Is NFT a consumption or a financial product?
Written by: Liu Honglin, Mankun Law Firm
Since the concept of NFT digital collectibles became popular in 2021, players and investors from around the world have flocked to this field, making it a hot topic following virtual currencies. However, as the craze subsides, especially in the Chinese market, the positioning of NFT digital collectibles has become nuanced.
As a legal practitioner who has long focused on the blockchain field, Lawyer Honglin has been contemplating and observing the feasible commercialization paths for NFT digital collectibles. Recently, after communicating with several entrepreneurs in the NFT digital collectibles space, he increasingly feels that the relationship between the "consumption attribute" and the "financial attribute" of NFTs is key to their long-term survival in the Chinese environment.
From a global perspective, NFT digital collectibles are no longer just synonymous with digital art; they are moving further down the path of financialization. For example, many overseas platforms not only view NFT digital collectibles as unique digital assets but also include them in the realm of financial investment: speculation, trading, and even financial derivatives based on NFT digital collectibles are emerging. However, can such practices be realized in China?
It seems unlikely. China has always maintained a strict regulatory stance on virtual currencies, especially with increased crackdowns on virtual currency-related activities in 2021. At the same time, the country is continuously strengthening the prevention and control of financialization risks associated with similar tokens. Therefore, the "financialization practices" of overseas NFTs will inevitably be "castrated" in China. I believe that for NFT digital collectibles to survive long-term in China, they must follow a path where "consumption attributes outweigh financial attributes." One of the charms of NFT digital collectibles lies in their ability to deeply integrate with various cultural industries, providing fans and users with a deeper interactive experience through digital art, sports entertainment, celebrity merchandise, and more. For instance, NFT digital collectibles like NBA Top Shot, which sell digital trading cards of exciting NBA moments, have attracted a large following of basketball fans. Similar scenarios exist in China, such as artists issuing limited edition digital artworks or exclusive NFT digital collectibles related to virtual idols.
China is a vast cultural consumption market. If NFT digital collectibles can integrate with local culture and seize the cultural consumption trend, they could potentially open up a larger market in the future. For example, Peking Opera NFTs, digital versions of traditional handicrafts, or even digital props from domestic TV dramas and variety shows could become popular areas for future consumer-oriented NFT digital collectibles. This integration with culture not only meets users' emotional needs but also enhances the scarcity value of NFT digital collectibles, thereby promoting their legitimate existence.
In addition to the cultural industry, NFT digital collectibles can also combine with education, public welfare, and social responsibility to form new application scenarios. More and more charitable organizations are trying to raise funds by issuing NFT digital collectibles, leveraging their uniqueness and scarcity to attract donors. For example, some environmental protection organizations issue limited edition digital artworks, using the sales revenue for environmental projects. For donors, this is not only a way to support public welfare but also allows them to obtain a unique NFT digital collectible as a memento. The combination of NFT digital collectibles with the education sector also holds potential. For instance, some online education platforms can issue NFT digital collectibles to provide users with exclusive learning materials, limited edition course content, or certifications for specific courses. This approach can not only stimulate users' interest in learning but also create a new digital education consumption model.
How to Define Consumption Attributes?
When it comes to consumption attributes, many people might first think of the consumption behavior of physical goods, such as buying clothes, electronic products, or limited edition sneakers. In fact, this consumption attribute also exists in the NFT field. For example, many platforms issue limited edition digital artworks or digital trading cards, and the essence of these NFT digital collectibles is not fundamentally different from buying a pair of limited edition sneakers.
A simple example is a brand that issues a series of limited edition NFT sneakers. Users who own these NFTs can not only showcase them in the virtual world but also enjoy special discounts at the brand's physical stores. For many users, this is a form of consumption behavior; they purchase the NFT not to resell for profit but to enjoy these additional benefits. This model has the potential to be promoted in China, as it aligns more closely with the definition of consumer goods.
The uniqueness and individuality of NFT digital collectibles give them a scarcity attribute similar to physical collectibles in the digital realm. Just as limited edition sneakers have sparked a craze among young people, digital collectibles are also highly sought after in the online world. Particularly in China's gaming industry and subculture, the consumption of NFT digital collectibles is even more pronounced.
Financial Attributes Do Not Completely Disappear
Of course, the idea that consumption attributes outweigh financial attributes does not mean that NFT digital collectibles have no investment value at all. In fact, NFT digital collectibles, like limited edition sneakers, are consumer goods, but due to their scarcity, they can generate a certain premium among specific user groups.
