How the Chinese government is attempting to redesign the NFT market
The traditionally censorious nation is making fresh efforts to promote innovation, growth, and use of digital assets. Yet at what price?
Nearly every aspect of Chinese digital life has been governed for years by the legislative and technological framework known as the Great Firewall. However, the Chinese government is now taking additional measures to limit the influence of global blockchains and cryptocurrencies, which is having a significant impact on NFT marketplaces with plans to expand eastward. Historically, the Chinese government’s role has been to control the internet domestically.
The country is offering some services that, while they may result in more censorship and control, could allow access for those willing to comply with the law and current regulations, paving the way for content creators to find new and lucrative pathways for artists and designers. Since cryptocurrencies and traditional NFTs backed by tokens like Ethereum are banned in China, this opens up new opportunities for content makers to find these types of jobs.
For users looking for digital services that comply with legal requirements, the Blockchain-based Service Network (BSN), a state-sponsored blockchain network in China, has so far been the main resource. The State Information Center launched BSN in collaboration with significant state-backed businesses like Red Date, a Chinese fintech company founded in 2014 with a Hong Kong headquarters, China Mobile, the largest telecom provider in the nation, and China UnionPay, one of the nation’s major financial service providers. Building a worldwide infrastructure with that objective in mind will help blockchain technology spread to non-crypto businesses.
Additionally, China has been converting to the digital yuan, which, as of January 2022, the People’s Bank of China estimates is being utilized by one in five Chinese individuals.
BSN-Distributed Digital Certificates (BSN-DDC) — “basically, China’s equivalent of NFTs” — are being made possible by this innovative ecosystem, according to Jehan Chu, a former Sotheby’s specialist whose blockchain, VC Kenetic, invested in Red Date.
Chu added that while most decentralized entities are forbidden in China, DDCs are similar to a multi-chain environment and are therefore totally legal with Chinese legislation.
The BSN-DDC network, which became live on January 24, 2022, has incorporated a number of open permissioned blockchains that are “forked” (basically, transferring from well-known public chains) to the DDC network. These include EOS, Cosmos, and Ethereum. These provide blockchains with versions that limit who can control the technology, enabling them to identify all participants in line with Chinese law.
The BSN-DDC program might serve as a showcase for not only digital art but also for other uses. NFTs are already in use outside of China by businesses like watchmaker Breitling, which uses them as authenticating passports for luxury items.
Numerous players in China’s big-tech ecosystem are also participating. Businesses such as Alibaba, Tencent, and JD have created their own platforms that are distinct from the BSN-DDC network but comparable in that they provide NFTs and digital assets to the Chinese market in compliance with Chinese law. Many NFT platforms in the West have been plagued by wild speculation, therefore some of these restrictions prevent users from flipping or reselling their purchases on the secondary market.
JingTan (Topnod), a platform that forbids users from reselling digital collectibles but permits users to give them after owning them for more than 180 days, is one of the key participants in this market.
Topnod collaborates with Chinese national institutions to create digital twins of antiquities in addition to collaborating with painters, embroiderers, and other artisans in the cultural sector. A digital artifact of 10,000 audio artifacts from the first symphony phonographic ever recorded in China was recently created in collaboration with the Shanghai Symphony Orchestra and is available for purchase for RMB 19.9 (about $3.15).
Overall, according to Chu, BSN-DDCs could have a significant impact on the Chinese art industry. However, he warns international businesses entering the sector to exercise caution due to China’s infamously severe censorship restrictions.
The potential for BSN-DDCs in China, he said, “cannot be overestimated.” It is a multi-chain environment instead of a single chain environment with a very strong system of permissioned, interoperable apps. Since it does include censorship, this is obviously quite contentious for the global crypto community. However, such is the framework’s reality when operating in China.
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