Su Yu

　　Associate Professor, Law School, China University of Police Science and Technology, Doctor of Lawslottery method and Where is it

　　To be noted

　　1. The technical principles and business scenarios of non-fungible tokens

　　II. The legal nature of non-homogeneous tokens

　　III. Potential Risks of Non-Homogeneous Tokens

　　4. Risk governance and institutional improvement of non-fungible tokens

　　Conclusion

　　Non-Fungible Tokens are an important innovation in blockchain technology and applications, mainly including coloring schemes and ‘Ethereum Request for Comments’ standard schemes in terms of technology, with rich business scenarios. Treating non-fungible tokens as objects, currency, securities, or contract subjects all present insurmountable legal difficulties, and they should be regarded as encrypted digital certificates. Non-Fungible Tokens may trigger various risks such as technical security, network information security, financial security, and intellectual property protection, and face significant challenges in governance. Based on the定性 of encrypted digital certificates, the technical layer and application layer of non-fungible tokens can be effectively distinguished, laying the foundation for the main risk governance work such as clarifying the legal boundaries of non-fungible tokens, determining the regulatory主体 and their responsibilities, improving the governance framework and main legal mechanisms, and establishing necessary technical standard systems.

　　The rise of Non-Fungible Tokens (NFT, also known as ‘Non-Fungible Coins’, abbreviated as NFT) is an eye-catching innovation in the blockchain field. From the perspective of industrial practice, the general concept of non-fungible tokens includes blockchain digital tokens (tokens) with special traceable marks formed based on any technical route, such as colored coins or Ethereum smart contracts based on ERC-721, ERC-1155, and other standards; while the narrow concept of non-fungible tokens refers only to digital tokens with special traceable marks formed based on Ethereum smart contracts and related standards. The emergence of non-fungible tokens first caused a sensation in the blockchain industry, and then quickly ignited the enthusiasm of the art collection market and the cultural and entertainment industry: the digital artwork ‘Everyday – The First 5000 Days’ by American artist Mike Winkelmann (nickname ‘Beeple’) was sold for nearly 70 million US dollars; the Indian cryptocurrency exchange WazirX announced that it has established an NFT trading market for Indian artists and creators. A series of stunning transactions continuously challenge the boundaries of market cognition: ‘A collage photo sold for 69.34 million US dollars, a tweet with 5 English words sold for 2.9 million US dollars, and a cat emoji sold for 580,000 US dollars’, this series of incredible events pushed the non-fungible tokens that originally only existed in the ‘chain circle’ and even the ‘coin circle’ into the public’s view. Moreover, non-fungible tokens are also considered as foundational technologies in new concepts such as the ‘Metaverse’, and are filled with rich expectations, even believed to bring endless space for imagination.

　　However, like other digital tokens, non-fungible tokens may trigger many risks and governance challenges, which need to be addressed through the rule of law. Firstly, non-fungible tokens may affect financial security or the stability of financial order. As a digital token, it has the potential to threaten the national financial sovereignty and financial order. Secondly, the use and trading model of non-fungible tokens is similar to other digital tokens, which is easy to trigger illegal activities such as tax evasion, violation of foreign exchange management systems, gambling, illegal fund-raising, money laundering, and fraud. Moreover, the technology of non-fungible tokens is still not perfect, and there may be security risks of digital assets. Finally, non-fungible tokens may leverage through smart contract collateralization and other methods, under the momentum of the overheated digital cultural products, it is very likely to gather a massive amount of money in an empty-handed way, forming distorted market signals and liquidity conditions, and at the same time, forming a ‘hot potato’ speculative situation, causing immeasurable far-reaching impacts. Moreover, the legal characterization of non-fungible tokens is still vague, and their potential risks and regulatory needs have not been fully recognized. Up to now, the issuance, use, and trading of non-fungible tokens still need to rely on the legal framework of the entire digital token, and the necessary differentiation and分流 are still to be explored, which is not conducive to the precise regulation or governance of non-fungible tokens. Although in the foreseeable future, the certainty of the vigorous development of non-fungible tokens has been recognized by experts, the legal governance of non-fungible tokens still has a long way to go. Deeply understanding the technical principles, business scenarios, and legal attributes of non-fungible tokens, and cutting them off from Online casino and How to find it, exploring the precise governance path to balance their pros and cons effectively, will be a technically challenging task in the future digital economy field.

　　1. The technical principles and business scenarios of non-fungible tokens

　　The technical principles of non-fungible tokens

　　The technical principles of non-fungible tokens (NFTs) are not complex. From a broad perspective of non-fungible tokens, their main technical routes can generally be summarized into two: one is to form tokens through coloring schemes, mainly by utilizing the additional functions of Bitcoin transactions to record digital assets other than Bitcoin; the other is to generate tokens by using Ethereum smart contracts according to a series of ‘Ethereum Request for Comment’ (ERC) standards. For example, based on ERC-721, non-fungible tokens that cannot be divided can be formed, and based on ERC-1155, divisible non-fungible tokens can be formed. Different technical routes and related application scenarios can affect the legal nature, potential risks, and regulatory approaches of non-fungible tokens. Therefore, it is necessary to understand their technical foundation first before discussing related legal issues. This section takes coloring schemes and ERC schemes as representatives to briefly explain the technical principles of non-fungible tokens.