True fans are willing to pay more for products they desire, but there are also speculative players who seek profits through buying, holding, and reselling. This phenomenon is common in global sneaker and art markets and can also occur in the NFT digital collectibles market. Decades ago, avid stamp collectors were passionate about their hobby, and certain rare stamps commanded high prices in the market due to their scarcity, which is not fundamentally different from today's NFT digital collectibles enthusiasts. At this point, NFT digital collectibles may appear to be consumer goods, but due to their uniqueness and scarcity, they possess a certain degree of "investment value."
However, the financialization of NFT digital collectibles in China must be cautiously managed. China has strict regulations regarding the financialization of virtual currencies and related assets, so NFT digital collectibles cannot be subject to large-scale speculation and trading like in overseas markets. To mitigate this, some platforms have begun to limit the price fluctuations of NFTs to ensure healthy market development. For example, certain platforms set upper limits on price increases to prevent excessive volatility caused by market speculation. This approach retains the investment attributes of NFT digital collectibles while limiting the accumulation of financial risks.
NFT and Circle Culture
Despite China's strict regulation of the financial attributes of NFTs, there is still significant potential to be tapped in the market. By combining NFT digital collectibles with consumer goods through limited releases and exclusive rights, more sustainable market space is being provided for users. China's vast base of young internet users and cultural consumption habits also offer possibilities for the future development of NFT projects. As digital collectibles, NFTs often realize their value amplification through circle culture.
Enthusiast circles are one path for NFT digital collectibles to exist legally. Users in these circles often share common interests and have deep emotional resonance in a particular field. For example, fans of artworks, music albums, or virtual idols may obtain closer connections to the things they love through NFT digital collectibles. This connection is not just a monetary investment return but also an emotional and cultural resonance. Enthusiast circles can be seen as a niche market, where NFTs can gain higher recognition and acceptance through targeted audiences. For instance, limited edition NFT music albums allow users to gain opportunities for interaction with artists and exclusive concert tickets after purchase. Such projects not only align with the consumption attributes of NFTs but also create additional value and experiences through user circle culture.
At the same time, this model provides more rationale for the circulation of NFT digital collectibles. If a collector wants to resell an NFT digital collectible, they can obtain a reasonable premium based on its scarcity and demand within the user circle. This lays the foundation for the long-term development of NFT digital collectibles in China. Consequently, the prices of NFT digital collectibles will not spiral out of control due to excessive speculation but will fluctuate around genuine user demand and consumption attributes.
Although the NFT digital collectibles market has broad prospects, achieving long-term development requires more user education and market maturity. Currently, many users' understanding of NFT digital collectibles remains at the level of "speculation" and "trading," overlooking their true consumption attributes and application value. Platforms and the industry need to conduct more educational activities to help users understand that NFT digital collectibles are not merely tools for making money; they can serve as a bridge connecting creators and consumers in the digital world.
By enhancing users' awareness of NFT digital collectibles and reducing speculative behaviors in the market, a healthier ecosystem for the NFT digital collectibles market can be created. Users can not only obtain unique digital collectibles through NFTs but also engage in reasonable trading and investment, rather than blindly following trends and speculating.
Currently, many platforms are already attempting to achieve the legalization and standardization of NFT digital collectibles through technological means, especially some leading platforms that are actively embracing national regulatory requirements to ensure the legality and compliance of NFT digital collectibles. The development of NFT digital collectibles in China is destined not to be filled with financialization and speculation like overseas markets. The market and policies in China dictate that the future of NFT digital collectibles here is more inclined towards consumption and collection. Although the scarcity of NFT digital collectibles brings certain financial attributes, this is merely an added value, not the core.
Summary by Mankun Law Firm
Are NFT digital collectibles consumer goods or investment products? From the perspective of the Chinese environment, the consumption attributes outweigh the financial attributes, which will be key to the long-term survival of NFT digital collectibles. We cannot deny that NFT digital collectibles possess certain investment value, but this value must be controlled and limited in the Chinese market. Just like limited edition sneakers or rare stamps, NFT digital collectibles can be collectibles for enthusiast circles while also potentially bringing certain premium returns under specific conditions.
The future of NFT digital collectibles lies in how to provide users with more consumption experiences within a legal framework while bringing a healthy and sustainable ecosystem to the market. In this process, NFT digital collectibles will become a bridge connecting digital assets and physical consumption, providing new possibilities for the widespread application of blockchain technology in China.
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