China's Unique Approach to NFTs

Don't underestimate China's more cautious approach to NFT platforms

The NFT hype of 2022 has been tremendous, lighting up an idea of what Web 3.0 will become in the 2020s. Everyone from Coinbase, Instagram to Disney (among dozens of others) are building NFT marketplaces.

A non-fungible token, or NFT, is a blockchain-based record that represents unique items that are non-interchangeable. You’ve probably heard about some of the most common forms of NFT, such as digital art, photographs, music, video, in-game items, and other forms of media, but NFTs can really be used to show ownership of just about anything. 

China’s Regulation Can Build a More Enduring Ecosystem for NFTs

With China cracking down on gaming and especially MMOs, it’s hard to say exactly how NFTs will be regulated in China. NFTs can really be used to show ownership of just about anything and in China its more about blockchain and digital collectibles.

Popular NFT trading platform OpenSea launched in 2018, steadily introducing more people to trading digital arts. Last year, the market saw an increase in popularity, with trade volume hitting $23 billion, according to Forbes. 

With NFT artists selling their creations for millions of dollars, the hype has created a new spectrum for FOMO online. NFT was probably the most popular word in 2021, and this phenomenon continues into 2022. Global search interest for ‘NFT’ surpassed ‘Crypto’ for the first time in 2022, Google Trends data reveals, reflecting the fact that it has now entered mainstream consciousness.

So far in China, it seems it too has embraced controlled versions of blockchain technology, such as the digital yuan, encouraging its growth in various sectors. So far, China has allowed NFTs but banned people from speculating and trading them. Regulation like these could mean China’s NFT marketplaces and ecosystems will be more practical and robust, with less fleeting speculation and opportunities for fraud.

A Consortium of Blockchains, Centralized Digital Collectibles Libraries for Culture and the Arts

A Tencent-led project becomes first UN-approved standards initiative on NFTs, known as ‘digital collectibles’ in China. Many Chinese tech companies offer NFTs built on consortium blockchains, which are different from popular public blockchains.

The project, called “technical framework for distributed ledger technology (DLT)-based digital collection services”, has been approved by the International Telecommunication Union, the UN agency for information and communication technologies.

The Chinese characteristics of NFTs may have more permanence and reflect a more robust ecosystem of digital collectibles, where trading is taken out of the picture. For example, NFTs are viewed more as a derivative of blockchain technology rather than a tradable asset in China. Tech majors, like Alibaba, Tencent, and JD, have built their own platforms where users can buy and collect NFTs, but are prohibited from trading or reselling their purchases.

Tech giants Alibaba, Tencent, and Bilibili, among others, all have their own ‘digital collectibles’ to cash in on the NFT craze despite government scrutiny. While Tencent and Alibaba are likely to make significant cuts to their employee base in 2022, ByteDance and Bilibili continue to become more a major part of the youth-culture of China.

What Are NFT Ecosystems with Chinese Characteristics?

China’s approach to innovation trends is much more practical and utilitarian where Super-apps evolved and mini-programs were created well before these things were even possible in the West. So with NFTs, I think it’s a mistake to think China has been left out.

China has not been left out. In China, NFT are referred to as ‘digital collectibles’ rather than ‘tokens’ since the Chinese government is opposed to cryptocurrency. A cryptocurrency is a digital or virtual currency that is protected by cryptography, making counterfeiting and double-spending practically impossible.

Most Chinese NFT platforms are built on consortium blockchains or Blockchain-as-a-Service (Bass) infrastructure, giving companies and organizations authority to govern the platform. The B2B integrity here could be superior to foster use-cases that serve collective functions and not simply profit making and new forms of art, like in the West.

In the West the freedom and desire for profit taints what NFTs can become. China’s more centralized approach to blockchain, actually has certain advantages. This is in direct contrast to popular global NFT platforms, which are built on public blockchains, meaning that they are permissionless, allow anyone to join, and are decentralized in nature, such as Ethereum or Solana. But this also makes them nebulous, inefficient and prone to speculation that leads to more hype than reality.

China’s NFT market strictly follows the country’s laws and regulations, and its projects are overwhelmingly centralized. This also allows companies to work together with the Government on innovation projects that can benefit goals like common prosperity and real value to society. Like what you might ask?

BSN: BSN-DDC

China’s state-backed blockchain infrastructure Blockchain Services Network (BSN) released on Jan. 24 its own NFT infrastructure called BSN-DDC, short for Blockchain Services Network Distributed Digital Certificate.

BSN-DDC provides companies with blockchain infrastructure to build their own NFT platforms that comply with Chinese regulations. 

The infrastructure has integrated 10 public blockchains, including Algorand, Cosmos, Ethereum, Polkadot, Tezos, and Nervos. These integrated versions of public blockchain work differently from their original versions: they set restrictions on who can govern the blockchain, identify all participants, and use fiat currency for payments instead of cryptocurrency.

China’s new emphasis on regulation, order, responsible innovation and accountability could make NFTs in China evolve differently as compared to the wild-wild west atmosphere in America and other countries.

Ant Group: JingTan (Topnod)

Alibaba’s fintech affiliate Ant Group launched its digital collectible platform AntChain Fan Points last June, which was renamed Topnod (Jingtan in Chinese) last December. The platform runs on a consortium blockchain built by AntChain, Ant’s blockchain arm. 

