Zhang Feng: Compliance of digital collections at home and abroad

Recently, ForeChain and Zero One Think Tank hosted the "Global Trends and Chinese Innovations in Digital Collections - Global Digital Collections Annual Report Release Conference" online. The conference was supported by Hengqin Digital Chain Digital Finance Research Institute and Beijing University of Posts and Telecommunications Science and Technology Park Metaverse Industry Collaborative Innovation Center as academic support units. At the meeting, Bai Liang, founder of Zero One Think Tank, delivered a speech. ForeChain and Zero One Think Tank jointly released the "Global Digital Collections Annual Report 2021", and invited many scholars, representative companies, investment institutions and industry experts to conduct in-depth discussions on the global trends and Chinese innovations of digital collections.

At the meeting, Zhang Feng, partner of Wanshang Tianqin Law Firm, shared a keynote speech on "Legal Issues in the Development of NFT Market" with the participants.

At the beginning of his speech, Zhang Feng shared his thoughts on the previous guest speeches, including three points:

1. The scarcity of NFT is in a specific scenario, while the resources we have are unlimited. When we talk about scarcity, we are essentially talking about the need for certainty that it cannot be tampered with at will. As long as the rules are open, all tampering can be traced, and the information is open and transparent, this is the true meaning of blockchain.

2. NFT needs to be popularized. The future development of NFT needs to address more personalized needs, as well as more frequent, low-value transaction needs.

3. In the future, every NFT consumer will also be a participant. The transaction method based on smart contracts can continuously bring benefits to the original creators, which is conducive to stimulating the production potential of creators.

When talking about compliance, Zhang Feng first mentioned the essential connotation of NFT compliance. Compliance needs to conform to the inherent characteristics of NFT, and needs to reasonably adjust the relationship between various stakeholders, the relationship between the new production system and the existing production system, the relationship between technological innovation and user rights protection, and the relationship between the reasonable interests of the entire market order. At the same time, compliance is also a dynamic system. We need to find the inherent regulatory logic of NFT and the logic of solving legal problems, which needs to meet the inherent needs of technology, NFT, blockchain and digital economy.

Regarding the legal issues of the development of the NFT market, Zhang Feng shared his views on the following issues:

First, the difference between NFT and cryptocurrency.

Technically, both NFT and FT are cryptocurrencies. However, NFT can be combined with specific metadata to become a variety of digital products or digital commodities, while homogeneous tokens are often used as currency or securities. Therefore, the legal nature of NFT is different from that of homogeneous tokens, and the legal responsibilities and rights and obligations of the two are also different. The responsibilities borne by the issuers of the two and the risks borne by the users are also different.

Second, whether staying away from financialization is the key to the long-term development of NFT in China.

The inherent logic of China's regulatory policy is consistent with that of other countries and regions in the world. If the issuance and trading of NFTs meet the characteristics of financial instruments such as securities, fund shares or other securitized products, then they must comply with financial regulatory provisions.

Third, the legal issues that China needs to understand when developing NFT business. They mainly include the following points:

1. Legal issues related to data and information processing, network security and personal information protection;

2. Legal issues related to intellectual property rights such as copyright, trademarks, patents, trade secrets, and other civil rights including portrait rights and virtual property;

3. Legal issues concerning financing, deposit taking and other aspects of financial supervision.

Fourth, China’s NFT platforms need to pay attention to issues in terms of compliance.

As a compliant platform, the three legal issues mentioned above are very important. If these issues are not handled properly, they may lead to civil, administrative or even criminal legal liabilities.

Fifth, the extent to which Chinese government agencies pay attention to NFTs.

NFT products have indeed attracted the attention of some government departments and relevant institutions in terms of cultural and creative products, digital artworks and museum resources. NFT can better play the value and role of traditional culture and better bring out the excellent historical and cultural resources of the Chinese nation.

Sixth, what are the main advantages of the Chinese market in creating the NFT market?

China has rich cultural and creative resources, broad application scenarios and market demand, as well as a certain scale of consumption potential. In addition, the Chinese market also has a relatively complete industrial chain, including a relatively sound market system including software, manufacturing, creative services and other related industries.

Seventh, what are the main disadvantages of the Chinese market in creating an NFT market?

At present, the shortcoming is that the market has invested too much energy in the game and entertainment industries, while other scenarios combined with the physical industry have not received enough attention. In fact, there are many demands in all walks of life and fields. Most of the current collections have relatively single application modes, and many pictures can only be used to indicate ownership. There is indeed excessive speculation in the issuance process. In addition, the benign interaction mechanism between market demand and regulatory norms needs to be further improved.

Eighth, what is the difference between China’s NFT products or digital collections and overseas NFTs?

At present, many NFT products issued by Chinese Internet platforms are mainly based on alliance chains, while NFTs issued abroad are based on public chains and traded through smart contracts, but the NFT technical protocols on which the two are based are basically similar. Zhang Feng believes that NFT is a tool for the digitization of goods, a digital product and a commodity with use value. From this perspective, it is possible to understand the application and supervision of NFT products at home and abroad.

Ninth, to what extent is there a bubble in NFT?

Generally, emerging application models will generate a certain degree of bubble. As far as NFT is concerned, one of the main reasons for the bubble is that NFT does have broad prospects and can easily attract a lot of capital and investment; on the other hand, the industrial ecology of NFT is not yet perfect.

Tenth, how do you view the Chinese NFT market in five to ten years?

Zhang Feng believes that in five years, NFT products will gradually replace traditional digital products in some fields, and in ten years they may basically completely replace all traditional products.

Eleventh, are there other key legal issues related to NFTs that people must be aware of?

We must realize that digitalization is irreversible. In the future, we will gradually accept NFTs as daily necessities in the metaverse, but it is still far from reality. Technology, applications, industries and legal norms still have a long way to go. Whether as a user or an entrepreneur, we must participate cautiously on the basis of sufficient learning.