As 'digital collectibles' flourish in China, analysts say it is unlikely that NFTs will be banned.�������������������������

Crypto Weekly

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As 'digital collectibles' flourish in China, analysts say it is unlikely that NFTs will be banned.

Ann Cao

While it is unlikely that Chinese authorities will ban non-fungible tokens (NFTs) outright as they have done with cryptocurrencies, analysts expect them to keep a watchful eye on the country's mushrooming blockchainbased "digital collectibles."

Beijing has remained vague about its intentions for domestic projects as global interest in NFTs surges. Last October, China's authorities summoned tech companies to warn them against "hyping up" the concept but not declaring NFTs illegal.

Analysts and industry insiders said that Chinese authorities are trying to ensure that NFTs are safe and controllable.

"China is cautious about NFTs," said Ma Xin, secretary of the Institute of Electrical and Electronics Engineers (IEEE) 's Digital Transformation working group. "The Chinese would not tolerate an NFT market filled with scams during the early days of blockchain development."

Last week, the South China Morning Post reported that the state-backed Blockchain Services Network (BSN) plans to build infrastructure to support NFT development in China later this month. He Yifan, chief executive of Red Date Technology, provides technical support to BSN. He said that NFTs don't pose a legal issue in China as long as they distance themselves from Bitcoin. Beijing has shifted its attitude towards cryptocurrencies over the years. While it initially tolerated investment by individuals, the government eventually launched a forceful crackdown as it began to view cryptocurrencies as a threat to financial stability and capital control.

Mainland companies have ditched the term NFT in favor of "digital collectibles" to escape government scrutiny. Digital collectibles are similar to NFTs, which convey ownership of digital assets such as original artwork. But unlike mainstream NFT projects, backed mainly by Ethereum, digital collectibles are not linked to any cryptocurrency, with trading heavily restricted. Even so, mainland investors have shown strong interest in digital collectibles minted by Post owner Alibaba Group Holding, Tencent Holdings, and JD.com, as well as the official Xinhua news agency.

The government may not rush to ban NFT, said Matteo Giovannini, a senior finance manager at China's Industrial and Commercial Bank.

"The regulators are genuinely interested in the nature and potential benefits of virtual assets, but not at the cost of the entire society," Giovannini said. "Therefore, a more supervised approach with the creation of isolated and safe sandboxes could give authorities the time necessary to explore this asset class better."

China's regulatory agenda will include preventing domestic investors from accessing overseas ethereum public chains through NFTs, said Wei-Tek Tsai, a member of IEEE and director of the Digital Society and Blockchain Laboratory at Beihang University.

Cai Weide, director of Beihang University's Digital Society and Blockchain Lab. Managing director at business advisory firm All In Consulting, Stanley Chao, said China would eventually have an NFT market, but the government will completely supervise its trading rules. Chao said China had learned a lesson from its crackdown on cryptocurrencies. "China let cryptocurrencies get out of hand to the point that they had to shut it down cold turkey. They won't make the same mistake with NFTs," Chao said.

South China Morning Post