There's nothing like an explosion of blockchain news to leave you wondering
what the NFT's
What are NFTs? What does it stand for?
NFTs are non-fungible tokens that we can use to represent ownership of unique
items. They let us tokenize things like art, collectibles, and even real estate.
They can only have one official owner at a time, and they're secured by the
Ethereum blockchain - no one can modify the record of ownership or copy/paste a
new NFT into existence.
NFTs are rapidly sweeping the world of digital art and collectibles. The
lifestyles of digital artists are changing as a result of large sales to a new
crypto audience. And celebs are jumping on board as they see a new way to
communicate with their audience. However, digital art is merely one application
of NFTs. They can be used to indicate ownership of any one-of-a-kind asset, such
as a deed for a digital or physical item.
How does it work?
NFTs and Ethereum address some of the current issues on the internet. As the
world becomes more digital, tangible attributes like scarcity, uniqueness, and
proof of ownership must be replicated. At a very high level, almost all NFTs are
part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin or
dogecoin, but its blockchain also supports these NFTs, which store extra
information that makes them work differently from, say, an ETH coin.
It is worth
noting that other blockchains can implement their own versions of NFTs. Not to
mention the fact that digital products are frequently only useful when used in
conjunction with other products. For example, even if there is a market for it,
you cannot resell an iTunes MP3 or trade one company's loyalty points for
another platform's credit.
Where Did NFT Start?
NFTs may be traced all the way back to 2012, when Meni Rosenfield published a
study in which she referred to the NFT technology as "Colored Coins."
Originally, these were planned to be printed on the Bitcoin blockchain. The
class of methods for representing and managing real-world assets on Bitcoin were
then presented as coloured coins.
What Is the Relationship Between NFT and Smart Contracts?
NFTs that attest to the ownership of digital assets are referred to as
non-fungible tokens (NFTs). It can be used with other cryptocurrency coins, but
not interchangeably. Real-world objects can be represented by NFTs and enable
their inventors to make money right away (real estate, paintings, sculptures,
etc.). A cryptographic token can be of any type. As a result, in the world of
blockchain, two identical NFTs are not possible.
Smart contracts are typically viewed as specialised programmes that help
streamline the operations of commercial companies rather than as contracts in
and of themselves. They utilise blockchain nodes to operate. The NFT operates
under a smart contract where ownership must be transferred or verified. In other
words, one's security directly impacts another's security.
These two blockchain components can be integrated with one another.
Additionally, a security audit may assist in finding mistakes and fixing them
for optimal performance. The NFT data and smart contract code are present in a
predetermined Ethereum trade. For instance, they have a contract that allows for
It has been discovered by security experts that what and how NFT systems are
most frequently vulnerable to threats.
A phishing assault might steal your cryptocurrency wallet by using bogus
websites, text messages, or emails. Hackers may urge you to click on a link,
connect, sign, or confirm a transaction, and then point to the private key in
your wallet. The transaction, however, is the transfer of assets to the hacker's
stealing critical information by uploading malware code and profiles without
two-factor verification, etc. As a result, be sure to go to the official social
media or Internet shop page.
We have rules in place for digital ownership, but not for NFT transactions. As a
result, hackers want to take the image and sell it on another platform. On the
blockchain, proving asset ownership is a difficult process.
As a result, if you do not act beforehand and do not ensure that your products
are trustworthy, you may incur financial and reputational harm. Once more, the
auditing procedure might be helpful to you here.
It's a legal position in India.
As of October 2021, there are no laws governing the trading of NFTs in India.
But in 2019, a bill was created, the Banning of Cryptocurrency & Regulation of
Official Digital Currency Bill. The government later decided not to introduce it
during the monsoon session of parliament in 2021 in order to further discuss the
Any direct or indirect dealings with digital money would be punishable by up to
ten years in prison. In addition to the aforementioned bill, the Reserve Bank of
India (RBI) also published a notice in 2018 that aimed to outlaw trading in
virtual currencies. A number of organisations, including the Internet and Mobile
Association of India and a few businesses that operate online crypto-assets
trading platforms, filed applications in protest of the aforementioned ruling
(Internet and Mobile Association of India vs Reserve Bank of India AIR 2021 SC
A three-judge panel of the Apex Court invalidated the notice on the basis of
proportionality after considering various factors both domestically and abroad.
The Supreme Court stated that the RBI was unable to put limits on trading in
cryptocurrencies since there was no legal prohibition against purchasing or
selling them. The court found that placing such restrictions would violate
people's basic freedom to engage in any legal commerce.
