All you should know about NFT

In recent times, the idea of digital tokens, blockchain, and cryptocurrency has been in focus for many many eyes around the world, especially in India. From common man to celebrities, everyone talking about digital tokens, digital money, etc.

Among them, NFTs or Non-Fungible Tokens also getting much importance. NFTs are digital assets based on Blockchain technology and traded through the use of cryptocurrency. The technology uses a DLT system that allows secure trading with immutability.

Blockchain technology is a distributed ledger technology that supports crypto functions and allows trading in them. NFT being a digital asset use this for secure transactions and trade with proper encryption messages.?

Moreover, NFTs are not digital currencies but digital assets and are useful to exchange by using cryptos. They are traded through digital platforms to facilitate users buying and selling NFTs. The blockchain behind all these systems works to secure them from outside threats.

Therefore, blockchain technology has a great future and of course, it is called a future technology. Most business entities including the government are planning to adopt this technology to improve the monetary transactions with security. This will enhance the growth of the economy digitally and make it more transparent.

India has recently introduced a tough crypto tax system. Most cryptos now come under the definition of Virtual Digital Assets (VDA) and are liable for 30% income tax and 1% TDS.

But there is 1 type of NFT (Non-Fungible Token) that is not considered a VDA.

On 30 June 2022, the Ministry of Finance issued a?notification exempting asset-backed NFTs from the definition of VDA. This type of NFT must have 2 characteristics:

• The NFT's transfer must result in the transfer of ownership of an underlying tangible asset.
• The transfer of ownership of such underlying tangible assets must be legally enforceable.

Types of NFTs:

NFTs are blockchain-based digital proof-of-ownership of underlying assets such as:

1. Digital art such as Bored Ape Yacht Club.

2. Domain names such as .eth issued by Unstoppable Domains.

3. Virtual game items such as Axies issued by the Axie Infinity project.

4. Collectibles such as physical postage stamps with a corresponding NFT.

5. Physical assets such as gold, wheat, coffee, and even real estate.

The first 3 types of NFTs above would be considered as VDAs and would be liable for Crypto Tax. But types 4 and 5 would not be considered VDAs.

Asset-backed NFTs:

An asset-based NFT is also called a wrapped asset (WRAP) and is a non-fungible token (NFT) backed 1:1 by a tangible asset e.g. commodities (gold, coffee), real estate, etc.

It is called "wrapped" because the original asset is "wrapped" in a blockchain-based token.

The transfer of asset-based NFT results in the transfer of ownership of the underlying tangible asset and the transfer of ownership of the underlying tangible asset is legally enforceable.

From a legal point of view, the asset must be free of encumbrance and all relevant legal documents must be kept with a trusted and legally recognized custodian?such as a SEBI registered Debenture Trustee.

Some of the benefits of asset-based NFTs include:

• Fractionalized ownership?- A person can own a tiny fraction of a high-end office building in Mumbai.
• Real-time settlement?- Since blockchains support atomic transactions, there is no need for manual reconciliation as all transactions get settled on the chain in seconds.
• Programmability?- Blockchain APIs make it easy to integrate NFTs with technology platforms used by banks, and exchanges.
• Faster transactions?- Blockchains support very fast transaction times.
• Fewer intermediaries?- Since blockchains are perfect for smart asset lifecycle management, there is no need for most intermediaries.
• Decentralization?- Users control the?NFT using their own private keys.
• Enhanced transparency?- All transactions are visible using a blockchain explorer.
• 24 x 7 x 365 trading?- Traditional financial markets have fixed timings and many holidays, but blockchains work 24 hours a day, 7 days a week, 365 days a year.

For?asset owners and financial institutions, asset-based NFTs enable the generation of interest-free cash flow.

For?investors, asset-based NFTs provide a virtually infinite buffet of opportunities.

NFTs working strategy

NFTs are non-fungible tokens and digital assets that are based on blockchain technology. They represent real-world assets like artwork, gaming, collectibles, and many more. Due to their uniqueness, they have single ownership at a time. Every trade, investment, or transaction passes through online verification and authentication. Therefore, it is highly secure and transparent.?

For the trade or exchange, you do through NFTs there is no physical value available. But you will get a certificate of ownership instead of any physical value of NFT. This is a great advantage here and no one alters any data. Moreover, you need to keep the certificate digitally safe for further usage.?

NFTs are useful in buying online event tickets, gaming, fashion, and many more. They also follow certain rules and regulations laid for smart contracts for trading and exchange.?

All these functions follow blockchain and it is the ultimate technology that runs behind NFT.

NFTs future in India

NFTs or Non-fungible Tokens will definitely have a great future in the country with the developing laws and regulations. As far as we know that blockchain offers much faster and cheaper cost-effective transactions across the globe.?

The trust in this technology increases gradually and people started to know its importance. The future business world is going to grow with blockchain only as it is very cost-effective.?

NFTs, a digital asset that impacted many people including celebrities to launch their own NFT collection in recent times. This impact says that we can soon start trading through NFTs and get more valuable insights.

Thus, the NFT community will get a speedy momentum upon the Indian government to place the rules for its validity.?

Monetization of digital assets will take place and it will add more advantages to the marketplace players. Also, the digital economy will boost up with the new entrants in the market for NFT and other digital assets

Benefits for India

For a country like India, the best use cases for asset-backed NFTs would be:

• Agricultural commodities like rice, wheat, rubber, milk, sugarcane, cotton, maize, tea, coffee, and fruits
• Precious metals such as gold and silver.
• Crude oil and natural gas.
• Base metals like aluminum, copper,?lead, nickel, zinc
• Real estate like land, commercial spaces, and residential homes.

However, NFTs are not still legally valid in India but soon we can hear about the imposition of necessary regulations about them. It will boost the enthusiasts to actively trade in NFTs.?