There is a pit behind the gimmick of digital collections

Author: Yuan Yuan; Source: Metaverse Know First

Behind the prosperity of the digital collection market, there are also risks that some lawless elements use its characteristics to commit fraud. The following are several common methods of digital collection fraud:

1. Price manipulation: Some bad platforms use internal accounts to buy and sell by themselves, create false trading volume and activity, and mislead consumers into thinking that a certain digital collection has investment value, thereby pushing up prices.

2. Exaggerated publicity: Scammers attract investors to participate by exaggerating the potential returns and appreciation space of digital collections. They may use social media and online communities to spread false information and induce investors to buy digital collections that are actually worthless at high prices.

3. Illegal fund raising: Some platforms illegally raise funds in the name of digital collections, promising investors high returns, but in the end these platforms may suddenly close, resulting in investors' financial losses.

4. Intellectual property infringement: During the issuance of digital collections, some platforms use other people's works without authorization, infringing the copyright of the original creators and bringing legal risks to the buyers.

5. Platform disappearance: Some digital collection platforms may suddenly disappear and stop operating after absorbing investors' funds, making it impossible to recover investors' funds.

In order to avoid these risks, experts suggest strengthening the supervision of the digital collection market, clarifying the issuance and circulation rules, and cracking down on illegal activities. At the same time, consumers should be cautious when investing in digital collections, conduct sufficient investigations and evaluations, and avoid being affected by false propaganda.

New things have routines

Digital collections, as a form of electronic collectibles, cover a variety of types such as pictures, music, videos, 3D models, and electronic tickets. These collections use blockchain technology to generate unique digital certificates, ensuring their digital characteristics during the issuance, purchase and collection process, as well as their unique properties of being tamper-proof, indivisible and limited. In the international market, such collections are usually referred to as NFTs (non-homogeneous tokens).

In December 2023, the Public Security Bureau of Yuan'an County, Hubei Province successfully dismantled a criminal gang that used the concept of "metaverse and blockchain" to commit fraud. The gang used AI technology to produce and sell fake digital collections, arrested 26 people involved in the case, seized more than 30 computers and more than 200 mobile phones, and froze more than 3 million yuan of funds involved in the case.

Since March 2022, the gang, led by the main criminal suspect Hei Moumou, has joined forces with four core members to impersonate a well-known cultural media group to produce and sell digital cultural and creative collections. They used the group's ICP registration number and used a logo similar to that of the group's cultural and creative collection platform for false advertising, and sold so-called digital collections through online trading platforms. According to investigations, the trading website has defrauded more than 15 million yuan, with more than 5,000 victims, and the total amount of fraud is as high as 12 million yuan, of which the highest loss of a single victim is more than 90,000 yuan.

Industry insiders revealed to Banyuetan reporters that the production of digital collections includes two links: content creation and on-chain sales. In terms of content creation, the generation methods of digital collections are mainly divided into two types: "digital native" and "digital twin". The former refers to the direct creation of products in a digital environment, and the latter is the conversion of physical artworks into digital form through painting, scanning and other means. Compared with physical art collections, the ownership and copyright of digital collections can be separated, and the rights and interests of each platform are independent of each other, allowing platform operators to set their own collection rules.

Audiences visit digital collections. Photographed by Chen Zhonghao

"The platform produces and sells itself, which greatly reduces the cost of speculation." "Metaverse Zoye", a blogger who analyzes digital collections at Station B, said that some platforms would buy up all their remaining collections to create the illusion that they were sold out in one second. The number of collections circulating in the market has decreased, and the supply and demand are unbalanced, so the price has gone up. Some experts said that in addition to the speculation of scarcity, many platforms use "digital blind boxes" and "unlocking the purchase right" to sell nesting dolls, which also increases the uncertainty of the digital collection market.

The collection circle hides illegal markets

The core of the operation of the digital collection market lies in the creation of collections and the maintenance of the platform, but this emerging field is also accompanied by many problems. Song Aoyang from the Criminal Investigation Brigade of the Yuan'an County Public Security Bureau pointed out that since the market has not yet been fully regulated, artistic value and speculation are intertwined, and many collectors lack discernment and are easily exploited by lawless people.

The main suspect of the gang, Hei Moumou, confessed that in order to maintain the market activity of the collections, they adjusted the product prices and transaction frequency by controlling the platform, thereby obtaining profits through product sales and transaction fees. The platform charges a 4% handling fee for each transaction and another 3% fee when customers withdraw cash, thereby achieving multi-faceted profits.

In the early development stage of the emerging industry of digital collections, some lawbreakers took advantage of the market chaos to illegally raise funds and then absconded with the money. The Minhang District People's Court in Shanghai recently announced a case in which the defendant Zhang Moumou developed a digital collection network platform, packaged ordinary pictures into digital collections for sale, and falsely advertised that they had huge appreciation potential and repurchase promises to attract investors. After defrauding investors' funds, Zhang Moumou and others quickly withdrew the funds and closed the platform, and disbanded the relevant social groups.

The police emphasized that the illegal and criminal acts related to digital collections seen so far are mostly fraud in nature. Whether it is through operating a fake platform or disappearing after illegal fundraising, criminals usually use means such as forging brand logos, building false images, and promising false returns to mislead victims, causing them to misunderstand and ultimately be deceived.

How to manage digital collections

"Although it is still in its infancy, the digital collection market is moving towards rationality and maturity at a very steady pace." Qin Zhiyong, executive director of Zhongchuan Yuezhong (Beijing) Cultural Development Co., Ltd., believes that digital collections cannot be simply understood from the perspective of commodities. Its development trend is the confirmation and transaction of digital copyright market, which can allow protected intellectual property rights to fully create value in the digital world, strive to avoid the monopoly of large platforms and large capital on the digital creation market, increase the participation and voice of ordinary netizens, cater to the flat operation logic of the Internet era, and have certain market prospects.

Lawyers said that at present, my country has not yet issued targeted regulatory rules for the subject qualifications, issuance models, transaction rules, rights and responsibilities of participants in the digital collection market, and the risk prevention mechanism is relatively imperfect. It mainly relies on the alliance chain to conduct qualification review, allowing the industry to conduct self-management under the guidance of policies.

A reporter from Banyuetan found that in order to limit the speculation of digital collections, well-known domestic digital collection distribution platforms have issued regulations or statements, such as stating in the registration agreement that "any form of resale of digital collections is not supported" or stipulating that "works cannot be resold or transferred", but it is still impossible to completely restrict secondary market transactions.

A reporter from Banyuetan spent 6.8 yuan to buy a digital collection of Dunhuang murals called "Water Moon Guanyin Xuanzang's Journey to the West" on a second-hand trading platform. After the seller confirmed the purchase account information, the collection was transferred from the platform to the reporter from Banyuetan. When the reporter from Banyuetan wanted to transfer it again, the platform issued a reminder: digital collections can be transferred to real-name users who are over 14 years old after 24 hours of purchase or 24 hours of receiving.

"Digital collections are a kind of virtual property on the Internet and one of the important areas of the digital economy, but the risks of fraud, illegal fundraising, and infringement of intellectual property rights caused by their issuance and trading cannot be ignored." Ren Shanyou, a lawyer at Hubei Yingchu Law Firm, believes that taking intellectual property infringement as an example, if someone makes digital collections of other people's works without permission and issues or trades them, it may infringe the copyright owner's reproduction rights and information network dissemination rights.