Legal Implications of NFTs
With NFTs, decentralisation, ownership tracking, and value storage are
attempted, and in the event of duplication, the legitimate owner's claim to the
original work is made visible. Through traceable proof of ownership, it promises
to serve as a reliable proof of ownership and give the inventor "digital
The legitimacy of these digital assets, however, is still a significant issue.
Concerns have been raised about the legitimacy and legal standing of these
tokens, particularly in India.
Because there are no specific laws or regulations that forbid or restrict Indian
citizens from buying or selling NFTs, supporters of NFTs in India and the legal
implications of NFTs have expressed concerns about the long-term viability of
the tokens. Given that the fundamental technology in both situations is similar,
the biggest barrier to NFT trading appears to be the ambiguity surrounding
cryptocurrencies' legal status in India.
India has had cryptocurrencies for the last 10 years, but the main discussion
surrounding their legality didn't start until the Reserve Bank of India (RBI)
published a circular in June 2018 telling banks not to deal in cryptocurrencies.
In Internet and Mobile Association of India v. Reserve Bank of India, the
Supreme Court overturned the RBI's decision, ruling that because the ability to
trade is a fundamental right protected by Article 19(1)(f) of the Constitution,
cryptocurrencies may be exchanged legally.
Copyrights ActAlthough NFTs are an attempt to demonstrate "ownership" of a virtual object, as
was already mentioned, possession of an NFT does not necessarily imply
possession of the work of art it represents. The copyright of the underlying
work of art is not transferred to the owner upon purchase of the NFT. A signed
sale contract stating an explicit assignment of copyright is required, in
accordance with Section 19 of the Copyright Act of 1957, in order to transfer
copyright and be recognized as an owner.
Only the owner of a work has the authority "to duplicate and distribute copies
of it," according to Section 14 of the Copyright Act. As a result, it is
unlawful to resell or copy the NFT unless the buyer and seller specifically
prohibit such behaviour. The copyright frequently remains with the person who
created the work unless the parties agree otherwise.
The buyer's digital item is
simply protected from others illegally copying or disseminating the image under
the Copyright Act, though this has done nothing to prevent many from
right-clicking an NFT image and saving it as a jpeg file or simply taking a
The term "derivative" is defined as "a contract whose value is derived from the
values of the underlying securities" in Section 2(ac) of the SCRA. NFTs cannot
be traded on virtual platforms in accordance with Section 18a if they are
regarded as derivatives.
The feature that sets NFTs apart from other types of securities is their
non-fungibility. As a result, it would be erroneous to define an NFT as a
security (derivative) if it is only a reference to an existing asset that is
offered as evidence of its authenticity. Instead, it ought to follow general
contract requirements. Additionally, if a return on investment is provided, NFTs
would seem to be a "hypothetical investment" rather than a digital collection,
and may therefore be categorized as a security in India and subject to
Income Tax RegulationsThe government recently announced a flat 30% tax on all virtual digital asset
revenue, including NFTs. The prospect of paying such high taxes is undoubtedly a
deterrent for newbies and day traders who do numerous transactions each day. The
value of such crypto and related digital assets could fall precipitously if this
drives current and future investors out of the sector, though it is nearly
impossible to foresee any trends when it comes to crypto due to its highly
Additionally, because NFT transactions are global and digital, new tax issues
arise daily. For instance, a 2 percent equalization charge, depending on the
gross value of the NFT and the marketplace's revenue from Indian clients, may be
applied to sales of NFTs by offshore sellers to Indian purchasers through an
offshore NFT marketplace. It is questionable, nevertheless, whether or not this
also results in a loss of income or commission for the platform.
Collective Investment SchemesMutual funds or investment funds are two different types of collective
investment schemes (CIS). The characteristics of an NFT and the rights offered
to token buyers will decide whether or not it qualifies as a financial
instrument, and the token's non-fungibility has no influence on the NFT's
According to the Securities Exchange Board of India (SEBI), an existing CIS that
neglects to submit a registration application, is rejected for provisional
registration, or fails to abide by the SEBI guidelines on Collective Investment
Schemes after receiving provisional registration must be wound up and may also
be subject to other penal provisions under the SEBI Act.
The future of NFTs in India
It is crucial to have clear laws in place since cryptocurrencies and NFTs are
becoming more and more popular in India. Numerous economic and financial experts
have speculated that the current NFT frenzy is unsustainable. Additional issues
are raised since ethernet use in NFT transactions results in greater carbon
NFT is a developing field, therefore only time will tell if it will endure. For
the time being, the NFT revolution appears thrilling and promising, especially
for artists looking to monetize their works and safeguard them against infinite
Award Winning Article Is Written By: Mr.Vaibhav Chandak
Authentication No: JL220588139572-24-0722