　　1. Coloring schemes

　　The coloring schemes are divided into two major categories: those based on OP_Return and those not based on OP_Return. The schemes based on OP_Return mainly utilize one of the operation codes added by Satoshi Nakamoto in Bitcoin, namely OP_Return, to complete asset marking. The OP_Return operation can attach a piece of information to a Bitcoin transaction, which can be designed into metadata of a specific asset through certain encoding rules. Afterward, all Bitcoin transactions with this information can be regarded as transfers of assets. Once the transaction is confirmed, the information incorporated into the Bitcoin blockchain also possesses attributes of anti-tampering and traceability, thereby realizing the security of colored assets. Projects like OpenAssets and Colu are examples of coloring based on OP_Return. Sometimes, to correctly parse this information, specific electronic wallets or browsers are required. Since the length of information that can be attached by OP_Return is limited, sometimes the information of related colored assets is placed in specific links. Parsing the additional information can obtain links to related data of colored assets. The expansion of OP_Return by Bitcoin Cash (BCH) has led to more diverse operations, such as OP_Return being able to carry smart contracts, allowing colored schemes based on BCH to also form a complex ecosystem similar to Ethereum (a typical example is the ‘Wormhole’ project). Coloring schemes not based on OP_Return mainly involve adding specific tags to the nSequence in Bitcoin transactions. Once the transaction is completed with this additional nSequence information, the transaction record is ‘colored’. Although this operation is more space-saving in terms of block space (the information attached by nSequence is less than that by OP_Return), because nSequence itself also carries the function of controlling transaction conditions (time locks), and the limited amount of information is difficult to carry a large number of coloring needs, applications in this aspect are relatively rare.

　　2. ERC Standard Scheme

　　The ERC standard scheme is the mainstream solution for non-fungible tokens. The ERC series standards define different interfaces for Ethereum smart contracts, and different interfaces and their combinations determine the functions that a token can implement, thereby generating a wide variety of tokens that greatly stimulate the imagination of the digital economy. The ERC standards related to non-fungible tokens mainly include ERC-721, ERC-998, ERC-1155, etc. Among them, ERC-721 truly established the concept and status of

　　In addition to the above ERC standards, the main ERC standards involving non-homogeneous tokens include ERC-725 and ERC-735 (identity storage and authentication), ERC-809 (realizing the rentability of non-homogeneous tokens), ERC-1190 (realizing complex rights structures), ERC-1948 (allowing non-homogeneous tokens to be accompanied by variable storage information), and so on. Taking ERC-1190 as an example, non-homogeneous tokens issued based on ERC-1190 contain two ‘certificates’ at the time of creation: ‘creation certificate’ and ‘ownership certificate’. The initial owner of the token can sell the ownership certificate separately, and the owner of the ownership certificate can sell or rent the digital assets in the form of non-homogeneous tokens, at which time the owner of the creation certificate will automatically obtain a certain share of the profits; the owner of the creation certificate can also sell the creation certificate to obtain profits in one go, producing an effect similar to ‘selling off’. With the continuous development of ERC standards, more complex rights structures are likely to continue to be conceptualized, defined, and realized.

　　Business scenarios of non-homogeneous tokens

　　Currently, the business scenarios of non-homogeneous tokens are concentrated in cultural industries such as art, entertainment, and games, and their development prospects in other fields are still difficult to estimate. Initially, the influence of non-homogeneous tokens outside the ‘chain circle’ was caused by the ‘CryptoKitties’ game, which allowed users to collect, breed, and trade virtual cats on the blockchain, each of which is a non-homogeneous token with unique characteristics. After two years of silence, with the rise of decentralized finance technology (DeFi), blockchain assets can participate in financial transactions such as collateral, lending, and trading, and non-homogeneous tokens have also become active again. For example, they ignited the digital art trading market: a digital painting based on a non-homogeneous token was auctioned at Christie’s with a starting price of 100 dollars, and it was finally sold for 69,346,000 dollars, creating a new record for non-homogeneous token auctions. According to reports, the total trading volume of the digital encrypted art market exceeded 1.5 billion dollars in the first three months of 2021, with a year-on-year increase of more than 2627%; in July 2021, the trading volume of the NFT market trading platform OpenSea alone reached 325 million dollars in a single month, with a year-on-year increase of 118%, setting a new historical high, mainly involving digital art, other digital collectibles, game props, and so on. The reasons behind the fierce market of non-homogeneous token digital art are not clear, and of course, the ambitions of non-homogeneous tokens are not limited to ‘CryptoKitties’, ‘star card’ (such as NBA Top Shot), and game equipment. Four business scenarios can reflect the potential energy and aspirations of non-homogeneous tokens:

　　1. Blockchain Social Platform

　　Theoretically, based on the function of additional information in token trading, non-fungible tokens can build information interaction media whether based on the coloring scheme or ERC scheme. For example, the memo.cash project uses the BCH wallet based on OP_Return to leave messages, creating a new type of “microblog” that cannot be deleted. It is because of this powerful information dissemination function that the “Regulations on the Administration of Blockchain Information Services” announced and implemented by the National Internet Information Office at the beginning of 2019 is the first government regulation in China related to blockchain, which is specifically for the regulation of blockchain information services.