Users are not allowed to resell digital collectibles bought on Topnod, and can only gift them to authenticated users after holding them for more than 180 days.

Collections on the platform often have a price range of RMB 20-30 (about $3 to $5) and a limited collectible count of 8,000 to 10,000. The platform uses its own payment system on Alipay, one of mainland China’s two main cashless payment companies. All users need to complete real-name identity verification and transact with fiat currency.   

The platform boasts a fast and cheap transaction speed. “Topnod was able to provide a technical capability to process 100,000 digital collectible transactions per second during a Spring Festival digital campaign in 2022. This leads the consortium blockchain industry,” a Topnod spokesperson said. 

NFTs in China seem to enable businesses to work together more easily on common objectives that serve the people. Centralization can speed up efficiency, scale and interoperability.

For instance, Topnod works with various national museums in China to produce digital versions of historical relics. They also work with painters, ethnic minority embroidery artists, and more. Topnod recently collaborated with the Shanghai Symphony Orchestra, releasing 10,000 pieces of audio collectibles from the earliest symphony phonographic record in China, priced at RMB 19.9 ($3.15) apiece. The collection featured two pieces of the 1929 recording from the Spanish composer Manuel de Falla’s ballet piece El amor brujo.

Tencent: Huanhe

Tencent’s digital collectible platform Huanhe is built on Tencent’s Zxin Chain, a government-authorized enterprise blockchain network, and has a more diverse collection when compared to Topnod. Huanhe works with museums, well-known artists, auto brands, consumer product brands, and charity organizations to release various digital works. 

Chinese platforms often use digital collectibles to promote cultural heritage and accelerate the digitization of the cultural and museum industries. For example, Huanhe offers digital versions of murals from the famed Dunhuang Mogao Grottoes, at RMB 118 apiece ($18), around the same price as a digital painting by the famous painter Qi Baishi, as well as other ancient Chinese artworks. 

Huanhe also works with consumer brands, such as car companies or household consumer product companies, to release digital collectibles. These collectibles are often free and lottery-based and serve primarily as a marketing tool for these brands. For example, Chinese household paper brand Qingfeng released a free collection of five different 3D flower artworks, which attracted 14,154 participants in the lottery.

Here you can see how NFTs in China will enable consumer brands to enter into Web 3.0 in a more harmonious order, while allowing consumers to participate in a reasonable and balanced way. There aren’t schemes to artificially inflate the prices like we have seen in the West over and over again.

NFTCN marketplace

NFTCN, unlike other digital collectible platforms in the China market, is a marketplace for independent artists and collectors to create, sell and collect NFTs. The marketplace sells digital and physical art using NFTs, with a built-in gallery to exhibit user collections. According to its website, the marketplace uses back-end technology that is based on a side chain of Ethereum, without any further elaboration. 

Buyers transact on the platform by purchasing special cards from the website in fiat currency to avoid crypto transactions. Unlike other Chinese NFT marketplaces, NFTCN actually has a secondary marketplace where collectors can resell their collections. For example, an item named “Violent Goose #78” was first sold at RMB 599 ($94.79) on March 7, then resold for more than double the price the following day. 

China is clearly also empowering artists to share their work on the blockchain and with distributed ledger empowerment. Sure there’s a monetary aspect, but it feels more in tune with Culture and the Arts, generally speaking.

NFT’s immutable nature, which inherently creates digital property rights, gives it more value over other forms of digital media like a JPEG. Suppose the developer of a decentralized NFT marketplace, developed on a decentralized public blockchain, decides to abandon the project. In that case, the NFTs released by that marketplace will still live on the public chain. China’s use of blockchain to enhance digital property rights does not feel excessive, vain or like mere speculation.

Improved Security and KYC Identification of Ownership

Beijing is the final authority on how these blockchain ecosystems play out, and we have seen the Chinese stock market come under pressure due to this in recent months and years of regulation. So, Chinese NFT marketplaces, mostly built on non-public blockchains do add more potential risks for consumers who own NFTs. Users have digital property rights as long as the platform maintains its blockchain. Still, but they can lose their rights to access those digital purchases if other governing parties decide to discontinue the blockchain. 

All Chinese digital collectible platforms require users to register with their real-name identification to comply with the law. Known as the KYC policy, the rule can help prevent money laundering and capital control. China’s approach to blockchain is to make it what it was meant to be, a transparent and accountable system of distributed ledger technology. China’s crypto-ban stance on tokens is clearly much different than many other parts of the world.

By comparison, the international NFT market is largely made up of communities of anonymous (“anons”) users. This attribute helps people participate in the market with less discrimination, protecting privacy while maintaining transparency on a public ledger. However the anonymous use of crypto is also very prone to criminal activities. I myself trust a centralized blockchain more than a decentralized system with a history of scams and fraud. Unfortunately for crypto’s history from ICOs to NFTs, trust is not a strong point since 2009.

China’s approach in this way to NFTs and DeFi will be very different but its strengths will be a more secure implementation with less loopholes. Blockchain for public good or Web 3.0 ESG project also could easily shine in China brighter than in the U.S. and other countries with more maverick laws and regulatory weakness.

It’s too soon to say who the winners and losers will be in NFTs from a corporate standpoint but clearly a lot of corporations are starting to look into DeFi and NFT solutions to drive their ecosystems and align with their customers 2022 and beyond.

Thanks for reading!