What are NFTs
NFT is the abbreviation of Non-Fungible Token (non-fungible token). NFT is the abbreviation of "Non-Fungible Token", that is, non-homogeneous tokens. Unlike FT (Fungible Token, homogeneous token), each NFT is unique and irreplaceable. But like FT, the issuance of NFT also relies on the underlying blockchain technology. After the NFT-related content is created by its creator, its relevant information will be saved on the corresponding blockchain, that is, the NFT on-chain is completed. Thanks to the feature that blockchain technology can stamp each NFT with a time stamp and give it a unique label, each NFT can be permanently stored on the blockchain and cannot be tampered with arbitrarily. The collection value of NFT is also derived from the aforementioned uniqueness and scarcity. Relying on blockchain technology, NFT buyers can obtain specific proof of "ownership" of the NFT and its underlying content. Almost all works of art (such as pictures, videos, photos, songs, etc.) can be created as NFT works through blockchain technology and recorded on the blockchain, which has certain positive effects on further encouraging digital art creation and protecting intellectual property rights. significance.
Domestic NFT development history
- On June 23, 2021, Alipay released two NFT limited skins with payment codes of Dunhuang Feitian and Jiuselu on the "Ant Chain Fan Grain" applet. These two skins are jointly released by Alipay and the Dunhuang Academy of Fine Arts. 16,000 pieces will be issued, each with a unique NFT code. After paying for the purchase, the user can use a unique theme payment page in the Alipay APP that is different from the normal payment page. Once the two skins were released and triggered a wave of panic buying, the listing price on Xianyu reached a maximum of more than one million yuan (the original price was 9.9 yuan). (now "Whale Detective")
- In August 2021, Tencent officially launched the NFT work sales platform "Magic Core". It was originally positioned as a platform for the sale of NFT works. Later, with the introduction and adjustment of relevant domestic policies, laws and regulations, "Magic Core" adjusted all NFT-related words on the platform to "digital collections" in March 2022. (now closed)
On March 12, 2021, this NFT work of "Everydays: The First 5000 Days" was sold at Christie's, one of the world's famous art auction houses, for a hammer price of US$69 million (about 440 million yuan).
Introduction to NFT transaction process
Most NFT transactions are based on NFT trading platforms. In foreign countries, most NFT transactions rely on public chains such as Ethereum; while in China, NFT transactions mainly rely on alliance chains (such as Ant Blockchain and Tencent Blockchain). Its main transaction process is shown in the figure below:
Generally speaking, after the underlying artwork of NFT is created by its creator, the creator himself or authorizes the NFT trading platform to complete the on-chain work through technical means, generate NFT on the blockchain and obtain the block that records the metadata Chain store credentials.
After the NFT is on-chain, it can be traded on the NFT trading platform. Consumers can browse and select their favorite NFT on the NFT trading platform and pay to complete the purchase. After consumers purchase NFT, some NFT trading platforms also support the secondary sale of NFT (that is, NFT buyers can initiate the sale again through the platform after purchasing NFT).
Relevant regulatory requirements and risks of NFT trading platform
Although my country has not yet issued laws and regulations on NFT to supervise and restrict its transactions at this stage, the China Internet Finance Association, China Banking Association, and China Securities Association jointly issued the "Regulations on Preventing NFT-related Financial Risks" in April 2022. The Initiative believes that NFT, as an innovative application of blockchain technology, has shown certain potential value in enriching the digital economic model and promoting the development of the cultural and creative industry, but at the same time there are risks such as speculation, money laundering, and illegal financial activities. In the initiative, it is clearly required to resolutely curb the tendency of NFT financialization and securitization, and not to provide services such as centralized transactions (centralized bidding, electronic matching, anonymous transactions, market makers, etc.), continuous listing transactions, and standardized contract transactions for NFT transactions. Trading places. The state supports NFT collections, but the financialization of NFTs is strictly prohibited.
Regulatory requirements for blockchain information services
NFT is an emerging industry that relies on the development of blockchain technology. The issuer needs to complete the chain of NFT to endow NFT works with uniqueness and facilitate subsequent transactions. According to the "Blockchain Information Service Management Regulations", the main body that provides blockchain information services to the public is the blockchain information service provider, which should perform the filing procedures through the blockchain information service filing management system of the National Internet Information Office; Blockchain information service providers who develop and launch new products, new applications, or new functions should report to the Internet Information Office of the country, provinces, autonomous regions, and municipalities directly under the Central Government for security assessments in accordance with relevant regulations. If the NFT trading platform relies on a self-developed blockchain for transactions, it may be regarded as a blockchain information service provider, and then needs to complete the filing and security assessment in accordance with the above regulations.
Regulatory Requirements for Internet Information Services
In the process of business operation, the NFT trading platform may involve the operation of Internet information services and the provision of trading platforms for both parties to the transaction. Business License".