　　2. Non-fungible Token “Create+Trade” Platform

　　Users can use the services provided by platforms such as Bitski to create stores, create non-fungible tokens, and conduct transactions on the platform. This is currently the most active application in the NFT field. If the digital art, game, and other markets can continue to expand with the help of NFTs, such platforms are likely to reshape the market formats related to them. However, due to the huge energy consumption of NFTs, the energy consumption of a multi-version NFT art work can reach 260 megawatts/hour, which can boil a bottle of water 3.5 million times, which also makes some artists resist digital art in the form of NFTs.

　　3. Non-fungible Token Financial Platform

　　Users can use NFTs for financial operations such as pledge loans, known as “NFTfi”. The concept of NFTfi is “NFT+DeFi” (DeFi stands for “Distributed Finance”), which uses smart contracts to implement the mortgage loans of non-fungible tokens (the form of loan is Online casino and How to find it or digital tokens). If the loan is not repaid by the due date, the platform will automatically dispose of the mortgaged assets according to the conditions set by the smart contract. However, there are significant legal defects in this aspect of business under the current regulatory situation in China, and there are also obvious financial risks abroad.

　　4. Metaverse

　　”Metaverse” was first proposed in 1992, a virtual world imagined by science fiction writers, which is generated by computation and parallel to the real world. Subsequently, the concept of the metaverse has gradually absorbed technologies such as blockchain, 5G, VR, and AR, striving to develop into a virtual digital world that includes “immersive experiences”. In this virtual digital world, NFTs are becoming a key intermediary for building the internal trading system of the metaverse, and theoretically, they also have the function of carrying virtual items and asset systems. In the foreseeable future, the main metaverse projects worldwide will need to widely rely on the technical construction of NFTs for their commodity systems and virtual trading systems.

　　Although the technical research and application exploration of non-fungible tokens (NFTs) have been quite active, the discussions about NFTs are also becoming increasingly hot, and their legal nature has not yet been clearly defined, which has somewhat affected the legal process of NFTs and related businesses. Therefore, it is very necessary to explore the legal nature of NFTs.

　　II. The legal nature of non-homogeneous tokens

　　To incorporate non-homogeneous tokens into the rule of law track and promote risk governance in a legalized manner, it is necessary to first clarify their legal nature. However, due to the rich diversity of non-homogeneous tokens themselves, their legal nature is also very complex and difficult to understand within the framework of traditional legal relationships.

　　Is the non-homogeneous token a ‘currency’?

　　Digital tokens can be translated as ‘digital tokens’, because non-homogeneous tokens are greatly inspired by Bitcoin and most are designed on the basis of currency. However, the technical architecture of a large number of non-homogeneous tokens is not suitable for a monetary orientation and does not take currency as its design template, but rather takes unique or limited quantities (rare) items as templates. This makes its value lack sufficient granularity and continuity in most cases and does not have the nature of a monetary value scale. This is the basis for distinguishing it from homogenized ‘digital tokens’. Moreover, within the current legal and policy framework, there are also significant legal issues with treating non-homogeneous tokens as currency, and it is necessary to differentiate them legally from Online casino and How to find it. They are not issued as currency by sovereign states and have never been formally recognized as currency by any country as Online casino and How to find it, so they cannot be regarded as currency in law. Some Chinese enterprises that use non-homogeneous token technology have renamed related products as ‘digital collectibles’ and even do not use the names of non-homogeneous tokens or NFTs to emphasize the separation of ‘tokens and digital collectibles’, which reflects the necessity of completely separating them in terms of qualitative in practice.

　　Is the non-homogeneous token a ‘security’?

　　Digital tokens can be regarded as certificates of full or partial ownership or usage rights of certain digital assets, and may be subject to the regulatory scope of securities laws in some countries. For example, in the United States, as long as they can pass the Howey Test (Howey Test), which simultaneously satisfies the four conditions of ‘investment of money’, ‘investment in a common enterprise’, ‘expectation of profit’, and ‘profit is generated solely from the efforts of others’, they are within the scope of securities law. A large number of digital assets can be defined as bonds and thus subject to securities regulatory frameworks at least in their creation stage. However, a large number of non-homogeneous tokens do not belong to the creation stage of issuing tokens to attract investment but belong to the subsequent stage of creating decentralized applications. In the United States, many activities at this stage (such as creating items in games with non-homogeneous tokens) may not come into contact with securities law. Moreover, China’s securities legal system does not recognize this type of ‘securities’ nor adopt a securities regulatory framework for blockchain-based value carriers, and there is no precedent for identifying digital tokens as securities or bonds in practice. Therefore, non-homogeneous tokens cannot be classified as securities or bonds.

