How will the direction of NFTs taken by China shape the Metaverse of the future?


Key Points

  • In China, NFTs are viewed differently; where it is the end result derived from cryptography, rather than digital assets meant for trading.
  • China sees that the market could diverge to Certificate Management
  • Intentions behind regulations of NFT space

(Reading time: 25 minutes)

Ask around if your friends and families if they have heard of NFTs and it’s highly likely that more than half would say no. Is it just some mere collection of digital art? Most definitely, not. China has also done it’s part catching up with their western counterparts.

1. The Chinese Cryptography Overview

The Chinese crypto market has gone through multiple turbulent changes. There have been 3 Chinese Government regulations of BlockChain.

The Chinese government initiated the crackdown on cryptocurrencies with the purpose of protecting its own fiat and digital currency, so as to protect the majority of the citizens from the volatility which crypto is notorious for. In order to align themselves with the government, Alibaba and Tencent launched their tokenless blockchains that use the country’s fiat rather than cryptocurrency in order not to be penalised. Products were mainly major Intellectual Properties that had removed the selling and transference functions. [5]

Past Ruling & Regulation of China

On July 23rd 2021, giants of China Tech Industry came together and removed the term “NFT”. It was then renamed to Digital Collection. [6]

In China, NFTs are viewed differently; where it is the end result derived from cryptography, rather than digital assets meant for trading. NFTs are just vessels for photos, videos, audios, and other types of digital files. As each of the NFT has a unique identifier, it reduces the complications of proof of ownership, allowing owners to enjoy the copyrights that they are entitled to. 

In addition, once buyers purchase digital artwork on Chinese platforms such as AntChain Fan Tablet or Phantom Core, the trading function of the piece is temporarily muted. The prices are usually less than RMB50 in the current market. On AntChain Fan Tablet, the owners must have owned the piece for at least 180 days before the asset is transferable to another authenticated user for free, which once again reduces the speculative trading intention of most NFT holders. Such measures actually support the intention of reducing money laundering and speculation risk of such assets. [7]

2. Timeline

Chinese NFT Space up till 2021

The 2021 NFT market has been shaped by four key digital artists [8]

  • China’s first crypto art exhibition “Virtual Niche —Have You Ever Seen Memes in the Mirror?” by Block Create Art
  • Beeple’s “Everydays: The First 5,000 Days” sold for $69.34 million in an auction.
  • Metaverse Boom – Axie’s ‘play to earn’ mechanism caught attention
  • China-made NFTs Boom
  • IP backed, influencers/celebrity endorsed, such as MaodaoNFT and Riverman

2022 and onwards

China officially declares the launch of their state-backed Blockchain Services Network (BSN), at the end of January to support NFTs that are not linked to cryptocurrencies. The infrastructure runs on BSN-Distributed Digital Certificate (BSN-DDC), a simplified solution for businesses and individuals, where the denomination is in Chinese Yuan. This infrastructure poses a deterrent for illegal activities as users are forced to verify themselves.

As much as NFT is currently mainly used for digital artworks, China sees that the market could diverge to Certificate Management [9]

  • Car license plates
  • Education certificates

Such utilities allow industries to exchange information seamlessly and be updated of any changes almost instantaneously.

3. Brands and Artistes

Brands

Burberry created a limited-edition game “Blankos Block Party” with the character Burberry Blanko that are collectibles. [10]

Audi worked with Chinese artist Chengran to create the NFT piece “Fantasy Speed” which is based on the new Audi A8L TFSIe. It was reported that it would be a limited piece that was distributed through the xNFT protocol.

Procter and Gamble had one of the sub-brands launch a toilet paper-based NFT that featured a collection of 6 designs, that reached US$2200. [11]

China CEXes also came up with their own NFT channels such as Binance Smart Chain NFT, and Huobi’s Ibox.com. 

While digital giants, BAT (Baidu, Alibaba, Tencent) launched their own NFT marketplace, a situation similar to the current global marketplace where everything is fragmented without a clear marketplace leader.

Baidu created XuperChain [12]

Alibaba created Antchain (蚂蚁链粉丝粒)

AntChain Fan Tablet sold out 16,000 limited edition artwork in collaboration with DunHuang Research academy in minutes.

Alibaba initially launched Blockchain Digital Copyright and Asset Trade, which serves as a marketplace for NFTs. It was backed by Sichuan Blockchain Association Copyright Committee. [13

Tencent created Phantom Core (HuanHe or 幻核)

On 15 August 2021, Tencent launched its first batch of “TME Digital Collection”. Tiger Hu/Anson Hu/Hu Yanbin’s “monk”20th anniversary vinyl was launched through appointment slots picked through a lottery system on the QQ music platform, where the number of copies were limited to 2001. [14]

Artistes

1. Tiger Hu – Hu Yanbin (born 4 July 1983), formerly known as Anson Hu, is a Chinese singer, singer-songwriter, music director, and record producer. In 2012, he changed his Latin-script stage name to Tiger Hu [15]

2. Dabeiyuzhou – Kun Hao Lin, born in 1990 in Fujian, is one of high-profile digital artists in China. He is known for extremely exquisite and transcendent virtual worlds shown in his works. [16]

