Early in June, news of WazirX (an Indian cryptocurrency exchange) launching a Non-Fungible Token (NFT) marketplace for South Asia was doing the rounds. By mid-June, the platform was making headlines for an entirely different reason. It had received a show-cause notice from the Enforcement Directorate, citing the Foreign Exchange Management Act (FEMA). The cryptocurrency trading platform was accused of having hosted a Chinese online betting application.
WazirX was being probed for not having collected proper documentation from users in keeping with the requirements of the Anti-Money Laundering law and other FEMA guidelines. The platform however, said in a statement to the Press that they were yet to receive formal communication from the Enforcement Directorate and that they always did collect and maintain proper documentation.
What all this means for India is that cryptocurrencies may have once again come under a cloud. In any case, India does not have a regulatory framework for governing cryptocurrencies at the moment. The brouhaha over cryptocurrencies though, spills onto WazirX’s proposed NFT too. Non-Fungible To-kens after all, are new to India and not too many people understand their mechanics.
What is an NFT?
The term “non-fungible” basically means something that is unique and cannot be interchanged with an identical item. A painting by a modern master or a tune composed by a maestro for instance, are non- fun-gible, for they are irreplaceable, even though prints and copies can be made.
The Non Fungible Token therefore, is a unique digital asset supported by blockchain technology. The NFTs can be thought of as digital certificates of ownership and unlike bitcoins, one cannot be traded for another.
What Is All the Fuss About?
In March, an NFT artwork by digital artist Beeple (Mike Win-kelmann) sold for $69 million at Christie’s, which created a buzz in the art world. For the creative community, NFT promises to be a golden opportunity. Even artists who are not represented by agents can directly engage with a set of the audience and sell their work to them. Under-represented or upcoming artists can directly get feedback for their work from buyers. Thirdly, it gives artists the option of making money a multiple times from the same artwork, which traditionally doesn’t happen.
Nikhil Sethi, Managing Director of Zuvomo, a startup advi-sory that also works in the blockchain startup space says, “The global NFT market has exploded in 2021, with more than $700 million entering the space. The likes of Cryptokitties and NBA TopShot have added millions of users to the gaming and col-lectibles space. Be it Beeple’s $69 million artwork, Jack Dorsey’s $2.9 million tweet, or the 500k Disaster Girl meme; we are just getting warmed up. Every second startup we have consulted this year happens to be an NFT one.”
After what was a meteoric rise till earlier this year, reports suggest that the NFT market seems to have slowed down a little. In its latest Art Market NFT report, ArtTactic points out that the market seems to have entered a cooling down phase in May 2021. It states that NFT sales across the primary and secondary markets in March 2021 were $153.3 million whereas, total sales in May were $22 million (down 71 per cent from April), with most of the value made up of sales in the secondary market ($14.8 million). The report particularly evaluated Nifty Gateway, one of the biggest curated NFT markeplaces, where they found that the number of new artists launched, had declined in May.
May saw new launches down by 55 per cent, which in turn saw the number of new NFT launches plummet by 32 per cent (468 new NFTs in May compared to 688 NFTs in March).
This could be an effort to put out a more curated of-fering by the platform, the report suggests. The findings show that 36 per cent of NFTs launched in May were unique artworks in single editions, that had an average initial launch price of $7,000 that raised $1.2 million in the primary market.
Says Ritam Gupta, CEO and Co-founder of DeFi 11, a decen-tralized gaming ecosystem, “Market capitalisation of transac-tions worldwide with non-fungible tokens has increased by more than eight times since 2018. We have now reached a volume of over $338.04 million, which is a clear sign of a revolution in the ecosystem. I also hope to see crypto legalization in India, as that might be the key factor deciding the fate of blockchain and NFT adoption in the country.”
Not just the art market, the NFT is also seeping into the world of music and cinema, where musicians and cinema enthusiasts are looking to tokenise their creativity. Sethi sees NFTs as the future of gaming. “Developers now use NFTs to monetize gam-ing collectibles and build on the ‘Play to earn’ category,” he says, “Emerging community-backed games like Vulcan Verse and AXIE Infinity have clocked millions of dollars in NFT volume within weeks of their launch. And this is the tip of the iceberg.”
Hackers & Fraudsters
The NFT market is not quite a bed of roses, however. Reports have emerged of artworks being stolen and wallets being hacked. Media strategist, Michael Miraflor tweeted that his NFTs were stolen and the hackers purchased over $10 K worth of NFTs and moved them to another account. Not just buyers, but even artists have been victims of fraud. Someone impersonated illustrator, Derek Laufman and tried selling his art as NFT. There are reports of many other such cases where hackers and fraudsters have caused a lot of damage.
There is another problem, points out art historian Professor Naman Ahuja (School of Arts and Aesthetics of the Jawaharlal Nehru University). “The entire system of tagging artworks at the moment is predicated on originality of each so-called work of art. However, the genius of the 20th Century has been in mechani-cally reproduced art, multiple prints of the same thing, which by definition went against the idea of any one celebrated, singular original,” says Ahuja.
“Not only is the current technology limited in the definition of what it regards as art, it is only ever going to be feasible if there is equitable access to these kinds of digital technologies by hundreds of thousands of creative village workers of India,” says Naman Ahuja. “One has other hesitations/ questions too,” he goes on to say, “How will the correct provenance of things be updated on such diverse objects? This system is based on taking artists’ and collectors’ testimonies at face value. That’s perhaps a little naive and setting up something that is blatantly open to misuse. As things stand, I think we need to be honest that this is a technol-ogy that can be used for a certain kind of urban bourgeois art environment only.”
A big issue with NFT at the moment, is its high carbon foot-print. The world – all top leaders from the corporate sector as well as political leaders – are now consciously moving towards a greener way of working and living. To be dabbling in something that has a high carbon footprint at this juncture, seems strange.
So, what is the future of the NFT? Gaurav Shukla, Partner, De-loitte India (Risk Advisory) says more work is need from the technology fraternity and policy advocates. There is a lot of con-versation about NFTs’ high carbon footprint, which is where the concepts of proof of work (POW) vs proof of stake (POS) comes in. The POW typically requires high amounts of energy whereas, POS is an alternative to POW. In fact, some cryptocurrencies have started using this method to conserve energy but these are at a nas-cent stage now. He believes that when more posi-tive results from the POS start coming in, the issue of the high carbon footprint could be addressed.
Moreover, the NFT platform and associated channels should focus on safety. All processes need to be checked out, and proper rights of the user and the buyer should be spelt out. Shukla believes that a better governance structure, cy-ber security and privacy aspects will evolve once enterprises begin using NFTs. He believes that more adoption will happen once more use cases get established and concerns around carbon foot-print and security get answered.