. Jay Chou’s 10,000 Phanta Bears made around $10mil in 40 minutes.
- Alibaba’s Topnod processed 100,000 NFT transactions per second during Spring Festival 2022.
What are NFTs?
Traditionally, visual artists create a ‘Certificate of Authenticity’ to accompany any painting, sculpture, or print that they sell or intend to sell. Why? So that an owner can prove that they have the right to possess a given artwork, and that the artwork is genuine. The problem with certificates of authenticity is that they may easily be forged, they may be lost, and there is no formal tracking system to which they belong. Except for some of the most expensive artworks, there’s rarely anyone keeping an eye on an artwork’s trade history.
Imagine if there was a giant ledger, and in it, the details of all certificates of authenticity were recorded, along with the details of the artworks to which they pertain, and each time an artwork changed ownership, the ledger was updated. Imagine that this ledger was not maintained by one central authority, but was cross-checked by thousands upon thousands. And, that changes to any given entry could only be made by the individual who these thousands verified to possess ownership.
Ledgers like those have now been made, digitally, and they are known as blockchains. Now imagine that anything that can be digitally identified – given a digital signature – such as a song, a photo, a film, or even a digital artwork (one of which no physical copies have ever been made) may have entries. These entries on the blockchain are referred to as tokens. They are wholly unique, impossible to forge, constantly cross-checked by machines all over the world that are dedicated to maintaining a blockchains, and verifying transactions. In a word, they are ‘non-fungible’. Non-fungible tokens: NFTs.
How is China supporting and regulating the NFT market domestically?
The ability to truly verify ownership and data is incredibly powerful. The Chinese government recognizes this, highlighting the development of blockchain technology as one of the key foci of its 14th Five Year Plan. When it comes to the sale or trading of NFTs over creative products, it is supporting the market in a few key ways:
- It is supporting its own, state-backed blockchain (the Blockchain Services Network, BSN), that will allow for NFTs that are fully integrated with the Chinese yuan, and used by government agencies alongside private enterprises and individuals.
- It is making pro-active steps to form a regulated NFT market, in which speculative trading, through secondary markets, is either absent or kept to a minimum.
- It is integrating existing IP protections over creative content – most importantly, copyright – with the content tied to NFTs. This means that only creative content free of copyright infringement will qualify for placement on any Chinese NFT market.
(Jay Chou & Phanta Bear; Source: cn.thevalue.com)
How is the NFT market in China different to the rest of the world?
Quite fundamentally. For starters, blockchains in the rest of the world are decentralised – there are no sole decision-making authorities when it comes to their direction or maintenance, but instead blocs of contributors. In China, even the non-government created blockchains, such as Alibaba’s JingTan or Tencent’s Huanhe, are supervised, and contributed to by a controlled number of individuals.
Second, NFTs may not be traded for cryptocurrency. China has a strict ban on owning or trading cryptocurrency (with the exception of the digital yuan, which for all intents and purposes behaves like fiat); purchases and sales are made with fiat currency only. This is significant, given that most of the world’s NFT marketplaces process the majority of their transactions using cryptocurrencies.
Third, there are regulations placed on the behaviour and language of any organisation engaging in NFTs. Artworks with tokens on a blockchain, for example, are not ‘NFTs’; they are ‘digital collectibles.’ Organisations selling them must commit to protecting consumer rights, never mentioning cryptocurrencies, and ‘promoting national culture.’
Why do some think that China is likely to shape the future of NFT market trends?
Some observers think that the future for NFTs in China is uncertain, that the centralized and regulated approach may stifle the growth of a new and economically significant technology. Others think that China’s more cautious approach could be setting an example for other countries to follow.
Why? One reason is that a more regulated approach protects the market and consumers against volatility in two ways. First, by delinking NFTs from cryptocurrency, their value is insulated from the wild fluctuations seen in the crypto market. Second, the limits on trading capacity, especially in the larger marketplaces, reduce the chances for the value of a given set of NFTs to be artificially inflated, only for their value to crash and leave the majority of stakeholders worse-off. Another reason is the copyright compliance, which is an issue yet to be resolved in other jurisdictions.
Who are the main NFT players in China?
- Jingtan, AKA Topnod (previously Antchain Fan Points). Ant Group’s platform for distributing and purchases NFTs. Integrated with Alipay, collaborates with museums and brands; does not allow re-sell; gifting only possible 180 days after purchase.
- Huanhe. Tencent’s digital collectible platform. Similar to Jingtan, working with brands, museums and artists. Also no trading.
- NFTCN. The only marketplace in China where NFTs can be traded. There is some degree of integration with the Ethereum network, allowing for international verification of digital tokens.
NFT market entry in China can be quite different from its western counterpart. As explained above, the opportunity of a much more regulated and lucrative NFT ecosystem is already in place, but in order to start off on the right foot, you need to be sure that everything is done properly.
Throughout its 13 years of helping foreign and domestic brands/governments with their Digital marketing in China, Sekkei Studio has navigated the Chinese Digital Ecosystem and is familiar with its Ins and Outs. Reach out to us for your NFT project for China, we’ll be delighted to help shape the perfect solution for you.