A Legal Evaluation On Emerging Challenges Of Non Fungible Tokens And Its Financial Implications

Sanket Mohapatra, BA. LLB. (Hons), Saveetha School of Law, Saveetha Institute of Medical and Technical Science (SIMATS), Saveetha University, Chennai1

ABSTRACT

Non Fungible tokens are digital assets that are acquired for monetary value with transfer of cryptographic ownership. NFT are not regulated under a legal framework for taxation, financial governance or prevention of fraudulent practices in its circulation. The Paper focuses on the lack of legal implications for trade in NFT which run in contrast to the systematic economic process that has been regulated by rule of law and statutory authorities. NFT provides a parallel economy for digital transactions and it doesn’t provide any investor protection to its buyers and sellers. NFT must be treated and considered as digital security contracts like security contract derivatives that are protected under the SEBI Act. The recent cases of bankruptcy of Crypto Exchanges and complicated structures it has been involved in its risk taking and risk transfer process doesn’t protect the financial creditors under the Insolvency and Bankruptcy Laws of India. Non Fungible Tokens are a risk to the economic structures of our country because the existing digital payments interfaces are sufficient to deal with such transfers. Non Fungible tokens are not consistent with Anti Money Laundering Regulations of the Financial Action Task Force and can cause financial turmoil in the digital economy that prevails in our country to bring a revolutionary change. NFT can be used to facilitate and protect cybercriminals that steal the wealth of our citizens by giving them a place for transfer of stolen assets. Non fungible tokens don’t provide a value addition to our existing economy and can cause losses to amateur investors who have invested in such fragile financial liabilities that don’t provide any goods or remain protected in situations of economic slowdown.

Keywords: Cryptocurrency, Money, Assets, Liability, Law