3. Ellwood (Chen Qiji) – He majored in Architecture Design and Fine Arts at the Maryland Institute College of Art; he was interested in digital arts but began to explore it more seriously as a new language and tool for self-reflection after noticing the emergence of NFT art. [17]

4. Sun Yitian – Chinese artist who was born in 1991. Numerous key galleries and museums such as Almine Rech, Shanghai have featured Sun Yitian’s work in the past. [18]

4. A summary of NFT space in China

We see tech giants stepping into the industry and actively trying to play a role in the scene. The upside of this is that the big names continuously push for mainstream adoption, as we approach a web 3.0 society. Future initiatives may allow us to see an uprising of creators of the creative space, along with the overall increase of industry standards of both technology and creatives. After all, the Chinese technology industry may be able to curate the space by providing adequate evaluation on projects, artists and individual pieces.

Intentions behind regulations of NFT space

  1. Prevention of “Illegal activities”
  2. Prevention of speculation by removing trading properties
  3. Removal of any links to Blockchain, only for use by approved BSN-DDC network

Tightened regulations and bans on the cryptocurrency services in China has made it tougher to thrive in the global market. However, the intentions of the government are to protect its citizens from the associated risks. The market however, has been both sturdy and flexible as they navigate the current restrictions. We are able to see many local initiatives stepping into the space, while still adhering to governmental regulations. China has also been developing a unique ecosystem where it benefits the local market through a projected steady growth rate by reducing the associated risks mentioned previously.

Even though it seems as if China may be closing up its NFT space at the moment, there are still a few that remain elusive to the government. There have been a few projects popping up from Greater China, mixed with some from the Asian community in launching the project as an international project. 

5. Alternatives to investing in China’s NFT space

In order to continuously hunt for alpha within the NFT space, we know that it must be putting our ears to the ground to find out the latest movement. So, we have managed to find a few projects that may be of interest to investors of the NFT space. These projects are mainly based in Asia, with the support of the Chinese speaking community that is often bilingual. 

Current NFT Trends within the Asian Markets (Launched)

Bears

  1. Heartbreak Bears (HBB) [19]

Founded by a group of Singaporeans (Southeast Asia) who have revealed their identities, HBB has a tight-knit community where they conduct introductions to cryptography and NFT classes every now and then, and provide alpha news for holders of their bears. A relatively unknown group has yet to market to the western part of the world, but is strong in their home ground. This project is in the early-mid stages of their mint, where the Genesis collection is yet to show its full potential. It plans to reveal a collaborative game which interacts with other NFT projects to give away some of the hottest NFTs in the market at the moment right now, like the Adidas NFT (0.9ETH at the time of writing).

  1. Ezek Club [20

Ezek Club is a celebrity avant-garde art focused Entertainment NFT Platform, has released the “Phanta Bear” NFT Collection with 10,000 limited editions on 2022/01/01 created by Ezek. PHANTACi was founded in 2006 by Jay Chou, the Mandopop King, with his partner Ric.

Anime:

  1. Azuki [24]

The latest NFT hype that terms the web 3.0 as a garden and that promises to bridge reality and the digital world together, through a variety of actions that they are in the midst of exploring which may eventually be decided through a Decentralized Autonomous Organization. On launch date, it got sold out within approximately 3 minutes.

Upcoming NFT Trends within the Asian Markets (Launching Soon)

Anime: 

  1. SoulZ [21

Founded by an international team, the project is slated to release in Mid-February. The team is well-connected through their time in the NFT space, getting approvals from NFT influencers like Takoa, Absolute Salt,BentoBoi, Shan and Clerkclirk talking about their project. The project is drawn on anime vibes where it will later be implemented in the metaverse where the project would then be translated into a game within the current game engines of web 3.0 as a Role-Playing Game (RPG). Very much like the BlueChips of NFT, SoulZ intends to eventually release a serum to transform the NFTs, that can be claimed after the sale.

Doodle-Art (Not a derivative of DOODLES NFT)

  1. Pastel Party Club [22

This project was created from an actual company that works on marketing efforts, design and blockchain development. They entered the NFT space to explore the utility behind NFTs and understand how it can be applied to the WEB 3.0 as well as real life utility such as online marketing and integration to businesses. They observed that there were tons of project roadmaps that were more beneficial to the team than the community and they hope to change that. One of the main investible points on this project is that they actively seek the communities’ opinions to actively push the project forward.

2. Fortune Friends Club [23]

This project is led by an Asian-Australian that had an obsession for the Chinese food “Bao” and the project is derived from it. The team is made up of people all over the world. The project aims to be a launchpad for Asian Creatives by setting up a studio and fund for the ambitious within the space.

Appendix

Useful Background Information

Introduction

NFT’s are a type of cryptographic token, but unlike cryptocurrencies that are primarily in the ERC-20 format, majority of NFT’s running on ERC-721 is not interchangeable. This means that the currencies are coded by unique identifiers that makes them different. An example might be the serial codes on the printed fiat currency that defines each bill that is different from the other even though the denomination is the same.

