An enabling and future-proof regulatory and legal framework is required for Non-Fungible Tokens (NFT) to help the Indian economy derive full benefits of the technological innovation, as per a report by the Esya Centre, in association with the Internet and Mobile Association of India (IAMAI).
The report titled “NFTs: A Technological and Legal Primer”, suggests that while several jurisdictions have introduced laws and regulations to govern crypto assets, no country has yet proposed an overarching regulation for NFTs, given the emergent legal and regulatory concerns associated with their use.
The report also identifies several regulatory and legal challenges presently being faced by NFT in India, which impedes their growth and adoption.
NFTs are a form of code/software that help prove ownership of digital and physical goods in the virtual realm, something which was not feasible earlier. As a result, NFTs can be used for several different purposes, such as digital art, collectibles, fashion and finance.
The report sheds light on the growing involvement of Indians in all aspects of the NFT value chain. For instance, Polygon, a blockchain founded by three Indian developers, is increasingly preferred by leading marketplaces and artists to create and host their NFTs.
Similarly, NFT marketplaces that cater specifically to the interests of the Indian public have also come up. For example, Rario creates NFTs based on highlights and notable events from cricket matches. Indian celebrities, such as Amitabh Bachchan, have also used NFTs to engage with their fans.
IAMAI president, Subho Ray, said, “The Primer is intended to raise awareness among policymakers about different types of NFTs and their future possibilities. Each needs to be regulated and taxed differently and not with a single broad brush of ‘virtual assets’.”
The report highlights the legal and regulatory concerns that must be addressed to fuel the NFT ecosystem’s growth.
Report co-author Mohit Chawdhry, Junior Fellow at Esya Centre, said that some of these concerns “stem from the potential use of NFTs for money laundering, tax evasion and infringement of intellectual property rights” and must be resolved.
In addition, “greater clarity on the FDI caps on NFT marketplaces and their obligations under the Foreign Exchange Management Act will also help bolster the ecosystem,” he added.
The report lays out suggestions for policymakers, entrepreneurs, developers and creators to consider to help promote a healthy growth of the industry. The report also addresses the issues of copyright and IPR associated with NFT that both creators and dealers of NFT need to be aware of before engaging with NFT assets.