Seven years after its launch, Non-fungible tokens ( NFTs) have finally become the latest rage in India with several Bollywood celebrities and cricketers now cashing in on the growing interest for such digital assets.
From art and music to tacos and even toilet paper, these digital assets are selling for millions of dollars. But why is so much money being poured into assets that only exist in digital form and can be viewed for free? While several experts think NFTs are a bubble waiting to burst, the reality is , at present, they are being touted as the digital answer to collectables.
What is an NFT
An NFT is a digital asset that exists on a blockchain. It represents real-world objects like art, music, in-game items and videos. They are bought and sold online, mostly with cryptocurrency, and they are generally encoded with the same software as many cryptos.
Anyone can verify the asset’s authenticity and ownership.
NFTs are usually bought with cryptocurrency or in dollars and the blockchain keeps a record of transactions. While anyone can view the NFTs, the buyer has the status of being the official owner – which gives her digital bragging rights.
Why is it non-fungible?
A fungible asset is something with units that can be readily interchanged – like money. For example, swapping a Rs 20 for two Rs 10 notes without losing any value. Non-fungible is an economic term that you could use to describe things like your jewels, a song file, a painting or a house. These things are not interchangeable for other items because they have unique properties. Although a painting can be copied or photographed, the original is still the original, and the replicas don’t have the same value.
So NFTs represent ownership of unique items like art, collectibles, even real estate. They can only have one official owner at a time and they are secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence.
NFTs are thus assets in the digital world that can be bought and sold but which have no tangible form of their own.
How is it different from cryptocurrency?
Unlike cryptocurrencies, which can be exchanged with one another, NFT is unique and cannot be exchanged with another item. Also this: Bitcoin can be broken down into smaller units but NFTs cannot be broken down and exist as a whole.
How do NFTs Work?
Most NFTs are created and stored on the Ethereum network. NFT ownership can be traced and verified while the owner of the token can continue to remain pseudonymous.
“An NFT can only have one owner at a time. Ownership is managed through the uniqueID and metadata that no other token can replicate. NFTs are minted through smart contracts that assign ownership and manage the transferability of the NFT’s. When someone creates or mints an NFT, they execute code stored in smart contracts that conform to different standards, such as ERC-721. This information is added to the blockchain where the NFT is being managed. The minting process, from a high level, has the following steps that it goes through:Creating a new block, alidating information and recording information into the blockchain,” explains a blog post on etherum.org.
So tokenized artwork comes with a unique digital certificate of ownership which can be sold or bought online. Since it is stored in blockchain, it is transparent and cannot be copied or stolen.
What are the post popular NFTs?
NFTs exist for all kinds of videos, music, text, art even tweets. Art has seen some of the highest sales while in sports, fan con collect and trade NFTs relating to a particular player or team. For example you can buy NFTs in the form of video highlights of moments from games. While these highlights can be seen for free, people are buying the status as the owner of a particular NFT, which is unique due to the digital signature.
On 19 February 2021, an animated Gif of Nyan Cat – a 2011 meme of a flying pop-tart cat – sold for more than $500,000, while Christie’s sale of an NFT by digital artist Beeple for $69 million set a new record for digital art.
Jack Dorsey, the founder of Twitter, sold the NFT for his first Tweet for $2.9 million
The NFT of the popular ‘Charlie Bit Me’ video of a baby biting his brother’s finger sold for around £500,000.
What’s happening in India?
With the likes of globally recognised celebrities like rapper Snoop Dogg, NBA athlete Stephen Curry, and YouTuber Jake Paul — NFT sales volume surged to $10.7 billion in the third quarter of 2021. Global NFT sales are up more than eightfold from the previous quarter, said a report by market tracker DappRadar. Hence is it not surprising that a flurry of India’s celebrities have joined the NFT bandwagon hoping to rake in thousands of dollars.
In June 2021, cryptocurrency exchange WazirX launched WazirX NFT Marketplace. It has on board 517 creators and 357 collectors. The artist has to first create the music or video file and upload it to a crypto wallet. As far as copyright or royalty is concerned, the artist can decide whether to transfer these rights along with the NFT or only give it for private use. The platform had sold over 160 pieces of digital art a month after launching its NFT marketplace.
