NFTs in the world
The global trading market for Non-Fungible Tokens (“NFTs”) reached almost $21 billion in volume in 2021. According to Google trends, there was far more interest in NFTs than in cryptocurrency. While 2021 was about the world being more open to the possibilities of NFTs, 2022 will be about regulating them. To recap, NFTs are one-of-a-kind digital assets based on blockchain technology. While the first perception of NFTs was that they were simply quirky artwork offered at exorbitant prices, some big corporations have now pioneered the way as early adopters of this technology.
Everyone seemed to be getting on the NFT bandwagon, from NBA basketball collectibles to digital real estate to street art and graffiti. To build a successful NFT marketplace, one must assure the presence of talent and content capable of producing these valuable digital assets, as well as investors interested in trading in these NFTs, both of which are abundant in India – consider the vast market for Bollywood and fashion NFTs.
Taxes on NFTs
With the growing popularity of NFTs and their trading in cryptocurrencies, one of the most pressing problems is how these transactions should be regulated. Legal authorities all over the world have been trying to figure out how to regulate cryptocurrencies and their use in NFT transactions. Furthermore, because cryptocurrencies are used to buy and sell NFTs, the legislation governing the former will have a significant impact on the latter. India has moved to regulate the NFT space in the latest Finance Bill, 2022, by inserting the term “virtual digital assets” into Section 2(47A) of the Revenue Tax Act, 1961, and taxing income derived from trading in such assets at a rate of 30%.
The Finance Bill contains “Non-Fungible Tokens” in the concept of virtual digital assets, but the actual definition is still pending. Thanks to its large consumer base and strong tech-based startup ecosystem, India is an obvious choice for firms wishing to diversify and enter the NFT industry. Businesses, on the other hand, will need to plan their entry in light of the government’s recent imposition of a tax on the transfer of NFTs.
Why are NFTs taking over the market?
Clearly, the most difficult aspect of NFT regulation is defining it. Legislators must examine artwork and image exchanges from the perspective of regulating the underlying technologies involved in such transactions, rather than just looking at them as volatile assets. NFTs are simply digital proofs of ownership that, when transferred to another party, are recorded in an unbreakable distributed ledger chain. Depending on the token’s programming, these NFTs may or may not come with actual legal rights that can be enforced in the real world.
How will the world react to the NFT growth?
It is undeniable that NFTs will be around for a long time. We will see a surge in NFTs for more prevalent digital commodities as ownership and transactions of digital assets become more common. At this point, what’s most important for the NFT sector is adequate legal recognition, regularization, and meaningful and timely enforcement of smart contracts, which serve as the virtual world’s backbone. With this in mind, it will be fascinating to see how various governments around the world draught rules and regulations to closely supervise the burgeoning NFT marketplaces and their applications.