China co-warns of potential financial risks associated with NFT

Recently, Chinese financial institutions have been told to stay away from non-fungible tokens (NFTs) according to guidelines issued by major industry associations to limit risks associated with digital assets. digital, preventing any backlash from the government due to its cautious approach to the technology.

Originally, an NFT was a digital collection built on a blockchain, certifying ownership of a single digital item, such as a video, sound recording, or network artwork. there. Such digital collections are gaining traction in China and are embraced by tech companies including Ant Group and Tencent Holdings.

“In recent years, China’s NFT market has become increasingly hot,” China National Internet Finance Association, China Bankers Association and China Securities Association co-issued in a statement. shared.

While NFTs can contribute to China’s digital economy, they can also lead to speculative trading, money laundering, and illegal funding. Previously, the trio of agencies also issued a general ban on cryptocurrency trading last year.

The use of NFTs in the issuance of financial assets such as securities, insurance, loans and precious metals will be prohibited, according to a joint statement. The associations also prohibit members from providing a trading or financial transaction location for NFT digital assets.

Also according to a statement from government-regulated industry associations, financial institutions have also been advised not to facilitate NFT trading or illegally establish a related trading platform. The proposal also states that cryptocurrencies should not be used as a pricing and settlement tool for NFT issuance transactions.

In general, groups have also expressed reservations towards using cryptocurrencies like Bitcoin, Ether, and Tether to settle payments and facilitate transactions around the NFT. The general purpose of controlling NFTs from these groups is to create a transparent and honest perception of the sale and purchase of these digital collectibles.

While China has criminalized cryptocurrency mining and trading, clarity on the classification on NFT digital assets is still awaited in the country. Here, the guidelines are given as companies wait for a clearer picture from regulators about blockchain-backed digital assets, which are becoming increasingly popular in China. Country.

While Chinese tech giants include Alibaba Group Holding, Tencent Holdings and Bilibili are strengthening their footprints in the NFT, releasing their own digital collections, while others such as sportswear maker Anta Sports Products, umbrella maker Electric motor Xpeng and distiller Kweichow Moutai have also jumped into the NFT field.

The hype surrounding the NFT revolves around linking digital works of art and other assets to unique blockchain-based tokens, allowing them to be collected and traded like physical assets. The technology is not explicitly banned in China, with authorities adopting some uses of blockchain, such as protecting intellectual property.

“The guidelines may not have too much of an impact on the artistic NFT at the moment. As long as they’re not split into shares,” said Charles He, a China-based NFT art expert. , artistic NFTs are generally heterogeneous and they are far from being considered financial products”.

However, Chinese authorities are also wary of the decentralized nature of open blockchains and NFTs due to concerns about possible systemic financial risks. NFTs are generally considered digital collectibles in China and must be purchased with yuan instead of the typical cryptocurrency that has to be traded on open blockchain platforms like Ethereum and Solana.

“Cryptocurrencies such as bitcoin, ether, and tether should not be used for NFT pricing and settlement,” the notice said.

The guidance also requires anti-money laundering measures, such as verifying the identity of customers and maintaining records of related documents and transactions. Financial institutions have also been advised not to invest in the NFT and to take steps to curb unreasonable price increases to prevent consumers from speculating.

In fact, China’s Big Tech companies have recently stepped up efforts to curb NFT-related content amid government concerns about speculation. Last month, WeChat, China’s largest social network owned by Tencent, suspended at least a dozen NFT public accounts marketing digital collections.

Finance is not the only industry affected by developments in China’s NFT space. The National Bureau of Cultural Heritage held a workshop last week, urging museums not to sell NFTs of cultural relics, according to CCTV.