The verdict China’s Web3 community has been waiting for months has arrived: NFTs, or tokens used to prove ownership and authenticity of an item, should not be used for securitization or traded in cryptocurrencies, China’s banking, securities and internet associations said. in an announcement Wednesday.
China has already banned initial coin offerings, cryptocurrency transactions, and crypto mining. Eliminating the financial possibilities of NFT could further distance the country from the web3 wave unfolding in the rest of the world, which is building a decentralized internet on crypto tokens.
Despite its distaste for the freewheeling nature of crypto, China sees blockchain as key infrastructure to grow its internet economy. An official from the country’s Securities Regulatory Commission recently hailed Web3 as the future of the internet, saying it can solve the problems of the Web 2.0 era, such as the lack of privacy protection. Like other aspects of the blockchain-driven movement, China has defined its own version of NFTs that come with strings attached.
The problems with NFTs are the financial risks they entail, according to the three associations, which operate under the supervision of Chinese financial regulators. The groups warn against speculation, money laundering and other illegal financial activities involving NFTs, but they also recognize the role NFTs could play in promoting China’s digital and creative economy, for example, by allowing artists to exercise control over their works.
To stem the financial risks of NFTs and leverage the underlying technology, the associations have released a set of industry guidelines:
- The underlying assets of NFTs must not include bonds, insurance, securities, precious metals or other financial assets.
- The non-fungibility of NFT should not be weakened in order to indirectly facilitate initial coin offerings.
- Platforms should not provide centralized exchanges for NFTs.
- NFTs should not be traded in cryptocurrencies.
- Platforms should enforce real identity checks and store customer transaction records to stamp out money laundering.
- Entities must not directly or indirectly provide financial support for NFT investments.
Tech giants have already toyed with Chinese regulators in their NFT efforts. Bilibili, Tencent and Alibaba-affiliated Ant Group have created permissioned blockchains where creators can mint and sell their works, which are limited to designated participants and separate from the Ethereum open network. Transactions are made in Chinese Yuan only and marketplaces do not allow resale like OpenSea and other global exchanges do. Chinese tech companies also refer to NFTs as “digital collectibles” to stand out from the crypto world.