Financials Author:Siren Chen Jun 13, 2022 09:09 PM (GMT+8)

The report deeply dissects the concepts of NFT and digital collections from a global perspective. It disassembles and analyzes the development status of China's digital collection industry from the perspective of the whole industry chain. This paper analyzes the current mainstream application scenarios of digital collections enabling the real economy, so as to predict its future trends

NFT

NFT (non-fungible token) is a series of machine-generated codes used for the confirmation and transaction of intellectual property rights in the digital collection. It can be understood as the digital certificate of decentralized virtual or physical assets. And it can promote the capitalization of digital content, ensure the uniqueness, authenticity, and permanence of digital assets, improve the liquidity of digital asset transactions, and stimulate the sustainable development of the creator economy.

NFT has been expanding its applications since 2018, covering games, music, works of art, and so on. In 2021, the NFT industry broke down boundaries and its transaction volume and amount showed explosive growth. At the same time, Chinese enterprises have started to explore the development path of China's blockchain digital collections by using blockchain technology regarding the business model of NFT.

With the maturity of blockchain infrastructure and the deepening of public understanding of NFT, NFT industry-related projects are becoming a new investment opportunity.

NFT technical architecture includes the data settlement layer, protocol layer, and application layer. The NFT data settlement layer is responsible for the recording and settlement of value, so as to achieve the security and consistency of the NFT ecosystem. The performance and interoperability of the NFT data settlement layer will greatly affect the development of the application layer. The NFT protocol layer formulates the special rules of NFT and expands its scope of application and transaction. The main categories of the NFT application layer include DApp, games, artworks, trading platforms, and so on.

In the global market, NFT mainly relies on public chain issuance and has strong financial attributes. Through cryptocurrency trading, the market has a large space for speculation, resulting in a huge value bubble, which breeds a series of security problems such as fraud and money laundering.

In order to further standardize the market, relevant institutions in China stripped the NFT of its asset attribute, retained the value of blockchain technology in asset digitization and ownership, explored issuance of digital collections on the alliance chain, and mitigated the risk of speculation.

Compared with the vigorous development of the overseas NFT market, China's digital collection market is still in a relatively early and immature stage.

The Internet giants are the first to get in on the act. According to the self-built model, the EqualOcean analyst believes that the sales of China's digital collections will exceed CNY 15 billion (USD 2.25 billion) in 2026.

Blockchain technology is the underlying infrastructure of digital collections. Depending on the degree of decentralization, it can be divided into public chain, alliance chain and private chain. In China, the main blockchain technology support for digital collections is the alliance chain. The developers are mostly Internet and financial giants, such as Alibaba's AntChain, Tencent's Zhixin Chain, Baidu's Super Chain, JD Chain, and HyperChain.

The alliance chain has advantages in controlling hype, data storage and node computing energy consumption. However, the disadvantage is that the trade area of digital collections will be limited. BSN-DDC (Blockchain-based Service Network-Distributed Digital Certificate), a Chinese style NFT, provides a technical application scenario for cross-chain transactions in China and may become one of the development directions of digital collection transactions.

The digital collection trading platform layer is deeply entwined with the underlying infrastructure, and the trading platform initiated by Internet giants has become the "number one player," occupying most of the market share. Platforms with mature alliance chain digital collection solutions, high-quality creator content and IP have also emerged one after another. A small number of platforms that allow the issuance and trading of PUGC (professional-user-generated-content) and UGC (user-generated-content) have not entered the mainstream due to the lack of authoritative endorsement and uneven quality of the collections.

According to incomplete statistics, there are more than 100 domestic digital collection trading platforms. In order to provide a more objective and clear evaluation of the development of the trading platform and a reference for industry practitioners and collectors, EqualOcean has established the "China Digital Collection trading platform 'BPCI' evaluation model.” The evaluation system is composed of two dimensions: technology and products. And the main indicators include blockchain technology capability, platform building capability, digital collection content and digital collection public influence.

Digital collections can be used in many scenarios, such as artwork collections, brand marketing, sports and music.

As a new product form, the development of digital collections in China has just started. At present, the industry faces risks in terms of finance, platform specifications, consumer rights and interests and data. It is expected that in the future, China will successively introduce and refine relevant legal provisions to restrict the industry and ensure compliance.

Cultural property exchanges and state-backed institutions are comprehensive platforms for cultural enterprises to provide services such as trading, auction, investment and financing. At present, all cultural property exchanges have explored the digital culture. Considering the nature of their business and the large overlapping between their trading partners and the digital collection trading platform, EqualOcean believes that the cultural property exchange may become China's digital collection secondary market, and trading rules will also be formulated and improved based on the existing cultural property exchange rules.

China has heavily promoted digital RMB since 2021, and the number of digital RMB app installations has increased by more than 30 times year on year. EqualOcean thinks that compared with the cryptocurrencies used in overseas NFT transactions, the digital RMB has the backing of the central bank of China, and is conducive to the prevention of illegal and criminal acts such as digital collection speculation, fraud and money laundering.

In the long run, digital collections will develop in a diversified way and become important infrastructure for China's digital economy. The combination of digital collections and digital RMB will build a standardized system for the confirmation of digital assets and create a rich and colorful digital content production ecosystem for China.