Classification of NFTs

NFTs can be classified into 3 main categories which has evolved in recent times, each category is built on the base layer of DLTs: [1]

  1. Distributed ledger based NFTS (DLTs) [2]
  2. Digitally native NFT
  3. NFT Metadata

1.The features of DLTs are that they are:

A. Immutable – Cryptography is created to create secure storage that cannot be altered in any manner.

B. Append Only – Ledgers only allow add on data and not modification to previous data.

C. Distributed – No single place of storage of data.

D. Shared – The ledger does not have a single entity. Data is shared throughout a network to record or process information


2. Digital Native NFTs, a variation of DLTs

  1. Digitally Native NFTs are generally assets that allow multiple people to have ownership rights to the same asset.

3. Metadata NFTs are an adaptation of DLTs. Currently, it is the most common type of NFT in the market. Its links are given to the person that purchased the NFT. However, does not acquire the ownership rights or copyrights of the NFT. Metadata NFTs are comparable to a more traditional transaction like a sale of an artwork whereby the piece of art is obtained by the buyer, without granting him/her the aforementioned. [3]

NFT Use Cases

  • Event tickets

Event tickets are basically NFTs that allows participants to take part in events in the metaverse mainly, where verification and authentication would pose less of a problem as compared to traditional checks.

  • GIFs

Short clips, such as NBA Topshot also serves as a type of collectible, whereby fans around the globe are able to collect and hold onto specific game highlights by certain players.

  • Domain names

One of the popular adaptations of a NFT is to have a customized domain name, powered by services such as Ethereum Name Service (ENS) or Unstoppable Domains. It translates user addresses of cryptographed wallets to simple and user-friendly addresses.


Collectibles:

  • Collectibles

Cryptokitties got popularised in 2017, so much so that they congested the Ethereum network.

  • Artwork

Think digital Picasso, except that it is traded with the usage of smart contracts.

Hybrid:

  • Music and media

While it is possible to link music files to cryptography, the distribution and royalties remain a hurdle for labels to cross. However, once the issues are ironed out, we do see huge potential growth of the scene as it addresses the concerns of piracy and intermediaries.

  • Real-world assets

Real world assets could be minted as NFT to represent real world assets, as it provides proof of ownership.

  • Gaming 

In game items are one of the most common types of NFT currently. The future awaits in the gaming metaverse as it provides one of the most direct usage and storage value which is accepted by majority of gamers at large, which explains the surge of prices in Sandbox (SAND) and Decentraland (MANA) over the past month.

Valuation of NFTs

Many people ask about “How do I determine if an NFT (artwork/collectible) project is valuable and a good investment?”

Here are a few aspects to look out for:

  1. Real-world utilities

Which is one of the main driving forces at the moment. Such examples would be Play-to-Earn games, exclusive events, or even community givebacks.

  • Team behind NFT projects.

You basically want to know who is the mastermind behind the project and to see if they can be trusted. A founder/team with a good track record or social standing would tend to have their collections perform better.

  • Community (Hyped & active).

An engaging community that is excited and believes in the future of the project provides a safe haven for investors and collectors, which in turn assures their investors the value of their piece. The following are good evaluation metrics of an engaged community:

  1. Active interaction within social media community platforms (Discord, twitter, etc)
  2. Active participation from team members
  3. Active discussions about the project’s future/roadmaps and NFT utilities
  4. Regular updates on the progression of the project
  5. BONUS: Efforts to help NFT newbies understand the concept of NFTs and its terminologies.
  6. Staking

It allows users to transfer their unique tokens to a platform that protects their assets, while creating an income stream, which has an annualised yield (APR) eventually given to the delegators (Staker). The level of staking would be determined by multiple factors, just very much so like normal cryptocurrencies, with the underlying theory of supply and demand. The process of staking is a 2-way win whereby it provides liquidity for the team for development and stakers gain APR

  • Uniqueness or Rarity

Scarcity Principle [4]

NFTs and the surrounding architecture

Global Marketplace

As NFTs are relatively new, there is no singular unified platform at the moment which owns the entire market. However, there are some noteworthy traits of each platform:

  1. OpenSea: The largest marketplace for Ethereum, but also offers listings for NFTs on the Polygon (MATIC) and Klaytn (KLAY) network. It is in fact the most widely used and accepted by most cryptocurrency investors.
    1. Magic Eden: A similar marketplace to Opensea, for Solana based NFTs
    1. NFTs Solana Arts: OpenSea equivalent for Solana related utility.

Wallets

  1. MetaMask: It is a chrome-based crypto wallet for Ethereum transactions. This web linked wallet does not store your actual assets, but keys to your assets instead.
  2. Phantom: A metamask for the SOLANA network.

Alternate Coins that are not listed in exchanges yet

UniSwap: Most popular exchange platform for coins, especially new and unique tokens that have not been listed on majority of the Centralized Exchanges (CEX) yet.


Disclaimer: Our content is intended to be used solely for informational and educational purposes, and not as investment advice. Always do your research and consider your personal circumstances before making investment decisions. ChineseAlpha is not liable for any losses that may arise from relying on information provided.


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