In the fast-paced world of digital investments, Non-Fungible Tokens (NFTs) have emerged as a new and exciting asset class. As more and more people explore cryptocurrencies and diversify their investment portfolios, NFTs have gained credibility as a unique digital asset with the potential for substantial returns. This article delves into the NFT hype in India, its growing marketplaces, use cases, and the challenges and opportunities it presents.
The Rise of NFTs
NFTs, or Non-Fungible Tokens, enable individuals to buy and sell ownership of unique digital items using cryptocurrencies, all secured through Blockchain technology. These digital assets can encompass a wide range of creations, from artworks and GIFs to tweets and video games. The NFT trend in India has mirrored the growth of the broader crypto industry, with the country witnessing the emergence of three new NFT marketplaces in less than two months.
The Hype
The COVID-19 pandemic played a significant role in the surge of interest in NFTs. In 2020, the total value of NFT transactions skyrocketed to over $330 million, a stark contrast to the $44 million recorded in 2018. One contributing factor was the record-breaking rise in Bitcoin prices, exceeding $50,000 (1).
Twitter reported a 43% increase in conversations about NFTs in India between April and June 2021 (2), highlighting the growing enthusiasm around these crypto tokens. The momentum behind NFTs in India shows no signs of slowing down (3).
India’s NFT Marketplaces
Leading Indian cryptocurrency exchange, WazirX, was among the first to enter the NFT space, launching its marketplace in June. In just two months, it faced competition from NFTically and Wall.app, both introducing their own NFT marketplaces (4).
Artists in India have turned to NFTs as a means to break free from traditional industry constraints, such as middlemen, waiting periods, and high commissions. NFT marketplaces offer them a direct route to monetizing their creations, bridging a gap that platforms like YouTube can’t cover (4).
WazirX adopted the Binance Smart Chain to reduce gas fees for listing a single NFT to just one USD, significantly lower than the $100 to $150 charged by platforms like OpenSea (5). NFTically, on the other hand, utilizes the Polygon platform and offers a SaaS product for building custom NFT marketplaces (6). Wall.app plans to create a social commerce platform centered on NFTs, aiming for a launch in the near future (7).
Within a month of its NFT marketplace launch, WazirX sold over 160 digital art pieces, and with Indian marketplaces slashing gas fees, their global relevance is on the rise (8).
Use Cases of NFTs
The history of NFTs dates back to 2012, but their popularity has surged in recent months, driven by notable use cases such as NBA Top Shot, where individuals can “own basketball games’ greatest moments” through NFTs of NBA highlight clips. Digital videos and images have become the most sought-after NFT forms.
Digital games also leverage NFTs, as seen with F1 Delta Game, a blockchain game licensed by Formula 1, selling digital car parts as NFTs for in-game use. High-profile NFT transactions, like the $69 million purchase of a digital art collection by Beeple (10) and the auction of Jack Dorsey’s first-ever tweet for $2.9 million (11), have made headlines.
NFTs also find application in exclusive content distribution, representing legal and commercialization rights of images or songs. While the current excitement and valuations around NFTs may seem reminiscent of past bubbles, many believe that genuine use cases will endure as the market matures.
How to Create, Purchase, and Sell NFTs
NFTs primarily reside on public blockchains such as Ethereum, Algorand, Flow, and Binance Smart Chain. Creating and selling NFTs can be done through developer tools or third-party NFT marketplaces like Rarible, OpenSea, or Nifty Gateway. For beginners, these marketplaces offer a user-friendly approach to list and sell NFTs, similar to listing products on popular e-commerce platforms.
Transactions involving NFTs typically use cryptocurrencies like Ether, while some platforms like Nifty Gateway allow debit and credit card purchases. However, it’s essential to note that even platforms offering card payments conduct crypto-asset transactions on the blockchain for NFT transfers.
NFTs in India: Regulatory Landscape
As of now, there are no specific laws or regulations in India prohibiting residents from buying or selling NFTs. The legal treatment of NFTs depends on the underlying asset, whether it’s digital or physical. While a digitally signed NFT certificate for a land parcel would be subject to land ownership laws, an NFT representing artwork would be treated differently.