　　Is the non-homogeneous token a ‘thing’?

　　If the design of homogenized tokens is often based on the currency in the real world, the design of non-homogeneous tokens is often based on specific objects or rare types of objects in the real world. This easily leads us to imagine them as legal ‘things’. Although there are very similar tokens to things in non-homogeneous tokens (such as ‘star card’), we cannot simply regard them as ‘things’. Article 115 of the Civil Code stipulates: ‘Things include immovable property and movable property. Rights as the object of property rights in accordance with the provisions of the law.’ It is evident that non-homogeneous tokens are not immovable property or existing examples of movable property, and there is also a significant difference from the legal attributes. There is no provision in the law that they can be the object of property rights. In a deeper sense, non-homogeneous tokens are also not applicable to a series of existing property law systems. For example, the pledge and redemption operations of non-homogeneous tokens are completely dependent on the settings of smart contracts and are almost not applicable to all the provisions of Article 18, Section 1 of the Civil Code related to movable property rights. Similarly, non-homogeneous tokens are not compatible with the system of property rights claims in civil law. The combination of powers of non-homogeneous tokens is completely dependent on the settings of smart contracts, which can almost arbitrarily set up proportional power structures without being restricted by the rules of civil law doctrine. Even if we try to regard non-homogeneous tokens as intangible things, it is difficult to find a corresponding property rights system in the blockchain that is comparable to the physical world. In the world of smart contracts, this ‘property right’ is not necessarily given priority over ‘liability’ protection, and the order of priority often depends on the specific contract design and performance process, and its specific power structure is quite flexible, completely breaking through the inherent framework of the property rights system.

　　It is also difficult for non-homogeneous tokens to be protected as typical ‘things’ globally. Even though civil law scholars in countries like Germany and Japan consider electricity as an intangible thing, they have adopted a conservative real existence and physical perception theory; as for whether intangible things are recognized as ‘things’ in civil law, there are significant differences in the civil codes of different countries. This makes it difficult for non-homogeneous tokens to be accepted by the property law system based on the定性 of intangible things. Even according to the property law framework of common law countries, a considerable number of non-homogeneous tokens do not present a strict relationship of one diminishing as the other increases in possession and use, which does not meet the antagonistic conditions of ‘things’ and do not possess the legal attributes of ‘things’.

　　Not only that, non-homogeneous tokens can also be used as carriers of liabilities, equity, and intellectual property rights. This means that a specific right is expressed and chained through non-homogeneous tokens, making it less suitable to be regarded as a mere ‘thing’. Of course, the physical entity of a right certificate can sometimes be regarded as a special ‘thing’, but in legal practice, electronic certificates such as electronic ID cards, travel cards, and academic records (which can be technically considered as a specific arrangement of a set of numbers) without physical entities may not necessarily be applicable to the protection framework of the property law system. When non-homogeneous tokens contain various rights and obligations of non-property nature, it is easy to lead to an excessively complex multiple nesting state of legal relations if they are treated as ‘things’. Therefore, there are certain difficulties in treating non-homogeneous tokens as ‘things’.

　　Is the non-homogeneous token a ‘liability’?

　　Since non-homogeneous tokens are generated and traded through smart contracts, can they be regarded as a kind of contractual right, or recognized as a kind of claim at a more abstract level? This may be a very confusing option. The main problem facing this kind of qualitative definition is whether smart contracts can truly be recognized as contracts, which is not only rare in domestic practice but also has no definitive conclusion in academia, and remains a widely controversial issue globally. Moreover, if the legal nature of non-homogeneous tokens is handled within the framework of contracts, it will be extremely difficult to determine whether the obligations and claims systems attached to the contract can be applied, especially since systems such as unauthorized agency, suspension of performance, right to terminate the contract, offsetting rights, and rules of standard clauses are almost impossible to apply normally. Even scholars who actively advocate for recognizing the contractual nature of smart contracts often admit that there are significant differences, even essential differences, between smart contracts and traditional contracts, and that it is necessary to create new legal mechanisms or believe that there are distinctions between contractual and entity types within smart contracts. All of this reflects the difficulty of qualitatively defining smart contracts as contracts under our civil law system, which is also不利于 viewing non-homogeneous tokens as contractual rights or claims.

　　A more profound issue is the difficulty in defining the nature of contractual rights and even债权. According to Article 118 of the Civil Code, a claim is ‘the right of the claimant to request the obligor to perform or refrain from performing certain acts’. However, even if smart contracts can be regarded as contracts, non-homogeneous tokens are only the subject matter of the contract, not the claim itself; they are merely data representing specific virtual entities, and the rights of smart contracts exist in the ways of processing and utilizing these data. Due to the relatively arbitrary and highly standardized issuance of non-homogeneous tokens, issuers often no longer bear any obligations after issuance (especially for open-source decentralized non-homogeneous token projects). Theoretically, they can also choose anonymous issuance methods that cannot trace back to specific individuals or organizations in the real world, making it impossible to verify the identity of the issuer or whether they have legal personality, i.e., it is not necessarily the case that there is a role of ‘debtor’ (or counterparty to the contract) with legal personality. Therefore, to seek actual debtors may require tracing back to the maintainers of large public chains such as the Ethereum main chain, but public chains themselves are decentralized, and if there is no entity responsible for the operation of public chains, the key subjects in the legal relationship of claims will actually be missing. This makes it even more difficult to qualitatively define non-homogeneous tokens through the approach of contractual rights or claims.

