As part of a self-discipline initiative, China’s leading technology companies have reportedly decided to enforce “real-name” authentication for NFT (or non-fungible token) buyers and also want to help users avoid secondary marketplaces
The agreement (not legally binding at the moment) serves as confirmation from the industry of regulations that are currently in place in China for blockchain/DLT-enabled assets.
China’s NFT ecosystem participants have released a “self-discipline” initiative that aims to carry out identity checks for customers, abiding by the nation’s ban on virtual currencies and a commitment not to form secondary marketplaces to combat excessive speculation.
Platforms that are offering NFTs/digital collectibles, the term used in China for rare crypto tokens that can’t be traded with other (fungible) cryptos, shall be requiring “real-name” authentication of those who “issue, sell and buy” such assets and only support “legal tender” as the denomination and “settlement currency.” This, according to the document being endorsed by leading Chinese tech giants.
The document, an attempt from private firms that isn’t legally binding, was released by the China Cultural Industry Association this past week.
Many firms that are involved in China’s NFT markets have now shown their approval by signing on. These companies reportedly include Ant Group, Baidu, JD.com and Tencent.
As reported by the SCMP, the agreement has requested its signatories to “firmly” resist speculation in the crypto/digital collectibles markets.
The document also notes:
“Do not contain financial assets or unlicensed financial products, including securities, insurance, credit and precious metals, in blockchain-supported goods.”
The document points out that NFT platforms need to carry appropriate certifications, such as those needed for blockchain/DLT service providers, “internet culture” operators and telecoms operators.
As noted by the SCMP, the initiative “recognizes” NFT tech’s use in intellectual property (IP) protection as well as “cultural product registration.” This, according to Luo Jun, Secretary General of the Metaverse committee of the China Computer Industry Association.
But as crypto is banned across China, there is a pressing need for more regulation to address significant financial risks, Luo added.
This particular initiative was established by the industrial association and multiple market operators. They do not actually represent the government’s official stance on the matter, Luo clarified.
The document aims to serve as an industry-level initiative that comes in response to a previous version released by various financial sector associations, in order to address the considerable risks associated with crypto-assets, according to He Yifan, CEO at Red Date Technology, which offers tech support to the Chinese Blockchain Service Network.
Earlier this year, the National Internet Finance Association of China, China Banking Association and the Securities Association of China had released a statement in order to ban the use of NFTs in the issuance of financial assets like securities, insurance, loans and precious metals, the SCMP noted.
The main idea/goal here is to stop the “financialization” of these so-called digital collectibles, He explained.
While China’s government does prohibit dealing in NFTs, local firms have reportedly been trying to leverage the appeal of these virtual collectibles. Ant Group and Tencent were reportedly the first Chinese tech firms to introduce NFT platforms. And then JD.com had followed with its platform, while Baidu also introduced a digital collectibles collection.
Large Chinese platforms appear to have clear guidelines: customers have to undergo proper ID checks, and owners/NFT holders aren’t supposed to resell such items for financial gains. A digital collectible may be exchanged as a type of gift, but only after its owner has held onto it for a certain period of time.
As reported by the SCMP, the latest initiative doesn’t actually discuss the resale of digital collectibles, however, it does ask firms to not establish a “centralized” marketplace for bidding, matching or engaging in “anonymous” trading.
According to industry professionals, private transactions can’t actually be banned (effectively).
Liu Jiahui, partner at Derun Lawyers, explained:
“Digital collectibles in China are the digital assets of art and cultural works, which aren’t entitled to be financial or securities products, so there isn’t need for a centralized marketplace. Chinese laws stipulate that the owner of property rights can dispose of the property at any time. Digital collectibles have higher liquidity than traditional artworks. It is in fact impossible to prohibit speculation during circulation.”