Here’s a ruling that the Chinese web3 community has been waiting for months: NFTs, or tokens used to prove ownership and credibility of items, can be used for securitization or traded in cryptocurrencies. Don’t do that, China’s banks, securities and internet financial associations said in a Wednesday announcement.
China has already banned initial coin offerings, cryptocurrency trading and crypto mining. By eliminating the economic potential of NFTs, we can move the country further away from the waves of web3 happening in other parts of the world building decentralized internet on crypto tokens.
Despite its aversion to the freewheeling nature of cryptography, China sees blockchain as an important infrastructure in building an Internet economy. Officials from the country’s securities regulatory committee recently welcomed web3 as the future of the Internet and said it could solve problems in the Web 2.0 era, such as lack of privacy protection. Like other aspects of the blockchain-led movement, China has defined its own version of the NFT with strings attached.
According to three associations operating under the supervision of Chinese financial regulators, the problem with NFTs is the financial risk they pose. The group warns of speculative, money laundering, and other illegal financial activities related to NFTs, but promotes China’s digital and creative economy, for example, by allowing artists to manage their artwork. We are also aware of the potential role NFTs can play in doing so.
To stop NFT’s financial risk and leverage the underlying technology, the association has issued a set of guidelines for the industry.
- NFT underlying assets should not include fixed income, insurance, securities, precious metals and other financial assets.
- The non-substitution of NFTs should not be weakened to indirectly facilitate the initial coin offering.
- The platform should not provide a centralized exchange of NFTs.
- NFTs should not be traded in cryptocurrencies.
- The platform needs to impose and store actual identity checks on customer transaction records to eradicate money laundering.
- An entity may not directly or indirectly fund NFT investments.
Technology giants have already worked with Chinese regulatory agencies on NFT efforts. The Bilibili, Tencent and Alibaba affiliates of Ant Group have created an authorized blockchain that allows creators to create and sell their work. This is limited to designated participants and is separate from the open Ethereum network. Trading is only in RMB and the market does not allow resale like OpenSea and other global exchanges. Chinese tech companies are also branding NFTs as “digital collectibles” to move away from the world of cryptocurrencies.