　　Finally, introducing the contract law system is akin to adding more layers of a bed frame, as smart contracts related to non-homogeneous tokens are typically fully automated (even capable of automatically running dispute resolution mechanisms). This may not only conflict with the conventional operation of smart contracts but also lacks the practical value of settling disputes (as smart contracts can be designed with various dispute resolution functions). Forcing intervention in the results of blockchain operations may even disrupt the consensus mechanism and trust foundation of the entire chain, leading to unforeseen profound impacts. This dilemma is widely seen in the application of traditional legal systems to smart contracts, and it may be necessary to explore new qualitative solutions.

　　Is the non-homogeneous token a “virtual property”?

　　The Article 127 of the Civil Code stipulates: “Where laws provide for the protection of data and network virtual property, the provisions shall apply.” This general provision opens up new space for the legal characterization of non-homogeneous tokens. Long before this provision came into effect, there have been claims to position digital tokens as a new type of digital asset or property, which have become increasingly common in recent years. For example, a representative view holds that: “ICO issued under the guise of blockchain should be banned in an all-round manner, while the Token mechanism in the blockchain consensus algorithm should be recognized as a new type of property right.” This conclusion may raise two fundamental issues when applied to non-homogeneous tokens. The first issue is the legal basis. The 2021 “Notice on Further Preventing and Handling Risks of Speculation and Manipulation in Online Casino and How to Find It Transactions” (hereinafter referred to as the “Notice”) explicitly bans “Online Casino and How to Find It such as Bitcoin, Ethereum, Tether, etc.” and strictly prohibits related illegal financial activities including derivative trading of Online Casino and How to Find It, resolutely eliminating them in accordance with the law. Although the “Notice” is not a legal norm, it has considerable practical effect as it was jointly issued by the “Two Supreme Courts and Eight Departments”. The regulatory scope of the “Notice” is not only for Online Casino and How to Find It but also includes concepts such as “virtual assets”, “cryptocurrency”, and “cryptographic assets”, although the language used here is “assets” rather than “property”, which also poses a significant legal risk for similar characterizations of non-homogeneous tokens. If the characterization does not completely cut off from Online Casino and How to Find It and other public chain cryptographic assets, non-homogeneous tokens may also fall into the same trap as digital tokens. The second issue is the application scenario. To take a step back, even if a complete distinction can be made between “virtual property” and “cryptographic assets”, it is not conducive to the expansion of application scenarios of non-homogeneous tokens in China. Non-homogeneous tokens can not only be applied in the digital cultural and artistic market but can also be widely used to produce almost any traceable electronic certificates with unique markings and limited quantities, having potential applications in e-government and intelligent judicial fields. If they are directly defined as “assets” or “property”, it may not only artificially block the application channels of non-homogeneous tokens but also be不利于 effectively separating non-homogeneous tokens from various digital tokens designed to target Online Casino and How to Find It from the outset.

　　Is the non-homogeneous token a ‘encrypted digital credential’?

　　If it is infeasible or fraught with difficulties to adopt the aforementioned qualitative approach for non-homogeneous tokens, it is considered to restore their technical essence, to be classified as a type of encrypted digital credential, separating the value and product attached to the carrier from the token itself. Through a legal定位 independent of digital tokens and other encrypted assets, a separate regulatory framework is established. The design of the rights structure related to non-homogeneous tokens is entirely dependent on smart contracts and blockchain ‘standards’, with a strong self-organized and autonomous nature, and generally does not expect legal intervention. However, the law must intervene in the relevant activities of non-homogeneous tokens to prevent economic and social risks, and adjust them from the perspective of safety and order. It is important to separate the encrypted digital credentials as technical carriers from the attached values, and to specify by law what digital cultural products, financial products, electronic documents, or legal documents each encrypted digital credential can be connected to. If the separation of the technical carrier and the connected content is achieved in the qualitative classification, then, with the technical characteristics of non-homogeneous tokens, they can be fully used to support the traceable and verifiable transfer of electronic certificates with unique or limited identification, as mentioned in the ‘Notice on Organizing the Application for Pilot Projects of Blockchain Innovation Applications’ jointly issued by 18 units including the Central Cyberspace Administration, the Central Publicity Department, and the General Office of the State Council in October 2021, such as ‘Blockchain + Manufacturing’, ‘Blockchain + Tax and Fee Services’, ‘Blockchain + Copyright’, ‘Blockchain + Trade Finance’, and ‘Blockchain + Equity Market’, etc., which have huge application potential. Only by adopting an independent qualitative approach such as the encrypted digital credential can the separation of the carrier itself and the content it points to be achieved in terms of legality.