In August, NFT platform Rario launched a cricket-based digital collectibles platform with former Indian cricketer Zaheer Khan. Cricketer Rishabh Pant has also signed up with Rario. Pant’s association will allow Rario to mint exclusive digital collectibles of Pant’s iconic moments on and off the field. Cricketer Dinesh Karthik is auctioning a digital art reel from a match where he hit a match-winning six on the last ball for around 5 ethereums.
In September 2021, Amitabh Bachchan become the first Bollywood actor to launch his own NFTs with BeyondLife. club. Bachchan’s NFTs will include autographed posters of his movies, and will be up for bidding from the first week of November. Interested buyers can log onto the website and bid during the auction with their debit or credit cards. The owner of Big B’s unique artwork can further resell the item at a higher price.
And Salman Khan is not far behind. Just last week he announced on Twitter: “Aa raha hoon main, NFTs leke, Salman Khan Static NFTs coming on @bollycoin.”
BollyCoin is an NFT marketplace that will auction the movie film industry’s digital art works to enthusiasts from next month. For example, if a fan purchases a digital poster of Salman Khan in the form of an NFT, she can prove her ownership through the digital ledger.
In October, designer Manish Malhotra sold NFTs of digital sketches of some of his most famous creations for $4,000 a piece. The other pieces were sold in the range of $2,054 to $2,535 within two minutes after the sale started.
Pop icon Ritviz and visual artist Santanu Hazarika sold their collaboration for $391.80 on WazirX’s NFT marketplace within 10 seconds of going live.
The latest: Actress Sunny Leone has created a website for her NFTs and she would be partnering with Mintdropz, a Silicon Valley-based startup. “The Sunny Leone NFT Metaverse is a collection of NFT’s – unique digital collectibles that will live on the Ethereum blockchain. Your Sunny Leone NFT is your membership access pass to the Exclusive content, Perks, and Access in Sunny Leone Metaverse.”
Why is it so popular?
Market tracker NonFungible.com shows that collectors have spent more than $200 million on a variety of NFT-based artwork, memes, and GIFs in September 2021 alone, compared to $250 million for the entire year of 2020.
A renewed interest in cryptocurrencies with bitcoin hitting record highs, and digital art have thrust NFTs into the mainstream. Some attribute its popularity in the last year to lockdowns, which forced people to spend more time on the internet. There is also the lure of rising prices and the prospect of big returns. NFTs also derive their value from the fact that they are scarce
Despite its popularity, those looking to buy digital collectibles may have to end up paying more in taxes to the government. Buying a NFT may not only attract the Goods and Services Tax (GST) but also a 2% equalisation levy, which is normally reserved for corporations based outside of India but operating within the country. “The equalisation levy is applicable on any online transaction that is carried out by Indians from an exchange that is not based in India, while GST will be applicable even if the exchanges are based in India,” reported Economic Times, citing Girish Vanvari, founder of tax advisory firm Transaction Square.
But is it even legal in India?
NFTs are only traded in cryptocurrencies and in India all platforms that have launched trading in NFTs till date are cryptocurrency exchanges. Unfortunately, there is still no clarity as to the legal sanctity of cryptocurrencies in in the country, which consequently makes trading in NFTs riskier. There is no separate legal framework for NFTs in India either. “Extrapolating existing provisions under FEMA, crypto-assets and NFTs could be treated as intangible assets like software and intellectual property under FEMA. However, determining the location of an NFT is an open question. Blockchains are global ledgers and the Supreme Court has recognised that crypto-assets “cannot be stored anywhere”,” writes Nitika Narayanan, Marketing Director at Befree Business Resourcing LLP.
And since there is no separate legal framework for NFTs in India, there is a confusion over how to classify NFTS. “Some opine that NFTs are contracts whereas some state NFTs to be a derivative. If the latter is true, in essence, it would mean a ban on trading in NFTs in India,” argue Dharmvir Brahmbhatt and Devarsh Shah, students at Gujarat National Law University, Gujarat.