Context:
Recently, the Ministry of Home Affairs (MHA) conducted the G20 Conference on ‘Crime and Security in the Age of NFTs (Non-Fungible Tokens) AI and Metaverse’ in Gurugram, Haryana.
About Non-Fungible Tokens:
- Non-fungible tokens, often referred to as NFTs, are blockchain-based tokens that each represent a unique asset like a piece of art, digital content, or media.
Image Credits: Medium
- An NFT can be thought of as an irrevocable digital certificate of ownership and authenticity for a given asset, whether digital or physical. For example, Amitabh Bachchan NFT’s were on sale, Bachchan’s NFT collectable series included his father’s famous poem “Madhushala”, autographed vintage posters of himself, along with his other works.
NFTs are created through a process called minting, in which the information of the NFT is recorded on a blockchain. - They have become a popular way to buy and sell digital artwork.
- For Example: In 2020, the market capital of NFT bloomed, climbing 338 million from 41 million (2018)
What is Non-fungibility?
- Non-fungibility refers to the unique and distinct nature of an asset or item that cannot be readily exchanged on a one-to-one basis with another item of the same type.
- For example, a plane ticket is unique — it specifies a specific seat, on a particular flight, at a specific time.
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How is an NFT different from Cryptocurrency?
| NFT |
Cryptocurrency |
- Represents ownership of a unique item or asset.
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- Represents a form of digital currency
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- Non-fungible: Each token is unique and not interchangeable.
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- Fungible: Each unit of the cryptocurrency is interchangeable with another unit.
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- Often used to represent digital art, collectibles, virtual assets, etc.
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- Primarily used as a medium of exchange and store of value.
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Characteristics of a non-fungible tokens:
- Uniqueness: Each NFT is unique and distinguishable from other tokens. It has its own specific characteristics, metadata, and ownership history.
- Indivisibility: NFTs cannot be divided or broken down into smaller units. They are treated as whole assets and cannot be exchanged on a like-for-like basis.
- Ownership and Authenticity: NFTs serve as proof of ownership and authenticity for a specific digital asset or item. They provide a verifiable record of the asset’s origin, ownership history, and attributes.
- Scarcity: NFTs can represent assets with limited availability or scarcity, adding to their value and collectibility. The scarcity may be predefined or determined by the creator or platform issuing the NFT.
What types of assets can non-fungible tokens be used for?
- Non-fungible tokens can be created to represent virtually any asset, whether physical, digital or metaphysical.
- However, the most common NFT assets are digital art, digital collectible items, pieces of content like video or audio, and event tickets.
Benefits:
- Disincentivize Plagiarism: They enable artists to create and sell unique and scarce digital works, without the risk of duplication or plagiarism.
- New Artistic Forms: They create a new form of artistic expression and innovation, where digital art can be interactive, dynamic, or collaborative, and where new genres and styles can emerge.
- Verifiability: The ownership of an NFT is recorded on a blockchain, which makes it easy to verify.
- Transferability: NFTs can be bought, sold, and traded on NFT marketplaces. This means that they can be used as a form of currency or investment.
- Authenticity: NFTs can be used to prove the authenticity of digital goods. This is because the ownership of an NFT is recorded on a blockchain, which makes it difficult to forge.
Challenges Associated with Non-Fungible Tokens:
- Complexity: The technology and tooling behind non-fungible tokens and the decentralized applications that underpin them are still nascent.
- Legal and Regulatory Challenges: NFT has no recognized legal definition anywhere in the world. Different nations are forging forward with various classification schemes for NFT.
- High Consumption of Energy: They have a significant environmental impact, as they consume a lot of energy and generate a lot of emissions.
- Prone to Speculation: They are subject to market volatility and speculation, as the prices and demand of NFTs can fluctuate rapidly and unpredictably.
- Counterfeit and Fraudulent NFTs: There have been instances of fraudulent NFTs, which undermines trust in the NFT ecosystem and raises concerns about counterfeit NFTs circulating in the market.
Key Points Discussed at the Conference:
- Misuse of Non-Fungible Tokens (NFTs): The emerging challenges and risks associated with the misuse of Non-Fungible Tokens (NFTs) needs to be explored.
- Tackling Illicit Activities in Metaverse Technologies:Facilitating discussions to address challenges related to illicit activities in the Metaverse.
- Comprehensive and Balanced Approach to ICT Development and Security: Highlighting the necessity of a holistic approach to ICT development and security.
- Protection of Individuals from Online Exploitation: Raising concerns about the increasing challenges in safeguarding individuals, particularly women and children.
- Focus on Secure ICT Environment: Promotion of an Open, Secure, Stable, Accessible, Peaceful, and Accountable ICT Environment was emphasized.
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News Source: The Hindu
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July 15, 2023