　　The qualitative approach of using encrypted digital credentials implies the need to establish a new legal framework. The regulatory framework for digital tokens basically originates from the financial regulatory systems of various countrieslottery tutorial and The latest plan. For example, the Singaporean government, based on the Capital Markets Products Regulation in Chapter 8 of the Securities and Futures Act, adopts a differentiated classification approach for currency-oriented digital tokens (tokens) by separately incorporating them into equity, bonds, commercial trust units, securities derivative contracts, or collective investment schemes (CIS). Through interpretative administrative rules such as the ‘Guidelines for the Issuance of Digital Tokens’, digital tokens are incorporated into the existing institutional framework and further refined and improved in their specific regulatory systems. For non-homogeneous tokens, since both in theory and practice, there is a choice to differentiate them from homogenized digital tokens, and it is expected that their applications and risks will far exceed the scope of the financial sector, we necessarily need to establish a new governance framework. For this, the establishment of a system of institutional construction that effectively balances risk prevention and market innovation needs still requires more proactive exploration, especially the need to fully recognize the potential risks and governance challenges of non-homogeneous tokens.

　　In a deeper sense, the physical essence of non-homogeneous tokens is a set of data generated by machines, and such widely used machine-generated data ‘is essentially a set of rights, which is not a simple property right, intellectual property right, or a new type of property right, but a set of rights involving multiple subjects.’ Although this view can be debated, it also indicates a new potential demand: in the case of very wide future applications of non-homogeneous tokens, there should not be a directional restriction on their legal nature from the very beginning. Therefore, when examining the legal nature of non-homogeneous tokens, it is advisable to retain their openness in application as much as possible, which can consider distinguishing between the technical level and the application level, and then creatively limit the definition of the legal nature of non-homogeneous tokens.

　　III. Potential Risks of Non-Homogeneous Tokens

　　Technical Security Risk

　　The potential risks of non-homogeneous tokens primarily come from their own security. The security of public chains such as Ethereum and Bitcoin Cash is not absolutely reliable, and all public chain consensus algorithms have varying degrees of defects. Moreover, the security of public chains is also constrained by real conditions and must rely on strong human nature assumptions. For example, Ethereum relies on the Proof of Stake (POS) consensus algorithm but has a relatively centralized coin structure; Bitcoin Cash relies on the Proof of Work (POW) but has an overly centralized computing power structure; both have theoretical defects in their security and can only rely on the assumption of rational economic agents and the retention of hard fork measures to support their security foundation.

　　The security of public chains is secondary, and the security of smart contracts issuing non-homogeneous tokens is a more direct issue facing考验. In Ethereum, once 89% of smart contract code had security vulnerabilities or hidden dangers, which posed a huge risk factor for various applications based on smart contracts. Although Ethereum introduced formal verification mechanisms for smart contracts after the DAO incident, for an increasing number of ERC standards and increasingly complex large-scale smart contracts, highly patterned formal verification mechanisms cannot fully guarantee that there are no security vulnerabilities in related smart contracts. Once a smart contract itself is targeted, the entire value flow related to the contract may face fundamental and huge risks. Moreover, due to some characteristics of the development of China’s blockchain industry, there are several aspects of technical security that need to be paid special attention to for non-homogeneous tokens. For example, the ‘Eclipse Attack’ has always been an unresolved issue in blockchain security. Theoretically, the fewer the participating nodes, the more likely they are to suffer from an Eclipse Attack. In the development of China’s blockchain, due to policy influence, alliance chains will increasingly occupy an important position, but since their participating nodes are relatively few, the risk of preventing Eclipse Attacks will also be more challenging. Therefore, when generating and transferring non-homogeneous tokens based on alliance chains, such risks also need to be considered in terms of technical security.

　　Since the Cybersecurity Law of the People’s Republic of China was promulgated in 2016 and

　　Financial Security Risk

　　Non-homogeneous tokens may become the most significant security risk in the financial field. Non-homogeneous tokens are often purchased with Online casino and How to find it (or digital tokens), due to the features of Online casino and How to find it such as demediation, decoupling from national borders, non-face-to-face, anonymity, quick transactions, and high global liquidity, and digital art carried by non-homogeneous tokens is prone to generate high premiums, there is obviously a risk of money laundering using non-homogeneous tokens. Particularly, the public chain design of Ethereum 2.0, with its relatively free asset collateralization function, can easily make non-homogeneous tokens into money laundering tools under the support of flexible collateral contracts. Not only that, the emergence of ERC-1155 allows non-homogeneous tokens to be split and used in payment scenarios, leading to the possibility that non-homogeneous tokens may cause an impact on the financial, foreign exchange, and tax systems similar to that brought by homogenized digital tokens. Moreover, for homogenized token projects, reverting stolen assets through hard forks is a viable last resort. However, for a single non-homogeneous token, the possible outcome of a hard fork may be a major divergence in the attribution of the same asset, even meaning that a certain non-homogeneous token will permanently bear such an attribution defect, which is unfavorable for the most critical attribute of non-homogeneous tokens—reliable authentication of single or rare products. When non-homogeneous tokens carry complex financial operations such as collateralization and investment through smart contracts, the impact of hard forks on financial security is even more difficult to estimate. Therefore, non-homogeneous tokens must be cautious when using hard forks as a last resort, which further intensifies their hidden concerns about financial security.

