India hopes to table its Cryptocurrency Bill in the winter session of Parliament and Bollywood icon, Amitabh Bachchan has announced rolling out his personal Non Fungible Tokens (NFTs) by the end of this year. The nation in the last quarter is witnessing swift movement towards cryptocurrency but there isn’t specific legislation to govern NFTs and trading in NFTs.
NFTs have rapidly made headway in India in the last two months. Three new NFT exchanges, with WazirX leading the charge, have come into existence. Twitter in its report stated that the volume of conversations around NFTs have grown by 43% in India in the last three months. WazirX was the first exchange to start NFTs marketplace and sold over 160 pieces of digital art in its very first month as per a report published by Economic Times. According to Forbes, $174M has been spent till date on NFTs globally.
What are NFTs?
NFT as digital assets represent a real-world object which can be art, music, in-game items and even videos. Built using similar minting procedures or programming like cryptocurrency, though there is a significant difference between the two. Cryptocurrencies are fungible in nature which provides for trade and exchange between two similar crypto-trade of one Bitcoin for another Bitcoin. NFTs cannot be traded with other NFTs, because the value of two NFTs can never be the same thus making them non-fungible. Lack of framed regulations renders no legal status to NFTs in India.
Bitcoins are made up of various smaller denominations, Bitcoin Satoshis. Satoshi is the smallest unit of a Bitcoin, equivalent to 100 millionth of a bitcoin. To facilitate smaller transactions in the blockchain, Bitcoins can be split into smaller denominations. NFTs are indivisible in nature and cannot be broken down into smaller denominations. They are indestructible, cannot be replicated, destroyed or removed from the blockchain without authentication.
NFTs are a source of monetization for content creators and artists to monetize their work without relying on galleries or auction houses. A sale can directly be made to a customer, if the customer deals in NFTs and cryptocurrencies. NFTs allow royalties to artists which can be a certain percentage of the sale when the artwork is sold to a new owner. However, a barter exchange amongst NFTs seems a possibility which brings the discussion to complex contractual equations with challenging enforceable legal rights.
What is the risk of trading in NFTs?
The risk of trading in NFTs is high. It is a value-based trade with the control in the hands of the potential buyer with demand piloting the price. The RBI issued digital currency could be making its debut in December 2021 creating additional challenges for existing private crypto exchanges and holders particularly with respect to the trading of NFTs. The looming questions for India in pursuing NFT trading are- how they can be regulated and do they classify as financial instruments?
Ownership of NFTs is immutable, the user owns the NFT bought during an auction and not from the minting companies creating these. NFT owners can trace them back to the original creator but can only pay for these through a crypto wallet or a cryptocurrency. In the absence of specific law, the legal relationship of NFTs is governed through Smart Contracts under the Indian Contract Act, 1872 and the Sale of Goods Act, 1930. Also, a 2% equalization levy and GST on all NFT transactions indicate that GoI wants to treat it like transacting in goods.
Amitabh Bachchan stated that his NFTs will comprise limited-edition artworks and autographed posters from iconic films, verses of ‘Madhushala’ narrated by him and other digital treasures from his collection. NFT marketplace BeyondLife will have the exclusive rights to sell his personal collection to the public. The first auction could be as early as the first week of November this year.
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Sources – Forbes and CoinDesk