The verdict that China’s web3 community has been waiting for months is finally here. On Wednesday China’s banking association released a statement requesting member companies to monitor the non-fungible-token i.e. NFT trading in the country. The association further urged the companies to not engage in NFT investment in any way.
NFTs, or the tokens used to prove the ownership and authenticity of an item, must not be used for securitization or transacted in cryptocurrencies, emphasized the banking association.
The statement further said the decision to monitor NFT trading was made to prevent money laundering and other illegal financial activity in the country.
Furthermore, the bonds, insurance, securities, precious metals, and other financial assets should not be included in the underlying assets of NFTs as well.
However, the organizations in the statement do recognize the importance of NFTs that can help the digital economy.
According to multiple media reports, in March 2022, Tencent’s WeChat platform blocked over 10 public WeChat accounts that were involved in NFT trading. The firm claimed that the decision was made to control speculation and second-hand NFT trading through WeChat accounts.
In China, NFT trading takes place via legal tender, yuan and NFT marketplaces including OpenSea, Rarible, and SuperRare are not permitted. In other countries, NFT trading is carried out through foreign exchanges that accept payments in cryptocurrencies like Bitcoin, Ethereum, and USDT.
China has already banned initial coin offerings, cryptocurrency transactions, and crypto mining. Ruling out NFT’s financial possibilities could further distance the country from the web3.
Despite opposing the freewheeling nature of crypto, China sees blockchain as a key infrastructure in building out its internet economy. An official from the country’s Securities Regulatory Commission recently mentioned web3 as the future of the internet, saying it can solve problems from Web 2.0 such as the lack of privacy protection.
Web3: Regulations for NFT trading in China
China has defined its own version of NFTs that come with strings attached.
To reduce NFTs’ financial risks and take advantage of the underlying technology and Web3 the associations issued a set of regulations for the industry:
- The underlying assets of NFTs must not include bonds, insurance, securities, precious metals, or other financial assets.
- NFT’s nonfungibility shall not be weakened so as to indirectly facilitate initial coin offerings.
- Platforms should not provide centralized exchanges for NFTs.
- NFTs transactions must not happen in cryptocurrencies.
- Platforms should impose real-identity checks on and also store transaction records of customers to eliminate the threat of money laundering.
- Entities shall not in any circumstances, directly or indirectly provide financing support to NFT investments.
Technology giants are already playing along with Chinese regulators in their NFT endeavors. Bilibili, Tencent, and Alibaba-affiliated Ant Group have created permission blockchains where creators can mint and sell their works. These are limited to designated participants and separate from the open Ethereum blockchain network. Transactions are done only in Chinese yuan and the marketplaces don’t permit reselling as OpenSea and other global exchanges. Chinese tech companies are also branding NFTs as “digital collectibles” to distance themselves from the crypto world and keep up with the trend of Web3.
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