Author- Vibhu Verma
INTRODUCTION
NFT stands for Non-Fungible Tokens. It is a unique type of digital asset and it cannot be exchanged or exchanged for equivalent value. Cryptocurrency is fungible, which means it can be traded; however, apart from each other, NFTs are unique and one cannot equal the other. NFT works like cryptography. Cryptocurrencies operate on a public ledger system that records all the transactions made in the world and is updated every second, all this happens to thousands of computers running day and night without fail. Uninterrupted. The entire process of commercial purchasing this unique digital artwork in the form of a non-fungible token is based on a public ledger known as the Ethereum blockchain. Blockchain is a ledger system that works similar to a bank, it records every transaction that takes place in the world on a computer, however, the only difference here is that the verification and authorization of transactions does not. no matter what bank or middleman, the same is done by thousands of users around the world sitting on their computers. Performing transactions using the bank is the preferred way as there is authorized oversight that facilitates and regulates all transactions, keeping balance. The question of legitimacy also plays a central role in such transactions, and the absence of proper regulatory authority can affect an individual’s sense of trust. People tend to rely solely on non-human entities, and complex mathematical algorithms facilitate the exchange of NFTs on the blockchain. As seen in the Cambridge analytics scandal, where Facebook disclosed the data of about 87 million users and the same was done using a simple quiz app that allowed data collection by a loophole in Facebook’s technology mechanism.
Over the past few years, there has been a sudden rise in crypto and NFTs. The entertainment industry took advantage of this opportunity to maximize profits and fans by employing clever marketing strategies around the NFT hype. Recently, the NBA started selling short clips of some highlights involving famous players like Lebron James. as a non-fungible token, and fans bought the same for millions of dollars. Recently, a musical group called “Kings of Leon” sold 4 Lifetime Golden Tickets as NFT and they sold for almost $441,368. The staggering amount spent on small JPEG collages, cat GIFs and tweets has raised concerns about this entire public ledger business as well as poor tax accountability and legal implications. its rationale.
Legal Issues around NFT:
IPR Issues:
Intellectual property refers to the creations and inventions made by people who use their intelligence and talents. Work done by this person must be original and not based on or borrowed/stealed from anyone else or other sources. When a person purchases an NFT, he or she is simply buying digital artwork/audio/video etc. but she has no right to remake or reproduce the same things that have been purchased. With so much unpredictability and no binding rules on this, it can lead to problems in some cases regarding intellectual property rights. If a person buys a work of art as NFT from an organization, he can resell it and there will be no problem, but if the same person tries to copy the same artwork, that may lead to legal problems as it depends on the licensing terms of that organization. Alternatively, if a smart contract is applied to purchase NFTs, a small royalty can also be awarded to the creator of the original work, but there is currently no such system. This means that the NFT resale does not benefit the creator in any way. Currently, there is no effective mechanism to protect the rights of the original author of this work. One possible solution to do justice to the creator is for his work to be legally recognized. To combat this illegal behaviour, every transaction made on the NFT-related blockchain must be accompanied by a statement that clearly acknowledges its original work. In the event that any person or market competitor attempts to resell the Owner’s Work without proper prior authorization, it will result in a violation of the Intellectual Property Rights and the Owner. Owner will take civil and criminal action under Section 55 and Article 63 of copyright. respective laws. Infringement assessment was performed based on the parameters outlined in Sections 51 and 52 of the Copyright Act 1957. In addition, centralization and standardization regarding common perception and the NFT network remained not reached. does not recognize and provide incentives and basic laws to uphold the justice of the original creators as opposed to infringement of intellectual property rights.
Tax Issues:
One of the main reasons for the current economic crisis in Sri Lanka is the widespread and endemic problem of tax evasion. A clear example in recent times is the proper implementation and enforcement of tax laws that give legal recognition to all acts. Since this article deals with recent sales of millions of NFTs without paying any taxes, it shows how the current system has failed and it will not win the public’s trust. Currently, there is no specific law governing this issue; for example, if a person who is said to be located in India uses a US server to conduct a transaction in Canada, the tax payment that will be based on the jurisdiction of the country is still a concern. One country’s tax regulation that conflict with another also pose another threat as to how accountable the perpetrators will be for any wrongdoing on these platforms. NFTs can only be bought and sold on specific platforms. Under current law governing other areas of law and even ethics, if someone makes a profit after selling an NFT, they must pay income tax on the same amount. In this open digital marketplace, this chain of command is lacking. Tax laws are different for each country, so taxes on these transactions vary, which can cause problems for those with digital assets abroad. Although countries are studying the tax aspects of this digital asset purchase, there is still a lot of work to be done and some binding laws and rules need to be established as soon as possible. One possible solution to this problem could be the creation of an international body made up of tax and cyber law experts who could work to develop rules regarding the taxation of transactions. transboundary translation.
Money Laundering Activities:
NFTs have different values. The price of an NFT does not depend on the work of the creator but on the price, one is willing to pay for this digital creation. A serious concern related to this is that one can easily abuse money through the blockchain. After all, the only check done before a transaction on the blockchain is whether the user has enough funds in their wallet. One can easily create an account by breaching the server or hacking them and list any random digital art for sale and the same person can open another account on the trading platform this or other trading platform and buy this NFT yourself to sell (from another account) and in this way financial reflection can be done easily. In addition, the tracking mechanism can be tricked and bypassed in certain ways. All of this makes it very difficult for the relevant authorities to track the illegal transactions that take place on the public ledger.
Data Protection and Storage Regulations:
The first countries in the world to give their citizens certain rights to modify or completely delete their personal data/information. However, the heavy blockchain technology makes it very difficult for citizens of these countries to modify or delete any kind of data, and any NFT carrying some sort of unwanted personal information can be modified or deleted. Delete after some time and even impossible because for this sophisticated technology it can lead to data protection law violation in some countries of this world. This entire blockchain works automatically through a computer, not manually. In addition, each NFT is connected to a digital asset through a link that allows the asset’s location to be known. However, if somehow this entire blockchain system encounters an unusual technical problem affecting the link between the asset and the NFT, then the NFT will have no effect and the owners will have no solution. any for this. It can lead to data disruption, violation of data storage regulations, and huge data loss. In addition, the General Data Protection Regulation (GDPR) attempts to provide basic privacy rights, and there has been an ongoing struggle between GDPR law and the blockchain mechanism, as the former assumes that there are at least one data controller can handle data, but the second works with multiplayer and is decentralized. In addition, GDPR grants certain rights to users such as the right to delete their personal information or to edit personal data, however, the principles of blockchain are different as it is a shared ledger that is shared used to record transactions and track assets.
CONCLUSION:
Looking at the current scenario and laws, it is clear that there is an immediate need for specific rules and regulations governing NFT transactions as they are irreplaceable, which makes them fundamentally different from Default Cryptocurrencies. though both operate on a similar platform. The proper recognition of creators, the establishment of proper tax laws for cross-border transactions, the design of methods of de-reflection using the NFT, and compliance with GDPR are some of the issues that need to be addressed. decide as soon as possible.
The recent introduction of the Finance Bill 2022 and the Digital Currency Bill 2021 and the amendments to the Income Tax Act 1961 by the Government of India have partly shown their intentions regarding digital asset management. For now, one can only wait for the full implementation of these laws and expect replacement laws that address the problems and shortcomings associated with the NFT.
