Akhila Hebbar

Non-fungible Token A Non-fungible token or ‘Nifty’ as the name suggests is a unique, indispensable unit of data stored on blockchain technology. It can be used to give a particular photo, video, audio and other such digitally stored data, a verified public certificate of ownership by the use of blockchain technology. It is traded and sold digitally and has recently garnered attention after several Indian celebrities made use of the technology to sell and buy artworks and photographs online.1 Blockchain gained popularity in the aftermath of the 2008 crisis, facilitating in the rebuilding of a system that was less susceptible to cheating or hacking. It also provided its users, a decentralised network wherein control was distributed among the people. This unprecedented technology that offered transparency and accountability was greatly appreciated by its users, who now held power to control the functioning and decision making processes, rather than an organisation. The first major blockchain innovation was Bitcoin which was also the first ever global currency. It allowed exchange of money across boundaries without having to deal with exchange rates. Subsequently came the Ethereum, which provides a platform to develop ‘smart contracts’. These are basically a set of unique code that can be attached to a digital asset such as photo, video, audio and other such digitally stored data upon which the said asset becomes traceable and verifiable. This is what is used for NFTs. The concept of NFTs first materialised in the form of ‘Coloured Coins’. However, it eventually failed to overcome the limitations of Bitcoin’s scripting language and did not sustain. Over the next few years several attempts were made to materialise the concept again. Counterparty, Spells of Genesis, Rare Pepes are a few examples. Cryptokitties in 2017 however, manifested itself as a mainstream online game where players traded adopted virtual cats. Soon after it went viral, it broke records by raising $12.5 million in investment. The ‘breed-able cats’ had a unique number and 256-bit distinct genome with DNA and different traits— pattern, mouth shape, fur, eye shape, base color, accent color, and more, which are 1 https://www.livemint.com/brand-stories/what-are-nfts-.html hereditary and are passed down to their offspring. As a result of its popularity it even featured in the ZKM Center for Art and Media Karlsruhe.2 Following CryptoKitties’ success, several other similar NFT-based online games and platforms were launched, one of which for example, allowed online auctions and trading of cartoon characters on Ethereum. It was further drawn to mainstream technology when Nike, the American multinational footwear and sports apparel giant in 2017 used the system to develop a patent called Cryptokicks through which customers could buy virtual versions of their products. In 2020, the CryptoKitties developer released NBA TopShot that reported over $750.5 million in total sales. Currently, NFTs are hugely popular for digital art. Beeple, an American digital artist, sold his ‘Everydays: The First 5000 Days’ digital artwork for $69M in partnership with Christie’s online auction.3 This was one of earliest, popular transactions of digital art with NFTs. More recently, he sold his latest creation for US$28.9 million to an online bidder. Around the same time, Jack Dorsey, founder of Twitter sold his very first tweet, which was also the first ever tweet for $2.9 million. Additionally, Facebook has announced its plans to build a ‘metaverse’, a virtual world where assets can be bought and sold. In India, Amitabh Bachchan sold some items as NFTs and Salman Khan announced his plans to use the technology. The benefits of NFTs include the fact that it provides several such digital artists, musicians, filmmakers and several creators a platform to sell their work which would otherwise not be possible. The novelty and buzz around the medium creates a demand which would otherwise not exist. While budding artists also get a share of the subsequent profit from the sale. As an effect of the Covid-19 pandemic, the music industry suffers heavy losses.4 However, the use of NFTs aided rebuilding of the industry by generating over $100 million in sales within a month.5 The fact that it relies on blockchain technology which is un-hackable, verifiable and traceable increases its dependability. By providing secure ownership and bragging rights by 2 https://www.linkedin.com/pulse/brief-history-nfts-look-future-brad-bulent-yasar/ 3 https://www.forbes.com/sites/nicolesilver/2021/11/02/the-history-and-future-of-nfts/?sh=52be1afb6a16 4 https://www.bbc.com/news/entertainment-arts- 5 https://timesofindia.indiatimes.com/india/crazy-new-art-that-is-earning-creators-millions/articleshow/ -.cms easy transition of the asset, it presents itself as to go-to option for such creators. They even provide real life access and exclusivity in some cases. However, there are several reasoned criticisms regarding NFTs. One of them being that plagiarism and fraud are still a major probability. This is because NFTs only provide bragging rights or ownership. The art work or the asset is often still freely available online and can be copied and used. Thus, such owners lack any real control on the asset they ‘own’. Which brings forth the question of its storage. Due to the size of the asset, NFTs do not store the work itself on blockchain. It is stored with a web address of the piece, making it subject to link rots. Furthermore, as it relies much on sentimental value and the present buzz is perhaps only due to its novelty, it is difficult to predict its long-term monetary value. As with any blockchain technology, environment is also a major concern and must be thoroughly examined before moving any further to expand its market. It is hence, crucial to tread carefully. In conclusion, NFTs resemble a certificate of ownership of a digital asset. In reality however, various factors such as the law of land come to play. The fact that India presently is still debating on cryptocurrency and there is an element of hesitation to fully legitimise it, does not shine brightly for the future of NFTs. Without a strict legal mechanism or authority to fall back on for the customers of NFTs with huge investments, NFTs pose to be extremely risky. At the same time, it presents a huge ray of opportunities for creators that do not otherwise have access to sell their work. In India, buying while NFTs customers pay huge amounts of tax plus 2% equalisation levy, that is usually payed by corporations based outside of India6. While some treat it as intellectual property under FEMA, and others call it a contract, the location and jurisdictions are still under question. It is thus important for government institutions to urgently come up with a legal framework that fills such gaps and provides clarity. 6 https://timesofindia.indiatimes.com/business/india-business/from-manish-malhotra-to-salman-khan-everyone- is-chasing-nfts-but-are-they-even-legal-in-india/articleshow/-.cms