In the process of providing services to users, the NFT trading platform may also apply algorithm recommendation technology to provide users with Internet information services. According to the "Internet Information Service Algorithm Recommendation Management Regulations", algorithm recommendation service providers should strengthen information security management, establish and improve data Security and personal information protection, anti-telecommunication network fraud, security assessment and monitoring and other management systems and technical measures, formulate and disclose rules related to algorithm recommendation services. At the same time, if the NFT trading platform is identified as an "algorithm recommendation service provider with public opinion attributes or social mobilization capabilities", it also needs to go through the filing procedures through the Internet information service algorithm filing system.
Regulatory requirements for personal information protection
NFT trading platforms will collect users' personal information in the process of processing transactions. Trading platforms such as "Magic Core" and "Whale Explorer" also require users to complete personal real-name authentication before purchasing NFT products. According to the "Personal Information Protection Law of the People's Republic of China" and other relevant laws and regulations, the processing of personal information by the NFT trading platform shall follow the principles of legality, legitimacy, necessity and good faith, and the collection of personal information shall also be limited to the minimum scope for achieving the purpose of processing, and excessive collection shall not be allowed. At the same time, the obligation of notifying users of personal information shall be true, accurate and complete in a conspicuous manner and in clear and easy-to-understand language. In addition, if the NFT trading platform involves the processing of sensitive personal information, it should also obtain the user's separate consent for the processing of sensitive personal information.
Regulatory requirements related to network security protection
As a network operator, the NFT trading platform needs to meet the national regulatory requirements for network security protection. According to the "Network Security Law of the People's Republic of China", "Information Security Level Protection Management Measures" and other relevant laws and regulations, my country implements a network security level protection system, and network operators should perform security protection obligations in accordance with the requirements of the network security level protection system. Including formulating an internal security management system, taking technical measures to prevent computer viruses, network attacks, network intrusions and other behaviors that endanger network security, taking technical measures to monitor and record network operation status and network security incidents and retaining relevant network logs, and adopting data classification, Measures such as important data backup and encryption, etc., protect the network from interference, destruction or unauthorized access, and prevent network data from being leaked or stolen or tampered with. At the same time, if a new information system above the second level is put into operation, its operating and user unit shall go through the filing procedures at the public security organ above the city level with districts within 30 days after it is put into operation.
Relevant regulatory requirements for the operation of online publishing services
According to the "Regulations on the Administration of Online Publishing Services", online publishing services refer to the provision of online publications to the public through information networks, including the provision of digital works consistent with the content of published books, newspapers, periodicals, audio-visual products, and electronic publications. The sale of NFT works on the NFT trading platform may be deemed as engaging in online publishing services through the information network. According to relevant laws and regulations, it is necessary to obtain the "Online Publishing Service License" with the approval of the publishing administrative department.
Regulatory requirements for consumer rights protection
If the NFT trading platform is oriented to ordinary consumers, then as a consumer trading platform, it is necessary to pay attention to the protection of consumers' legitimate rights and interests during the transaction process. The "Initiative on Preventing NFT-related Financial Risks" clearly requires that relevant entities should truthfully, accurately and completely disclose NFT product information to protect consumers' right to know, right to choose and right to fair trade. The Law of the People's Republic of China on the Protection of Consumers' Rights and Interests also stipulates that if consumers purchase goods or receive services through online trading platforms, and their legitimate rights and interests are damaged, they may demand compensation from the seller or service provider; online trading platform providers cannot If the real name, address and effective contact information of the seller or service provider are provided, the consumer may also claim compensation from the provider of the online trading platform.
Relevant regulatory requirements in the financial sector
The "Initiative on Preventing NFT-related Financial Risks" clearly states that it is necessary to resolutely curb the tendency of NFT financialization and securitization, strictly prevent the risks of illegal financial activities, and not issue trading financial products in disguise. Although most domestic NFT trading platforms currently define NFT as a "digital collection" to avoid it being recognized as a virtual currency. However, considering that NFT and virtual currency have a certain degree of homogeneity in the underlying technology, such "digital collections" may be recognized by the competent authority as having certain financial attributes. Therefore, when conducting related transactions, the NFT trading platform can consider avoiding making NFT have the relevant attributes of virtual currency from the perspective of issuance quantity and functional scenarios, and consider avoiding using NFT to complete payment for purchasing any goods or services.
epilogue
At present, my country's rule formulation and management of the NFT industry is still unclear, and new laws and regulations may be introduced and improved with the development of the industry in the future. From a technical point of view, as a specific application of blockchain technology, NFT's development is indeed of great significance for respecting and encouraging the innovation of digital works, protecting intellectual property rights, etc., and also provides a good exchange for art collection lovers and trading platforms. However, considering the characteristics of blockchain technology, coupled with its related characteristics and close relationship with various products such as artworks, commodities, financial products and cryptocurrencies, the formulation of regulatory laws and regulations in this field is undoubtedly very complicated. Let us wait and see how the NFT industry and related policy regulation will develop in the future.