What is NFT or Non Fungible Tokens? How NFTs work, NFT art in India, where to buy NFTs in India -WazirX NFT

NFTs or Non Fungible Tokens are a way to represent anything unique, inter-changeable, or irreplaceable. These are currently taking the digital work of art and collectibles by storm, whose authenticity or originality can be verified by blockchain representation of digital artwork.

NFTs What are they Why are some NFTs worth millions

The famous digital artist Mike Winkelmann (also known as Beeple) created a digital-only artwork, a composite of 5000 daily drawings, to create ‘Everydays: The First 5000 Days’. In a record-breaking auction, the artwork was sold at Christie’s art gallery for USD 69.3 million, setting a new record for digital art.

Here are some more examples:

 

  • Logan Paul sold some NFTs of Pokemon cards – a million-dollar box of NFT video clips – for up to USD 20,000
  • A 50-second video by Grimes was sold for USD 390,000
  • A video clip of Lebron James dunking a basketball was sold for USD 208,000

In none of the above cases did the winning bidder receive a sculpture or a painting.

What is an NFT?

A Fungible Token is one that be replaced with something else, whereas a Non Fungible Token (NFT) cannot be replaced with anything. With NFT, buyers do not own any publishing rights or even physical copies. Instead, they receive a unique digital token. So, in essence, they own only the NFT of the clip.

NFT stands for Non-Fungible Token. These have unique properties and are not inter-changeable, and cannot be replaced with anything. So while a bitcoin is fungible and you can trade one for another, NFTs are one-of-their-kind trading cards. These tokens are used to represent ownership of unique items; one-of-their-kind assets in the digital world. They can be bought and sold like any other piece of property, without having a tangible form of their own.

The global scene

NFTs have been around since 2014 – the year when the Monet painting Nymphéas was sold for USD 54 million. But they came to prominence in 2017 with the game CryptoKitties, which enabled players to buy and breed limited edition virtual cats. The NFT scene further boomed in 2020, and is fast becoming popular for buying and selling of digital artwork. With these multi-million-dollar sales, a whopping USD 174 million is said to have been spent on NFTs since November 2017, with a huge potential to grow further.

Digital answer to collectibles

NFTs are used for buying ‘digital collectibles’, similar to trading cards. These are digital assets representing real-world objects such as art, music, in-game items, and videos. The artwork can be iconic video clips from NBA games or securitised versions of digital art. So, NFTs can be considered to be collectors’ items in digital form. Instead of an actual oil painting, the buyer receives a digital file.

Not just art

It’s not just art that is tokenised and sold. Digital art is only one way to use NFTs. They can also be used to represent ownership of any unique asset, such as a deed for an item in digital form. One can also tokenise things like art, collectibles, and even real estate. As an example, Twitter founder Jack Dorsey put an autographed first-ever tweet up for sale as an NFT, and the top bid hit a whopping USD 2.5 million. Further, an animated GIF of Nyan Cat – a 2011 meme of a flying pop-tart cat – sold for USD 500,000.

How do NFTs work?

NFTs work on the theory of creating digital scarcity – cutting off supply raises the value of a given asset. It helps digital artwork to be ‘tokenised’, creating a digital certificate of ownership that can be bought and sold. They are digitally unique – no two NFTs are the same. Artists can also program in the royalties and receive a percentage of sales whenever the art is sold to a new owner. Therefore, smart contracts in NFTs give the artist a cut in future sale of the token.

Special properties of NFTs

  • Each token has a unique identifier
  • Not directly interchangeable with other tokens
  • Each token has an owner, with the information being easily verifiable
  • Can be bought and sold on any NFT market

Ownership of NFTs

NFTs have unique identifying codes, and can have only one owner at a time. They enable the buyer to buy the original item, with an inbuilt authentication serving as a proof of ownership. In short, the buyer gets exclusive ownership rights. 

Every NFT has an owner on public record and is easy for anyone to verify. Their unique data make it easy to verify ownership and transfer tokens between owners. In several cases, the artist retains the copyright ownership of their work, and can continue to produce copies for sale. However, as the buyer owns the ‘token’, it proves that they have the original work. 

Content creators can retain ownership rights on their own work and claim resale royalties. NFTs have a feature that give you a percentage every time it is sold or changes hands. 

To put things in perspective – anyone can buy a Monet print, but only one person can own the original.

Blockchain for maintaining records

NFTs are all on a blockchain – a distributed public ledger recording transactions. These are secured by the Ethereum blockchain, so the record of ownership cannot be modified, nor can anyone copy-paste a new NFT into existence. Through NFTs, digital artwork is completely resistant to forgery and replication. Just like cryptocurrency, blockchain keeps a record of who owns what and stores this information on a ledger, which cannot be forged. 

If you create an NFT...

  • You can prove you are the creator
  • You can determine scarcity
  • You can earn royalty every time it is sold
  • You can sell it on any NFT market
  • You don’t need anyone else as intermediary for the sale 

What you can buy at the NFT supermarket

  • Unique digital artworks
  • GIFs
  • Videos
  • Music
  • Digital collectibles
  • Video game skins or in-game items
  • Unique designer sneakers in a limited run fashion line
  • Domain names
  • Tickets giving access to an event

NFTs have been revolutionising the art world in the western markets. While the West has been swooning over NFTs, in India, these were earlier dismissed as a fad. However, in recent times, Indian ownership of NFTs too seems to be on a gradual rise.

Current scenario of NFTs in India

In India, WazirX, the biggest cryptocurrency exchange by volume, launched the country’s first marketplace for NFTs for Indian artists. The platform facilitates the exchange and auction of digital assets and intellectual properties such as art pieces, audio files, videos, or even tweets. The RBI is planning to set up a framework for cryptocurrencies or digital currencies. ZebPay, which is India's oldest and most widely used Bitcoin and crypto asset exchange, has announced its plan to launch an NFT, named Dazzle. The difference between conventional crypto token like bitcoin and NFTs will be the latter's rarity and uniqueness.

The growing interest in NFT is set to transform the market. Both digital creators and collectors will stand to benefit from this kind of a marketplace. With India being blessed with several artists, these could benefit from NFTs to verify their piece of work. An immediate advantage of using NFTs in India is that it can be used for used for protecting IPR of Indian artists. All said and done, with various opportunities existing here, NFTs are set to boom in India, with artists and creators being the ones getting most attracted.

Storing NFTs

The files purchased are stored in a digital crypto wallet. You can buy crypto using a credit card on platforms like Coinbase and move it from the exchange to a wallet of your choice.

Marketplaces that aggregate NFTs created on Ethreum blockchain

  • Rarible
  • Foundation 
  • OpenSea

Difference between NFT and cryptocurrency

NFTs are built using the same kind of programming as cryptocurrency, such as Bitcoin. While cryptocurrencies are fungible, NFTs are not. So, cryptocurrencies can be traded or exchanged. Also, they are always equal in value, while each NFT has a digital signature, making it impossible for them to be traded, exchanged, or be equal in value to another. 

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Legal framework

Currently in India, there is no legal framework for a non-financial asset, but a framework is being contemplated for such digital currencies. For NFTs, there is no separate legal framework, and one has to rely on the regular principles of the Indian Contract Act for sale and purchase of goods. For investors too, there isn’t complete clarity on how these instruments will be regulated.

NFTs have made inroads into the gaming and luxury industry, working just like an investment and creating new business possibilities. Like cryptocurrencies, NFTs are assets with high risk. Before you decide to buy an NFT, understand the risks and exercise caution. In future, the market is likely to grow further as any piece of digital information can be minted into an NFT – an efficient way of managing and securing digital assets.

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