Since digital artist Beeple sold his work Everydays: the First 5000 Days (a digital collage image) for $69 million last March, the market around trading digital art, a popular type of NFT, has reached a fever pitch all over the world.
A non-fungible token, or NFT, is a blockchain-based record that represents unique items that are non-interchangeable. You’ve probably heard about some of the most common forms of NFT, such as digital art, photographs, music, video, in-game items, and other forms of media, but NFTs can really be used to show ownership of just about anything.
Since the first NFT work by artist Kevin McCoy appeared in 2014, the market stayed quiet for a few years before it started taking off in the past two years. Popular NFT trading platform OpenSea launched in 2018, steadily introducing more people to trading digital arts. Last year, the market saw an increase in popularity, with trade volume hitting $23 billion, according to Forbes.
In China, the NFT digital art market is also bustling with new players and projects. That may come as a surprise for people familiar with China’s strict approach to cryptocurrency, having fully banned crypto trading and mining last year. However, the country has also embraced controlled versions of blockchain technology, such as the digital yuan, encouraging its growth in various sectors. So far, China has allowed NFTs but banned people from speculating and trading them.
NFTs are viewed more as a derivative of blockchain technology rather than a tradable asset in China. Tech majors, like Alibaba, Tencent, and JD, have built their own platforms where users can buy and collect NFTs, but are prohibited from trading or reselling their purchases. Most Chinese tech giants don’t even use the term NFT, hoping to stay on regulators’ good side and avoid association with the global crypto market. Instead, they use the term “digital collectible.”
This article dives into some of the most notable Chinese NFT platforms to give a picture of China’s NFT marketplace, its characteristics, and the differences between the market for NFTs in China and the rest of the world.
Key players in the Chinese NFT space
Most Chinese NFT platforms are built on consortium blockchains or Blockchain-as-a-Service (Bass) infrastructure, giving companies and organizations authority to govern the platform. This is in direct contrast to popular global NFT platforms, which are built on public blockchains, meaning that they are permissionless, allow anyone to join, and are decentralized in nature, such as Ethereum or Solana.
The most significant difference between NFT projects in China and the international market lies in this concept of decentralization, where decision-making power is taken from one centralized entity and given to member-owned communities, known as Decentralized Autonomous Organizations (DAOs). While there’s continued debate about the actual degree of decentralization of projects within the international community, with many projects working towards full decentralization, China’s NFT market strictly follows the country’s laws and regulations, and its projects are overwhelmingly centralized.
China’s state-backed blockchain infrastructure Blockchain Services Network (BSN) released on Jan. 24 its own NFT infrastructure called BSN-DDC, short for Blockchain Services Network Distributed Digital Certificate.
BSN-DDC provides companies with blockchain infrastructure to build their own NFT platforms that comply with Chinese regulations.
The infrastructure has integrated 10 public blockchains, including Algorand, Cosmos, Ethereum, Polkadot, Tezos, and Nervos. These integrated versions of public blockchain work differently from their original versions: they set restrictions on who can govern the blockchain, identify all participants, and use fiat currency for payments instead of cryptocurrency.
Ant Group: JingTan (Topnod)
Alibaba’s fintech affiliate Ant Group launched its digital collectible platform AntChain Fan Points last June, which was renamed Topnod (Jingtan in Chinese) last December. The platform runs on a consortium blockchain built by AntChain, Ant’s blockchain arm.
Users are not allowed to resell digital collectibles bought on Topnod, and can only gift them to authenticated users after holding them for more than 180 days.
Collections on the platform often have a price range of RMB 20-30 (about $3 to $5) and a limited collectible count of 8,000 to 10,000. The platform uses its own payment system on Alipay, one of mainland China’s two main cashless payment companies. All users need to complete real-name identity verification and transact with fiat currency.
The platform boasts a fast and cheap transaction speed. “Topnod was able to provide a technical capability to process 100,000 digital collectible transactions per second during a Spring Festival digital campaign in 2022. This leads the consortium blockchain industry,” a Topnod spokesperson said.
Topnod works with various national museums in China to produce digital versions of historical relics. They also work with painters, ethnic minority embroidery artists, and more. Topnod recently collaborated with the Shanghai Symphony Orchestra, releasing 10,000 pieces of audio collectibles from the earliest symphony phonographic record in China, priced at RMB 19.9 ($3.15) apiece. The collection featured two pieces of the 1929 recording from the Spanish composer Manuel de Falla’s ballet piece El amor brujo.
