WeChat has recently added new provisions in its "Code of Conduct for Official Account Platforms", detailing that accounts that provide secondary trading services of digital collectibles will be terminated.
Meanwhile, the recent blocking of NFTea, a well-known digital collection platform, appears to be the first time that WeChat has sanctioned a brand under the new policy.
(Provision 3.24: Trading of Virtual Currencies and Digital Collectibles , Image Source from WeChat)
Digital collectibles: from hero to zero?
It seems that this year has witnessed the rise of a flourishing market for digital collections, as we have seen many instances where products go out of stock soon after launching. At the Beijing 2022 Winter Olympics, the IOC introduced a digital mystery box based on the mascot, Bing Dwen Dwen, which was quickly sold out for $99. The same can be said for Zhejiang Jinke Tom Culture Industry Co., Ltd. Earlier this year, the Internet company widely known for its iconic intellectual property, Talking Tom & Friends, partnered with Baidu XuperChain to release a limited edition of commemorative badges inspired by the IP. The items were snapped up within minutes.
Meanwhile, some Internet giants in China, including Alibaba, Tencent, and JD.com, have entered the field by launching their own NFT trading platforms (Jingtan for Alibaba, Huanhe for Tencent, and Lingxi for JD.com).
Museums have also embraced the digital collection boom. It is estimated that more than 30 museums in China have issued digital collectibles, led by the National Museum and provincial institutions like the Museum of Hebei, Hunan, and Hubei.
These digital collectibles were generally developed and inspired by internal relics in these museums. Several products, such as the NFTs featuring the stone tiger from the Jinsha Site Museum and the ceramic dog from the Sichuan Museum, have become instant sensations after publication.
(Digital collectibles developed by the Jinsha Site Museum, Image Source from the Internet)
Some people did make substantial financial gains by joining the hype. Previously, media reported that 2,000 copies of digital pictures entitled "NFT The Monkey King" on the digital collection platform iBox were sold at a starting price of RMB 99 but skyrocketed to RMB 11,900 after several biddings.
(NFT The Monkey King-Sun Wukong vs. the Mighty Miracle God, Image Source from the Internet)
However, after relevant policies such as WeChat's suspension of trading came into effect, prices of digital collectibles plummeted rapidly, with some losing up to 90% of their value. In some digital collectible communities, many members moaned about suffering a substantial financial loss and having difficulty selling their products, even with price reductions.
Digital collectibles and NFTs: what's the connection?
There appears to be no clear definition or consensus on what constitutes a digital collectible in China at the moment. As described by Alibaba's AntChain, digital collectibles are a kind of virtual digital goods, whereas Tencent's NFT trading application Huanhe views them as proof of virtual properties.
In general, digital collectibles can be viewed as something that uses blockchain technology to create immutable and unique digital credentials for creating digital artwork. The copies can be issued, purchased, collected, and used in a digital format under the protection of copyrights. Therefore, digital collectibles are inextricably linked with NFTs.
Similarly, NFT is a cryptographic digital proof of property based on blockchain, which cannot be copied, tampered with, or divided. The tokens can represent a unique piece of digital content, which can be viewed as a decentralized digital ownership certificate.
Therefore, the two concepts have many similarities; they are both supported by blockchain technology, are inseparable and irreplaceable, and can store transaction information.
However, what is the difference between them?
Yu Jianing, executive director of the China Mobile Communications Association's metaverse committee, believes that "digital collectibles in China are based on the same technology as NFT, but they differ in their creation mechanisms and transaction methods."
Unlike overseas NFTs, digital collectibles issued by domestic platforms are primarily created by the platform party, which invites artists or related institutions to develop the designs. Individuals do not possess creation rights, and secondary trading is subject to more restrictions. Generally, digital collectibles can only be transferred within their original platforms; secondary trading rights are not fully open.
In short, digital collectibles in China are primarily characterized as an action of collection and appreciation with weak circulation.
Thus, many joked that after spending so much time and effort buying a particular product, all they can do with their collection is post a picture on their social media account.
However, most of the restrictions are aimed at avoiding regulatory risks.
