April 22, 2022

China’s NFT Plans Are a Recipe for the Government’s Digital Control

By Yaya J. Fanusie

China is doubling down on the idea of a wholly digital economy, constructing software infrastructure to support more expansive data analysis that is likely to strengthen the Chinese Communist Party’s authoritarian control, as well as give China an international edge in technological innovation. The latest part of China’s digital economy strategy is flying under the radar, probably because it is based on a software innovation commonly thought of as nothing more than the most recent cryptocurrency fad: non-fungible tokens (NFTs). NFTs have sparked viral memes and tech startup innovation. China is in the midst of launching a state-backed NFT infrastructure network with implicit geopolitical aims: to manage and ultimately oversee the architecture underpinning a potential future internet. China’s vision of this next iteration of the internet is one in which China controls and vets who can build on it.

China is in the midst of launching a state-backed NFT infrastructure network with implicit geopolitical aims: to manage and ultimately oversee the architecture underpinning a potential future internet.

NFTs are central to the potential new iteration of the internet—what some in the tech space refer to as Web3—that China seeks to oversee. Web3 is loosely defined as a system where online applications run on decentralized software and where users control and share their data via blockchain technology platforms, allowing greater interoperability, efficiency and business innovation. Web3 is an aspirational concept, not a concrete blueprint, and it has become a buzzword pushed by blockchain enthusiasts amid billions in venture capital funding. NFTs are key to the idea of Web3 because they serve as verifiable digital ownership of unique assets. When someone purchases an NFT, they have computer code tying the NFT to their digital wallet. Essentially, an NFT is a digital receipt. The NFT ownership is recorded on a blockchain. Anyone can view the ownership history of the asset and the owner can transfer that ownership to another wallet holder, as the result of a payment or some other condition that can be programmed onto the blockchain. As economies get more digitized and move toward Web3, there will be greater need to build software applications around digital ownership. Chinese officials are not publicly using the term Web3, but the Blockchain-based Service Network (BSN)—a blockchain development project overseen by China’s State Information Center—is investing in the idea that the future internet will require decentralized apps, with NFTs as a cornerstone of this future.

China prohibits trading of NFTs that run on popular cryptocurrency-based blockchains like Ethereum. Enforcement often falls to Chinese tech companies. The popular Chinese mobile payment platform WeChat Pay, for example, recently suspended accounts that were purchasing such NFTs.

Read the full article from Lawfare.

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