NFT and the Concept of Fungible/Non-Fungible
Said Mike Winklemann, who is better known by his alias- BEEPLE, whose JPG file named “Everyday – The First 5000 Days”, fetched $69.3 million at an online auction, hence assuring his spot among the “top three most valuable living artists”, as per the auction house. Beeple, an American graphic designer, is popularly known for his imagined imagery and horror theatre technique for commenting on the political and social happenings in the US. As soon as this news hit the Internet searches for something made in 2014 surged. What Beeple sold, is called an NFT, short for Non-Fungible Token and it was first created by Kevin McCoy under the name “Quantum”, back in 2014. The word Non-Fungible means that the said item/entity cannot be easily assimilated with other similar items.
Before moving ahead, the reader must be made aware of the concept of what’s Fungible and Non-Fungible, for that, consider this example: You have an Rs. 2000 note in your possession, and now you replace it with another Rs.2000 note, the value would still be the same, that is, 2000. But now, consider that you have a diamond in your possession and then you exchange it with another diamond, will the value of the diamond change or remain constant? Obviously, it would change as in this case, the value of a diamond depends on a lot of factors such as cuts, size, colour and grades, which cause both a disparity in their monetary values and cause them to be non-exchangeable, unlike money. The same is the scenario with NFTs as they are digital artworks, having their own value and uniqueness.
Advantages of NFTs in the Digital Age
NFTs have a slew of benefits up to their sleeves, for starters; ACCESSIBILITY, is easily accessible unlike conventional art pieces, which required to be fixed on a wall and were not portable, but NFTs can be viewed even on a smart-phone. It also provides robust security as the NFTs can be traded with utmost security and transparency, courtesy of its unchanging digital signature. It provides tremendous confidence to the collectors but perhaps the major breakthrough that NFT brought is in its transparency and authenticity.
The ability to publish content was available for a long time, but it was virtually impossible to confirm the said content’s authenticity and ownership, as anyone could copy-paste the content at will. However, the NFT finally brought the above-mentioned ability into the possible digital domain and the owner can provide an irrefutable piece of evidence of origins and ownership to unique digital assets. Also, it is easily traceable which compliments the proof of both monetary value and confirmable scarcity exclusivity. To maintain the security and accessibility standards in NFTs are linked to Blockchain, the basic digital database which also is a platform for cryptocurrencies such as Bitcoin. Blockchain technology has improved security and privacy which ensures trust and confidence between entities where trust is non-existent.
NFTs and India
The concept of NFT, even in its nascent stage, is generating quite a lot of steam in India as many NFT artists have come up on the radar. Even this craze of NFTs has hit film stars and cricketers, as Amitabh Bachhan and Salman Khan, are planning to launch their NFTs soon. Indian cricketer Dinesh Karthik is also auctioning an NFT of a cricket match where he hit a six, on the last ball. Yuvraj Singh, recently, released a collection of NFTs on his Birthday. However, to determine the Legality of NFTs in India, one can’t really put a finger on it as there is No Regulatory Framework in place to oversee the trade and the same is the case with Cryptocurrencies which can considerably increase the risk factor associated with NFTs.
The Establishment’s silence over the same generates fear over the long run as its previous approach to Cryptocurrency definitely proves to be an area of scepticism, as in 2019, the Parliament passed a bill that generated a lot of anguish among crypto-enthusiasts, and it was literally named “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill”. Section 3(1) of the said Bill states, “No person shall mine, generate, hold, sell, deal in, issue, transfer, dispose of or use Cryptocurrency in the territory of India”.
Section 2(1)(a) defines Cryptocurrency as “….any information or code or number or token not being part of any Official Digital Currency, generated through cryptographic means or otherwise, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having an inherent value in any business activity which may involve risk of loss or an expectation of profits or income, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes.”
There may be a possibility that NFTs can come under the umbrella definition of crypto as it signifies both the nomination of monetary value and is worth that much value, which can (sort of) fall under the Ambit of said definition. Since, there is no legal arrangement, there is a high chance that NFTs would be affected either positively or negatively when the future law on this rolls out from the parliament.
Also, there is still a lot of ambiguity over the legal discourse of NFTs in India, however, there is a ray of hope as the finance Minister Nirmala Sitharaman once made it clear in an interview that there won’t be an absolute ban on Cryptocurrencies, so one can only keep the fingers crossed.
Author(s) Name: Harsh Dabas (USLLS, GGSIPU, New Delhi)