Questions arise regarding whether NFTs fall under the purview of virtual currencies, and if they would be affected by potential future legislation. NFTs, being non-fungible, differ significantly from cryptocurrencies like Bitcoin, making them less likely to be subject to the same regulations.
Cross-Border Transactions
Most prominent NFT marketplaces currently operate outside India. While the Foreign Exchange Management Act (FEMA) governs cross-border transactions, the Reserve Bank of India (RBI) has not issued specific guidelines for NFTs or crypto-assets. Blockchains are global, and determining the location of an NFT is complex, raising uncertainties in the Indian market.
To mitigate overseas ambiguities, entrepreneurs may consider establishing NFT marketplaces tailored to Indian residents until clearer regulations emerge.
Intellectual Property Challenges
Ownership of an NFT does not automatically transfer copyright ownership unless contractually agreed. Cases have emerged where creators’ work has been misappropriated and commercialized on NFT marketplaces without their consent. Copyright infringement claims and legal recourse may be necessary in such instances.
Creators selling NFTs representing public figures without approval could also face claims under the right to publicity, which grants individuals control over their commercial identity.
Taxes on NFTs
Taxation of NFTs typically aligns with the nature of the underlying asset. For instance, a digital art NFT is treated as an intangible asset for GST and income tax purposes. However, digital nature and cross-border transactions can complicate taxation.
Sales by foreign sellers via overseas NFT marketplaces to Indian buyers can be subject to an equalization levy on the NFT’s gross value. Foreign and domestic platforms may also encounter withholding tax and tax collection challenges under GST and income tax laws.
NFTs and Patents
IP related to digital assets and NFTs is on the rise, with companies like IBM filing numerous patents in this domain. NFTs could potentially serve as a means to buy or sell patents, offering opportunities for patent commercialization.
With a significant percentage of patents remaining uncommercialized, NFTs might fill this gap. Experts believe that NFTs have the potential to revolutionize the IP industry, particularly with the growing metaverse concept.
The Future of NFTs in India
The NFT market is still in its early stages, with ongoing technological developments and accessibility challenges. The sector needs continuous innovation to address these hurdles and broaden its user base. Gen Z and Millennials are expected to drive NFT adoption, accounting for 40% of new crypto users.
Despite uncertainties and challenges, NFTs offer digital creators the promise of fair royalties and a transparent transaction ecosystem. Rather than facing a blanket ban, NFTs should be regarded as a unique asset class requiring dedicated legislation for long-term success.
What Lies Ahead?
The NFT market is young and evolving, with technology advancements underway. Mainstream accessibility and robust infrastructure are key challenges. However, experts foresee exponential growth, with the decentralized finance industry already surpassing $4 billion in value.
In conclusion, while NFTs offer exciting opportunities, they come with risks. Individuals interested in NFTs should proceed with caution, recognizing the potential for market bubbles and conducting thorough research before investing.
End of article – Create- FAQs and Conclusion
FAQs
1. What is an NFT?
- NFT stands for Non-Fungible Token. It represents unique digital ownership of items using blockchain technology. NFTs can include artworks, GIFs, tweets, video games, and more.
2. Why is there hype around NFTs in India?
- The COVID-19 pandemic, combined with the surge in Bitcoin prices, has contributed to the excitement around NFTs. Conversations about NFTs have grown significantly, and India has seen the emergence of new NFT marketplaces.
3. How do NFT marketplaces in India differ from others?
- Indian NFT marketplaces like WazirX and NFTically have lowered gas fees for listing NFTs, making them more affordable for creators. These marketplaces aim to empower artists by reducing intermediaries and offering new opportunities.
4. Are there legal regulations for NFTs in India?
- Currently, there are no specific laws or regulations prohibiting NFT transactions in India. The legal treatment of NFTs depends on the nature of the underlying asset.
5. What are the tax implications of NFTs in India?
- Taxation of NFTs aligns with the nature of the underlying asset. However, cross-border transactions and digital nature can complicate tax matters, and equalization levies may apply in some cases.
Conclusion
The NFT market in India is rapidly evolving, offering digital creators new avenues for monetization and ownership. While it presents exciting opportunities, it also comes with complexities and uncertainties. As the market matures, clear regulations and dedicated legislation will be essential to ensure the long-term success and fair treatment of all participants.