A number of NFTs in overseas markets use public chains like Ethereum and are linked directly or indirectly with other cryptocurrencies. As China's regulatory authorities prohibit cryptocurrency speculation, major trading platforms seem to have adopted a slightly different concept of "digital collectibles" to comply with relevant regulations.
However, even though digital collectibles and NFTs are technically identical, the applications of NFT extend beyond digital art to include films and video games.
In September 2021, the film "Zero Contact" was screened in an NFT "premiere" instead of the conventional theatrical and streaming media channels. There are 11 NFTs altogether, each of which includes a complete movie and a unique bonus scene.
In addition, Immutable's "Gods Unchained," one of the hottest blockchain-based games, enables players to use NFT cards with a variety of attributes in an attempt to conquer their competition. The game's "Play to Earn" business model is a major attraction for players, allowing them to acquire rare NFT cards and trade them for profits.
The story behind the boom
Considering domestic digital collectibles are seen as weak in circulation, it is reasonable to ask why they have remained so popular for so long.
The reason for this can be attributed to two factors.
First, compared to physical collectibles, digital ones have the advantage of being free from space constraints, and they are not susceptible to damage or loss over time.
Moreover, most digital collectibles cost much less than traditional collections like antique paintings and calligraphies, making them much more accessible to the general public.
Second, many digital collectors enter the market with speculative intent.
As digital collectibles are still at an early stage of development, there are not many mature regulations or administrations in place, leaving platforms and individuals with space to build the secondary market and earn excessive profits. In the trading world, it's not unusual to hear about platforms that distribute products indiscriminately, shut down services or change their identities to trick investors into falling for new frauds.
Additionally, many buyers do not purchase "digital collectibles" to preserve them.
Currently, digital collectible buyers are primarily young people between 18 and 30. A buyer who has been in the digital collectible circle for a few months revealed that there are few collectors over 35 years old in the digital collectible interest groups, and more than half were born after 1995.
These consumers are either students at universities with no source of income or newly employed individuals with limited savings. They believe digital collectibles will function similarly to Bitcoins to create wealth. Therefore, they are willing to be the first to purchase these products without caring if these items can be traded or be artistically valuable.
Several individuals even spent more than RMB 500,000 on digital collectibles on the prediction that the authorities would later liberalize the secondary market. This has led to chaos and risks in the current digital collectibles market.
In addition, overseas NFTs are generally forged on a public chain, and their value is recognized. However, domestic institutions insist they only create digital artworks, while trading platforms are predominantly based on alliance chains. Alliance chains are less decentralized and weaker in immutability than public chains, meaning those collections are prone to price fluctuations. In this regard, digital collectibles still need to be treated with caution at this point.
The future of digital collectibles
Digital collectibles, although risky, may have the following three core values in the long run.
First, it converts digital content into assets. Currently, we only have access to digital content but cannot make it our own. By introducing digital collectibles, the boundaries of digital assets expand. Digital assets will not be limited to digital currencies because any asset with unique characteristics can be forged into a digital collectible, physical or virtual (images, sounds, videos, and games).
Second, it utilizes blockchain technology to ensure asset uniqueness, authenticity, and permanence, effectively solving the rights confirmation problem. Currently, many digital artists follow a traditional method to confirm ownership, such as finding a lawyer who could explain and help them sign the contract. A work may sell for RMB 500, but the process of confirming rights may cost twice as much as the selling price, which is time-consuming and labor-intensive. As a result of the emergence of digital collectibles, a much more effective method is now available.
Third, the decentralized trading model has enhanced the discourse power of content authors and reduced the commission share of centralized platforms. With the smart contract embedded in the digital collectible, authors can receive royalties from the subsequent transactions.
Digital collectibles, as a practical application of blockchain, may be more accessible to the public than the hyped-up metaverse at the moment. As for the future, with the establishment of a regulatory framework, it is expected that the production, issuing, selling, and circulation of digital collectibles will be effectively regulated. As a result, the market for digital collectibles will become even more active than it is at present while remaining within the legal guidelines.