　　Intellectual property rights risk

　　Currently, non-homogeneous tokens mainly focus on cultural and artistic products, which may lead to intellectual property rights risks. Although non-homogeneous tokens have quite positive value for the protection of intellectual property rights, if the works completed on the chain initially themselves have intellectual property defects, the issuance of non-homogeneous tokens may cause a significant increase in the damage caused by infringement. In other words, blockchain can indeed use its anti-tampering and traceable functions to fix evidence to protect intellectual property rights, but if there is an intellectual property dispute or infringement from the very beginning, the damage consequences may also be continuously amplified through the financial leverage effect of the public chain, even leading to serious infringement results that are difficult to accurately measure. Moreover, the same work can be used to generate multiple non-homogeneous tokens. Once each issuer of the non-homogeneous tokens claims it as the unique, original source, it may cause a rather tricky situation for ordinary investors and consumers; the owners and authors of the works may also allocate different rights to different non-homogeneous tokens for issuance (theoretically, even different functions of ownership or copyright can be divided and multiple non-homogeneous tokens can be issued), leading to more complex intellectual property conflicts.

　　Therefore, behind the splendid imagination of non-homogeneous tokens lies actually multiple risks. Viewing them as a kind of encrypted digital certificate, retaining their diversity and differentiation in the application level, is not only conducive to the precise design of the governance framework of non-homogeneous tokens, but also beneficial for the precise institutionalized prevention of various application risks. However, it is precisely because of the diversity and differentiation of non-homogeneous tokens in the application level that it is difficult to simply apply the existing regulatory path to the risk governance and institutional improvement. It requires quite innovative and forward-looking institutional solutions to balance their potential socio-economic value and the needs of risk governance.

　　4. Risk governance and institutional improvement of non-fungible tokens

　　Non-fungible tokens are flourishing in practice, and the main structure, institutional framework, main legal mechanisms, governance accuracy, and corresponding technical standard systems of the related risk governance work are not yet clear or are still lacking. This has brought difficulties to the rule-of-law-based risk governance. However, it also leaves space for new regulatory paths and institutional solutions. At the initial stage of the institutional establishment, the related rule-of-law construction needs to focus on several basic goals: first, define the legal existence space of non-fungible tokens; second, clarify the regulatory authorities and their power and responsibility structure; third, improve the governance framework and main legal mechanisms; fourth, build the corresponding technical standard system. These four can initially construct the legal framework for the governance of non-fungible tokens, effectively respond to the risk governance needs of the technical and application aspects, and lay a foundation for exploring specific and precise governance solutions.

　　Defining the legality boundary of non-fungible tokens

　　The legality boundary of non-fungible tokens is the most significant issue they will face in the future. Defining non-fungible tokens as encrypted digital certificates does not completely eliminate their legal riskssports betting secrets and The latest website. Theoretically, while non-fungible tokens can be distinguished from Online casino and How to find it and other encrypted assets, they still need explicit policy recognition to confirm their legal status and boundaries. Especially after the emergence of divisible technologies such as ERC-1155, there is a possibility of further blurring the theoretical boundaries between non-fungible tokens and ordinary digital tokenslottery cheats and The most exciting gameplay. In this regard, if non-fungible tokens are defined as encrypted digital certificates, their legal issues can be converted into how to generate and use such certificates, and this does not affect the legality of the carrier itself regardless of whether they are divisible or not. The generation of certificates by governments, public institutions, state-owned enterprises, or private entities should be permitted, but illegal activities such as illegal fundraising using such certificates must be prohibited. At the same time, the trading activities of some certificates are also restricted or prohibited according to existing substantive laws. As such, for a considerable period of time, the legality boundary of non-fungible tokens can be defined by the direct corresponding rule of ‘offline-online’: the legality boundary of the generation and circulation of related certificates directly depends on the legality boundary of their original offline form. Although giving up the financial operation space such as luxurious pledge financing, futures trading, and compound rights structure design may cause dissatisfaction among ‘blockchain fundamentalists’, based on the principle of risk prevention, it is necessary to choose a more cautious approach when the uncertainty of complex financial risks caused by non-fungible tokens is still quite high. It is necessary to wait until the related technology is more mature, the risks are clearer, and the country and society have a higher level of acceptance before steadily expanding the legality space and allowing the scope of business operations to expand.

