Chinese NFT platforms don’t want you to trade NFTs anymore
While NFT traders in the US worry about their tax responsibilities for selling large-ticket digital assets, Chinese counterparts are facing a different problem: The Chinese industry is moving towards a future in which NFTs cannot be traded at all.
On April 13, three national financial industry associations in China–which collectively cover almost all Chinese banks, brokerages, and fintech companies–released a joint statement on how to approach NFTs, one-of-a-kind digital tokens that preserve ownership and copyright information on a blockchain. They asked members to not offer centralized trading platforms to NFTs and to refrain from investing directly in NFTs. They also forbade the use of cryptocurrencies such as Bitcoin or Ethereum to buy or sell them.
The initiative is designed to make it harder to trade NFTs and impossible to speculate in them. The changing political climate around NFTs could help determine their intrinsic value.
In the US, most NFTs were created on the Ethereum blockchain and traded in Ethereum. They are one of the most popular cryptocurrency products in recent times. NFTs in China, where cryptocurrency mining and trading are prohibited, have found a way to trade in the currency while staying away from crypto .. Tencent and Alibaba are two of the largest tech companies that have their own NFT marketplaces. Popular brands such as McDonald’s and Audi, which offered NFT services to Chinese consumers, did not host them in public blockchains.
However, there’s always been a sense of uncertainty in the industry: as with all young tech creations that don’t fit into traditional regulatory frameworks, the countdown started early for when the Chinese government would step in. Since 2017, China has maintained a hard stance against crypto unparalleled around the world. Although the Chinese cyber and financial regulators have not yet banned trading in NFTs, the silence casts a long shadow on the business.
This joint statement is not an official government statement, but it’s close. Jay Si, a Shanghai-based lawyer at Zhong Lun, says that the pledge letter does not have legal effect but is binding for the members of these three associations.
While the state is contemplating its next move, NFT industry players try to keep their distance.
For example, NFT platforms that are owned by prominent Chinese tech companies do not use the term “NFT”. Instead, they call them “digital collectibles.” The idea is that they are not much different from your Funko Pop toys or vinyl collections, except they are online, on private-company-owned blockchains that are not fully transparent to the public. They can only be purchased by collectors using government-issued currency. Resale is prohibited.
Alibaba released its NFT app Jingtan last December, and now releases NFTs almost every day. These limited-edition offerings–usually 10,000 copies of renowned Chinese artworks or works by digital-native artists–are sold at prices no higher than $5. Although buyers may need to click in a few seconds to make the purchase, it is not expensive. Once they have it, they must wait six months before they can “gift” it to another user. The second user will need to wait two years before they can gift it again. Alibaba banned its secondhand marketplace from listing NFT products last year. These rules mean that NFTs don’t have an official resale price, so they can’t be used as a financial investment.
But where there are rules, there are always workarounds. People can discuss their NFT collections in group chats via social media apps and form an NFT black marketplace. Scams and frauds are not uncommon. On the Quora-like platform Zhihu, a user documented how he lost about $640 to scammers who promised to sell him a set of NFTs on Jingtan but never did.
In February, Jingtan announced that it had punished 56 NFT buyers who violated the rules by “gifting” NFTs to other people in exchange for revenues on other platforms. It stated that it is against any form of resale or resale digital collectibles. It also teamed up with other tech companies to release an “industry self-discipline pact,” which addressed all the risks associated with NFTs without mentioning the word once.
To NFT-lovers, the Chinese-styled “digital collectibles”, are a disappointing departure. “A physical artwork is worth its value even if you know it won’t be sold and no one is interested in it right now. Because there’s an [that someone will buy it in the future],” opportunity, says Jin Yinghuan (Guangzhou-based creator) of NFT project Supernova. (Jin Yinghuan, his online alias, is his. He refused to reveal his real name in this story. )
” “Once it’s determined that there’s no secondary marketplace and there’s even the channel to give away them, [the NFTs] basically loses all their value,” Jin states.
His own NFT artworks, a collection of 10,000 avatars released in March, are sold on the American platform OpenSea, which isn’t available in China. He also released them on Bigverse (a Chinese indie NFT market formerly known as NFTCN). These smaller marketplaces were less open to allowing users to sell and make money from their collections, which is why they are now more open to this. Bigverse claims to be the “largest and most active digital art marketplace in China.” It uses Ethereum to mint NFTs and permits NFT trading.
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But Bigverse and others are also at a higher risk now that the industry seems to have chosen a future that doesn’t involve NFT trading. Shi Qi, the founder of Bigverse, declined an interview request. He said that the company is currently in active discussion with regulators.
Chinese NFT players chose a different path than their counterparts in the West by avoiding political risks. The tech industry is conducting a tech experiment to test the concept of NFTs. Can the technology’s value as a tool for protecting intellectual property be separated from its potential value in making financial investments? If there isn’t much profit, will people still be interested NFTs?
” The Chinese NFT market will continue decouple from the offshore ecosystem that’s built around cryptocurrencies,” Si says. “China will be exploring a pricing and trading model that suits its own needs.”
I’m a journalist who specializes in investigative reporting and writing. I have written for the New York Times and other publications.