Opposed to the blockchain and its decentralized nature, Beijing seeks to control this technology. For the government, it represents a risk because of the confidentiality of cryptocurrency transactions. The country wishes in particular to regulate the NFT market, which constitutes a major economic opportunity. Tech companies have been encouraged to develop an alternative to non-fungible tokens. Tencent, Ant Group and Baidu, together with the China Cultural Industry Association, founded with the permission of the State Council, are working on digital collectibles, terms used to describe NFTs in China. On June 30, they jointly released a development proposal for the “digital collectibles industry.”
End of anonymity of transactions and prohibition of speculation
A year after the ban on cryptocurrencies on its territory, the Chinese government is still seeking to strengthen its control over the digital market. Aware of the economic weight of NFTs, Beijing encourages companies to develop non-blockchain technology. The authorities do not want a decentralized system where users trade on condition of anonymity, especially if transactions are made with currencies other than the yuan.
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After several months of work and reflection, tech giants, including Tencent and Ant Group, have defined certain standards for digital collectibles. They also defined good practices that the industry should follow. According to the proposals, NFT sales platforms must have a regulatory permit, users must be clearly identifiable, intellectual protection must be guaranteed and financial speculation will be strictly prohibited.
The Digital Yuan as a Trading Currency for NFTs
Some Chinese companies already offer online marketplaces to sell digital collectibles. Behemoths Tencent, Ant Group and Baidu use a private blockchain to guarantee the operation of their NFT sales platform. Users can only pay with fiat currency, yuan, to transact. Secondary trading, outside the platform, is also prohibited to prevent price inflation.
Other companies like Bilibili, the Chinese leader in video streaming, do not comply with these standards at the moment. The company wants to sell its NFTs outside of China and has tapped a Singaporean company to launch an Ethereum-based collection.
Tencent and Ant Group intend to remain in the Chinese market, but are acting cautiously in the face of Beijing’s efforts to control their activities. To appease the government, the two companies have agreed on the term “digital collection objects”. They also said they wanted to fight against speculation and potential scams related to NFTs.
Despite their efforts, Tencent and Ant Group find themselves in a delicate position. The digital yuan, a central bank digital currency (MNBC), was designed with the collaboration of the two firms. Beijing may consider using the currency for digital collectibles transactions, which the tech giants are not happy with. They already have their own payment applications, WeChat Pay and Alipay, and fear that the democratization of this MNBC will leave them on the sidelines for the future of online payment systems.