NON-FUNGIBLE TOKEN AND THEIR LEGAL POSITION IN INDIA

INTRODUCTION Non-Fungible Tokens or NFT’s are a part of the multi-billion-dollar industry that seems to be growing steadily. “fungible” means may be helpful. A fungible is an item which does not bear unique characteristics and any one of which is replaceable by another identical item and mutually interchangeable. NFT’s have been around in the market for a few years now but have been introduced into the mainstream market in the recent years. They are unique or “one of a kind" digital assets that can determine ownership and assert value of an underlying digital asset such as an original image, video, or audio. NFT’s are “minted” on these assets by using blockchain technology such as Ethereum and smart contracts such as Binance Smart Chain which create a unique digital signature thereby making them highly secure. NFT’s are currently the digital treasure that opens portals to newer crypto audience. They have taken up the world with their growing economic, social as well as cultural importance. NFT’s seem to be holding the “trend” market of these times as the digital assets have created the position of holding massive opportunities for renowned artists and creators to not only have more revenue for their art piece but also develop a new series of connections with the general public. It has also helped NFT’s to garner a stronger response from creators and consumers alike.the market for NFT was recorded to be $2.5 billion in the first half of 2020.1 NFT is a digital asset for whom the uniqueness can be determined using a high-end technology involving the Distributor Ledger Technology (DTL) that allows a simultaneous access and validation along with record updating. Since NFT’s are largely a part of the “mint” collection, once in its mint formation they can neither be edited nor deleted. They are used as investments as well as collectibles and continue to generate business, investments, and consumer interests alike. FEATURES OF NFT 1.”Fungibility”- is the ability of currencies or assets to be freely exchangeable because they are equivalent. For example, the value of a 100 rupee note will always be equal to the value of another 100 rupee note. Similarly, in cryptocurrencies, the value of one Bitcoin is equal to another Bitcoin. Conversely, each NFT is unique and different and therefore, they cannot be exchanged like-for-like. 2.Royalty collection – NFT’s may come with an automated royalty generation system through smart contracts. Such technology would automatically transfer a pre-decided amount of the re-sale proceeds to the original creator of the asset. 3.Originality – NFT’s are designed to give the purchaser of the asset the claim for originality. Even though others can use the same picture, audio or video file, the artist has the rights to retain the copyright and also hold all the production rights just like any other physical assets. Example- Every person interested in buying a “Monet” print can have the freedom to do so, but only the one who has the original can control its ownership and enjoy all other rights. OWNERSHIP AND COPYRIGHT When a purchaser buys an NFT, the purchaser owns the NFT itself which is a record of ownership of the unique digital version of the underlying asset. In other words, it grants to the purchaser ownership of the specific copy or version of the work that the NFT represents. When the NFT is transferred to another person, ownership of the digital version of the underlying asset is transferred with it. • Purchasing ownership of an NFT representing a work in which copyright subsists does not, unless stated otherwise, grant the new owner of the NFT ownership of the copyright in the underlying work. It is possible to vary this position by contract. Copyright to the underlying asset (or property rights where the underlying asset is a physical asset) can be transferred if specifically agreed (and validly transferred). Smart contracts, which govern the NFT, can be coded to specify that certain proprietary rights, including copyright, are transferred on sale of the NFT. In addition, standard terms and conditions, contracts for sale, deeds of assignment or licences, expressly setting out how rights to the underlying asset are dealt with, can apply to the sale of an NFT. Some NFTs are governed by smart contracts that specify and automate certain rights and obligations of the purchaser and the seller. For example, they could allow for the distribution of funds for the payment of royalties each time the NFT is resold. GLOBALLY TREATMENT NFT’s are appropriately traded globally as the DLT platforms usually operate better beyond the global borders. The main concern for many issuers and advisers usually consist of determining the legal and regulatory framework that appear across the jurisdictions. NFT’s is also renamed as the play of the ultra-wealthy, whose sole purpose of investing into NFT’s is in regard to the status symbols rather than a healthy investment. One of the concerns surrounding NFTs that has prompted the response of regulatory authorities around the world is the possibility of illegal activities that can be facilitated by the cryptocurrencies since they are anonymous. In fact, the Financial Action Task Force has expressed its concern over NFTs by acknowledging that it may facilitate money laundering or terrorist funding activities. What investors around the world have believed, is that the NFT market is inundated with supply and speculations that allow them to earn money quickly. This has at times caused price volatility across nations. Even though it is hard to forge an NFT, what the general concern of the world lies is in the fact that NFT’s are not free from foul play. There are bogus individuals who create several accounts to artificially inflate the said prices by using the “pump and dump” method. Countries have unitedly recognized that it is currently too soon to determine whether NFT’s are a long-term investment or just a part of the “trend”. Investors have constantly advised individuals interested in blockchain trading that trends change too fast and create a lack of track record that add uncertainty as well as an unbalance in the market. It is essential for people around the world to realize what these NFT’s offer and exactly what value they hold. Others, define crypto assets as “a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically” under the Money Laundering Regulations, 2017. This means that dealing in activities involving cryptocurrency related properties would require registration. Court in Internet and Mobile Association of India v. RBI,4 held that the RBI circular dated 06.04.2018 prohibited national/ scheduled/co-operative banks and NBFCs to deal in virtual currencies. Along with various other reasons, the Court acknowledged that the Inter-Ministerial Committee constituted on 02-11-2017, which initially recommended a specific legal framework including the introduction of a new law namely, Crypto-token Regulation Bill 2018, was of the opinion that a ban might be an extreme tool and that the same objectives can be achieved through regulatory measures. In light of this, the current legal position of NFTs is that they are not prohibited under the Indian law. 1FEMA Laws pertaining to NFT’s 2Intellectual Property and NFT 3NFT and the Income Tax Act CONCLUSION Tokens is their constant need to be authentic and unique. As we’ve come to know NFT’s are a part of the growing market and seem to be a trend-setter for the new generation that seems invested into the idea of trading over cryptocurrencies. The global market has seen a huge rise in the trends of investing into NFT’s and has left its impact on the Indian market as well. India on the other hand as a developing nation has started looking at its laws that might require a few amendments to fit the block in. Reference- 1.https://www.livemint.com/money/personal-finance/nonfungible-tokens-are-now-in-india-but-mind-the-legal-pitfalls-11617557315927.html 2.http://www.nlujlawreview.in/non-fungible-tokens-examining-its-legal-validity-in-india/ 3.https://m.timesofindia.com/gadgets-news/non-fungible-tokens-or-nfts-what-are-they-where-to-buy-and-should-you-spend-money-on-them-this-dhanteras/amp_articleshow/87477506.cms 4.https://www.thehindubusinessline.com/money-and-banking/explainer-what-are-nfts-and-why-the-sudden-frenzy-about-them/article37395195.ece