What is an NFT?
A Non-Fungible Token ("NFT") is a digital token created using blockchain technology, attached to a piece of art. These tokens are cryptographic assets cemented with unique identification codes and metadata, a digital signature that certifies and verifies the owner of the NFT.
What Does an NFT Give a Person?
It is a token linked to the author or creator of the work, who can retain their copyright in that particular work. This includes any kind of art piece, video clip, audio file, or plot of virtual land. Being one of a kind, it is a high-value virtual creation representing a tangible or non-tangible asset. A person buying an NFT receives a token authenticating its purchase, along with a unique code. It thus does not pass on the ownership title attached to the underlying work, but grants a digital ownership. For example, a person may purchase a famous painting but does not receive the physical painting itself.
Jesse Schwarz invested $208k in a video clip of LeBron James dunking, via a platform called NBA Top Shot. He does not get the broadcast rights or physical copies, but is entitled to be the owner of a uniquely programmed digital code. As he put it: "Anyone can watch it. But there's only one original verified by the blockchain, and that scarcity is what makes it valuable in the long-term."
Where Can One Trade in NFTs?
Just like cryptocurrency, NFTs can be bought or sold worldwide on platforms specially designed for such transactions. Blockparty, NFT Stars, NFT-X, Crypto.com and many such platforms increase the demand for NFTs.
How are Traditional Currencies Different from NFTs?
Traditional currencies are fungible, i.e. they can be divided into smaller units of the same value and are interchangeable, unlike NFTs. The code and metadata on an NFT cannot be changed, making it unique and distinct from other cryptocurrencies in the market. NFTs can be valued depending upon demand and supply forces, and with a variety of potential buyers, can be sold for revenue or exchanged for physical assets.
How is it Convenient?
Physical collection of artefacts can be time-consuming and space-consuming, and it is hard to track the ownership history of a particular object. An original work can also be forged or replicated. NFTs, with their blockchain technology, solve these issues: the artist creates an authenticated public record of their own work, and any transaction relating to the artwork can be easily tracked and verified. A public ledger keeps track of all such transactions, making NFTs trustworthy.
Indian Law and Cryptocurrency
NFT buyers and sellers worldwide make cross-border transfers. The Supreme Court, in Internet and Mobile Association of India v. Reserve Bank of India[1] (March 2020), overturned the RBI's 2018 circular, which had been released to caution customers regarding trade in cryptocurrency.
Conclusion
In the absence of any legislative ban on the buying or selling of cryptocurrencies, the RBI cannot impose disproportionate restrictions on trading in NFTs or cryptocurrencies. As there are no specific regulations or laws governing transactions in cryptocurrencies, it surely creates scope for NFT transactions to grow in the near future.
[1] (2020) SCC OnLine SC 275.
Disclaimer: The content of this article is intended to provide general guidance on the subject matter. Specialist advice should be sought about your specific circumstances.