China’s new killer app: NFTs (but don’t call them that!)
As crypto-less blockchain platforms flourish in China, a crypto-less version of NFTs is taking off.
A version of non-fungible tokens is taking off in mainland China. This may seem odd, because the government has quashed the public, permissionless blockchains that underpin NFTs.
NFTs, digital assets designed to track ownership of virtual property on blockchain, are not illegal in China but transactions on public blockchains are not allowed, so there is no way to trade NFTs.
But a new generation of public but permissioned blockchains – that is, open blockchains without cryptocurrency – is cropping up. The first big use case is a digital asset called a distributed digital certificate, or DDC. And it turns out that DDCs closely resemble NFTs.
Jehan Chu, managing partner at Kenetic, a Hong Kong-based investor in blockchain projects, is backing several companies behind this trend.
“DDCs are China’s version of digital assets that operate in a permissioned way,” he said this week at an industry conference. “China has strict regulations on content, so this solution works. The Chinese digital-asset economy is going to be huge, and DDC technology will be the enabler.”
Bianjie’s fast start
One of the leaders in supporting DDCs is Bianjie AI, a Shanghai startup that develops products for distributed business systems. It is building IRITA Chain, a China-adapted enterprise blockchain version of Cosmos, an international public, proof-of-stake protocol.
Harriet Cao Heng, founder and chief scientist at Bianjie AI, says IRITA Chain launched on January 25 and already has over 100 NFT and metaverse-related apps running on it. These are enabling users to generate millions of DDCs; 4.5 million were added to the platform in the month of April.
DDCs on the platform resemble NFTs elsewhere, serving as URLs linking to collectibles such as digital art and GIFs, as well as coupons and event tickets. But Cao says this is just the start.
“Other requirements are emerging,” she said, including companies looking to use DDCs for digital advertising or other ways to engage with customers. This month, Bianjie AI announced it will launch products for Swiss beauty brand La Prairie, helping connect customers’ online and offline experiences. “NFTs are a good technology to support new leads,” Cao said.
Neptune brings Ethereum to China
Another new venture that is looking at DDCs is Neptune Digital, a joint venture formed by Kenetic and CryptoBLK, a Hong Kong-based enterprise blockchain developer.
Neptune’s mission is to adapt Ethereum to the mainland Chinese environment, as an open but permissioned version. There it can support developers who are already at work on NFT, gaming, and metaverse apps, says its CEO, Neil Tan.
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He says DDCs are actually superior to NFTs because they operate on the Chinese version of Ethereum, where there is no Ether speculative token. That in turn means there are no high gas fees for transactions, or volatility in transaction fees – those fees are all negligible for DDCs.
“It’s come down to the point that even a receipt can have an NFT,” Tan said. “This is a big leap forward, jumping over the international standard. There are so many DDCs and utilities inside of China that they’re not talking about the tech anymore, but how enterprises are looking to leverage it.”
Tan says as more activities in China transition to blockchains, it is creating a massive amount of new data. Tech companies are exploring ways to store and analyze the information, using artificial intelligence and analytics tools. This can eventually translate into treasury functions (for example), looking at cashflows and finances coursing through the blockchain. But the building block of that data is DDCs.
The foundation: BSN
The reason for the sudden explosion of DDCs is the rise of BSN, the Blockchain Solutions Network, pioneered by He Yifan, and which is about to launch a global version. BSN is root technology to enable data centers to broadcast information simultaneously across networks (see our feature on BSN).
It is enabling an environment in which public blockchains such as Ethereum and Cosmos can operate inside mainland China, with KYC and other differences to fit local requirements. This allows developers with Ethereum or Cosmos apps to port those into China.
In Ethereum’s case, this represents a fork in its coding. The China version required a new consensus mechanism. Internationally, Ethereum operates on Proof of Work, and is supposed to transition to Proof of Stake, both to become faster and more scalable, as well as to reduce its energy-consumption footprint. In China, Neptune’s version of Ethereum will operate as Proof of Authority, in which transactions and blocks are validated by approved accounts. There’s no public process of every node making a calculation to agree on a transaction, making PoA systems efficient, carbon-light, and easily compliant – with the government able to monitor activity.
Such arrangements are antithetical to open, permissionless crypto, but they retain the security and market-level automation of blockchain. Such an environment makes it possible to have a version of NFTs.
“Yifan created DDCs,” Tan said. “He made NFTs accessible [in mainland China].”
NFTs as the building blocks
He Yifan says NFTs will play a big role in China. He envisions uses such as creating NFTs to represent lottery tickets. There’s little trust in China’s scandal-plagued public lotteries, but people could buy a private key to an NFT; winners can be selected through smart contracts; everything is open sourced. Trust would turbocharge sales, he says. The same principle can apply to all sorts of government-stored data – particularly sensitive personal information.
He thinks NFTs will also serve as the building blocks for virtual-reality environments, from cities to buildings to individual items in every room. Metaverses will consist of millions of interconnected NFTs, which in turn will enable interoperability among metaverses.
The biggest difference between metaverse and NFTs in China versus elsewhere is the lack of a speculative token or coin. The authorities also are putting restrictions on turnover, to dampen trading.
This means people will want to own NFTs for the underlying thing itself, not to flip them. In a way, this is a giant test for global NFTs, whose value and utility have been overwhelmed by speculation and Ponzi-like rackets. If Chinese people find durable value in DDCs, then it will validate the technology more broadly – an outcome that proponents in the West should root for.
“If you want to make money trading NFTs, China’s not exciting,” said Kenetic’s Chu. “If you believe in the real utility of digital assets, this is the proving ground. The most valuable use cases will come from a constrained environment without speculation as the key use case.”