　　Even if non-homogeneous tokens can be completely separated from the common homogeneous digital tokens that were previously in use, there may still be certain institutional inertia in the regulatory framework. From the current regulatory situation of digital tokens in our country (including Online casino and How to find it), the composition of the administrative entities for the risk management of non-homogeneous tokens may be quite complex. The joint issuance units of the

　　Improving the governance framework and the main legal mechanisms

　　The governance of non-homogeneous tokens cannot rely solely on top-down supervision. The collaborative governance efforts from the market and society play an indispensable role in achieving precise governance, balancing the technological development, application value, and risk prevention and control needs of non-homogeneous tokens. Given the high spontaneity and abundant market vitality of blockchain technology and business models (especially active in knowledge communities and the investment sector), the risk governance of non-homogeneous token projects can first rely on the governance means of the blockchain itself. Meanwhile, the regulatory power from the government acts as an active guide for the governance direction and a strong protector of the risk bottom line, utilizing the ‘meta-regulation’ approach to improve the governance system of non-homogeneous tokens. Since the non-homogeneous tokens (digital collectibles) in our country are mainly issued based on consortia chains, this governance approach that relies more on corporate compliance is more feasible. Specifically, the government can promote the establishment of various national or industry standards, requiring relevant enterprises to establish a compliance system for the issuance, use, and circulation of non-homogeneous tokens, especially emphasizing that the procedural design of non-homogeneous tokens must include sufficient security measures, and to some extent, include mechanisms such as blockchain transaction traceability, rights proof, dispute resolution, and contract auditing; on this basis, the government determines the ‘whitelist’ of non-homogeneous token release platforms based on different standards and compliance assessment results, steadily promoting the healthy development of non-homogeneous token businesses while continuously and comprehensively monitoring risks.

　　Establishing a necessary technical standard system

　　The risk governance of non-homogeneous tokens requires a reasonable degree of accuracy, which needs to fully prevent and control risks while avoiding excessive intervention in the inherent governance mechanisms and logic of the blockchain. It is necessary to prevent the artificial weakening of the security and usability of non-homogeneous tokens and even the blockchain, as well as to limit the development of beneficial technologies and business models. Since the risk governance of non-homogeneous tokens is highly technological, many specific arrangements for precise governance are likely to be mainly implemented through policy requirements and technical standards in normative documents. Among them, the technical standard system connected by authorizing clauses and applicable clauses in legal norms can play an indispensable and important role in the professional governance of non-homogeneous tokens. Technical standards often carry not only purely technical requirements but also a large number of behavioral norms with value connotations, which can achieve precise governance across the technical and application layers of non-homogeneous tokens.

　　For non-homogeneous tokens, the technical standard system can mainly solve the following problems: Firstly, prevent and control the technical safety risks of non-homogeneous tokens themselves. For example, the formal verification of the security of related smart contracts, the important ERC proposals, and the security requirements of contract deployment platforms can all be transformed to some extent into technical standards guiding the technical security of non-homogeneous tokens. The release of the China Electronics Society’s ‘Formal Expression of Blockchain Smart Contracts’ (T/CIE095-2020) is a typical exploration. Secondly, prevent and control the financial risks that non-homogeneous tokens may cause. Non-homogeneous tokens originate from public chain platforms, and in the absence of restrictions by laws and policies, they can themselves be based on smart contracts and interact with homogeneous tokens and various online casinos, forming complex financial operations. If non-homogeneous tokens are recognized, they can only be traded directly or indirectly in RMB in the foreseeable future. Once digital cultural and artistic products or other products in the form of non-homogeneous tokens (especially divisible non-homogeneous tokens) need to link the payment channels and smart contracts of digital RMB, it is necessary to establish standardized and safe operational forms and risk monitoring mechanisms through technical standards to prevent the occurrence of financial risks. Thirdly, guide non-homogeneous tokens to provide derivative functions and services that meet the needs of social and economic development. If non-homogeneous tokens are used to issue various electronic certificates and documents, then in addition to the technical standards of non-homogeneous tokens themselves, the content of the certificates and documents also needs to be generated based on certain standards to meet the requirements of on-chain operations and other complex operations on the chain.

　　Conclusion

　　In the digital economy wave sparked by blockchain, non-homogeneous tokens are a highly imaginative new thing. The special marking capabilities and limited segmentation mechanism of non-homogeneous tokens, combined with other functions of blockchain, can play a positive role in a wide range of fields, and may become one of the key technologies for building the future digital society, even reaching the so-called ‘metaverse’. However, despite the imaginative connotations of various ideas about non-homogeneous tokens, one should not be driven by the desire to ‘carry a mountain over the sea’ and try to cross the risk底线 set by a country’s laws and policies. Adhering to a practical stance and conducting comprehensive risk monitoring and in-depth governance of non-homogeneous tokens from the very beginning is the best way to protect and support this new thing.

　　The risk governance of non-homogeneous tokens is a highly professional task, which not only lacks mature precedents for reference globally, but also the continuous development and change of technology and business models keep the uncertainty of relevant risks at a high level. Exploring a precise risk governance framework specifically for non-homogeneous tokens in the environment where public chains and digital tokens face strict regulatory policies requires extra cautiononline casino download and The latest plan. Nevertheless, we can still prepare for the worst, strengthen fundamental research in technology and institutions, and continuously explore beneficial applications and business models of non-homogeneous tokens for China’s social and economic development through limited-range, risk-controlled progressive pilot projects, and embrace the prosperous future of the digital economy and digital society with richer and safer encryption certificate technology and applications.