Betting Big on NFTs? Brace Yourself
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In the last quarter, the global economic market witnessed a manifestation of the effect digital assets and Web 3.0 have had on the overall market cash flow. Venture capital investments in fintech and crypto projects native to the metaverse and Web 3.0 have already touched USD 10 billion globally.[1] The majority of the investments were made in crypto and non-fungible token (NFT) exchanges, decentralized financial applications, and token issuers.[2]
Currently, Indian stakeholders are grappling with the issue of inadequate regulation in the Web 3.0 space. Indian policymakers have not developed a law for regulating Web 3.0 despite it being in the pipeline for more than two years.
Although tax implications and advertising standards have been deliberated upon and decided, the lacuna in the Indian legal regime needs the attention of stakeholders and lawmakers. During the Web 2.0 phase, India was unable to participate in policy making for internet governance due to limited consumption heft and foreign innovation.
Today, India is striving to position itself as an authority in the blockchain space by leveraging the local brainpower and consumer base. While NFTs indeed emerged as an extension of celebrity identities in India, today its presence is felt across industries. Entities such as GaurdianLink, MakeMyTrip and Lakme Fashion Week are also dabbling into NFT collectables.
However, the prevailing regulatory grey zones in the intellectual property laws, finance rules, securities laws and cybercrime laws call for the immediate action of Indian policymakers to implement enabling and safeguarding provisions. Given the lack of regulations and policy grey zones, investing in digital assets such as NFT is fraught with challenges, requiring careful consideration and due diligence.
Challenges of NFT Transactions
Insights and Takeaways
At the moment, from a regulatory perspective, policymakers are split-minded, but it is clear more policies to incentivize digital assets are needed. The first step toward a novel framework to regulate NFTs is the creation of a definition. The definition needs to be wide enough to accommodate the various sub-classes of virtual assets that currently exist and may be invented in the future.
It is at this juncture that Indian entities such as the RBI, SEBI and the Ministry of Finance can undertake joint regulation of the NFT space and position India as an industry standard-setting nation. A coordinated approach will also ensure that the convoluted issues relating to crypto-assets are adequately addressed. These entities, in consultation with the legislature and industry experts, can deliberate regulatory concerns and introduce forward-thinking policies and protocols.
Until the implementation of appropriate NFT regulations and policies in India, stakeholders will do well to be mindful of potential pitfalls in transacting in NFTs and should consider taking adequate protective steps, such as conducting thorough client / customer due diligence to ensure the legitimacy of the transacting party and title in NFT assets and ensuring detailed contractual terms tailored to their unique needs instead of solely relying on boilerplate smart contracts available on mainstream platforms.
[2] Ibid.
[4] Hitesh Bhatia v. Mr. Kumar Vivekanand, Case No. 3207/2020.