Tencent’s digital collectible platform Huanhe is built on Tencent’s Zxin Chain, a government-authorized enterprise blockchain network, and has a more diverse collection when compared to Topnod. Huanhe works with museums, well-known artists, auto brands, consumer product brands, and charity organizations to release various digital works.
Chinese platforms often use digital collectibles to promote cultural heritage and accelerate the digitization of the cultural and museum industries. For example, Huanhe offers digital versions of murals from the famed Dunhuang Mogao Grottoes, at RMB 118 apiece ($18), around the same price as a digital painting by the famous painter Qi Baishi, as well as other ancient Chinese artworks.
Huanhe also works with consumer brands, such as car companies or household consumer product companies, to release digital collectibles. These collectibles are often free and lottery-based and serve primarily as a marketing tool for these brands. For example, Chinese household paper brand Qingfeng released a free collection of five different 3D flower artworks, which attracted 14,154 participants in the lottery.
Another collection from The Imperial Palace Museum’s cosmetic brand offered limited editions of digital collectibles if people purchase a physical cosmetic product.
All digital artworks purchased from Huanhe can be displayed in the user’s own 3D virtual gallery inside the app. And similar to other Chinese digital collectible platforms, Huanhe doesn’t support secondary trading.
NFTCN, unlike other digital collectible platforms in the China market, is a marketplace for independent artists and collectors to create, sell and collect NFTs. The marketplace sells digital and physical art using NFTs, with a built-in gallery to exhibit user collections. According to its website, the marketplace uses back-end technology that is based on a side chain of Ethereum, without any further elaboration.
Buyers transact on the platform by purchasing special cards from the website in fiat currency to avoid crypto transactions. Unlike other Chinese NFT marketplaces, NFTCN actually has a secondary marketplace where collectors can resell their collections. For example, an item named “Violent Goose #78” was first sold at RMB 599 ($94.79) on March 7, then resold for more than double the price the following day.
Comparing the Chinese NFT market to the rest of the world
Investing with regulatory risk
Although Chinese regulations bar people from reselling and trading NFTs and digital collectibles, many collectors still hope for capital gains from these purchases in the future as policy changes.
In February, a group member from a private Topnod collector WeChat group commented with enthusiasm after a successful digital collectible purchase on the platform, “still waiting for a secondary market for Topnod,” as seen by the author.
Collectors in China have also made efforts to get around the NFT trading bans. Last June, a Dunhuang digital collection part of the inaugural sale on Ant Group’s platform quickly sold out. The collection was originally priced at around RMB 10 ($1.58). Buyers immediately put the collection on a second-hand trading platform called Xianyu, asking for around RMB 100,000, with one listing asking for RMB 1.5 million. The platform quickly took down NFT-related products and blocked “NFT” in search results.
In February, as some collectors approached the 180-day holding period set by Chinese platforms, some were looking for ways to sell their ability to “gift” collections. Ant’s Topnod announced in late February that it had punished 56 users who tried to trade their collection by trading their rights to “gift” the collection.
Digital property rights
NFT’s immutable nature, which inherently creates digital property rights, gives it more value over other forms of digital media like a JPEG. Suppose the developer of a decentralized NFT marketplace, developed on a decentralized public blockchain, decides to abandon the project. In that case, the NFTs released by that marketplace will still live on the public chain. For example, Hic et nunc, a Tezos-based NFT marketplace, discontinued its service last November, but all NFTs released are still available on the Tezos blockchain.
But things could be different for Chinese NFT marketplaces, mostly built on non-public blockchains. Users have digital property rights as long as the platform maintains its blockchain. Still, but they can lose their rights to access those digital purchases if other governing parties decide to discontinue the blockchain.
In addition, the NFT community believes that NFTs play an important role in building the metaverse, an immersive 3D virtual space. Some collectors are betting on the Chinese NFT market to go through a profitable phase in a controlled, centralized way, as they watch prices of virtual land, virtual events, and virtual clothes rise rapidly on global NFT markets.
Know your customer (KYC) vs. Anonymous
All Chinese digital collectible platforms require users to register with their real-name identification to comply with the law. Known as the KYC policy, the rule can help prevent money laundering and capital control.
By comparison, the international NFT market is largely made up of communities of anonymous (“anons”) users. This attribute helps people participate in the market with less discrimination, protecting privacy while maintaining transparency on a public ledger. Traditional financial systems can often be biased, taking into account an individual’s background when offering loans or other financial products. With an “anon” system, people are given equal investment opportunities. Skin color, gender, age, or education background are not considered when investing in NFTs or decentralized finance (DeFi) products.