NFT Non-Fungible Token
An NFT (Non-Fungible Token) is a unique digital asset stored on a blockchain that represents ownership of a specific item, whether digital art, music, video, gaming item, or real-world asset. Unlike cryptocurrencies, each NFT is distinct and cannot be swapped on a 1:1 basis with another NFT.
What Is an NFT?
The word “fungible” means interchangeable. One Bitcoin is identical to another Bitcoin; they are fungible. An NFT is non-fungible: each token has unique properties that make it distinct from every other token.
NFTs are created (minted) on blockchains like Ethereum. Each NFT contains:
– A unique identifier stored on the blockchain
– Metadata pointing to the underlying asset (image, video, audio)
– Smart contract code defining ownership rules and royalties
What Can an NFT Represent?
– Digital art and collectibles
– Music albums and concert tickets
– In-game items (skins, weapons, characters)
– Domain names
– Real estate deeds (tokenised property)
– Sports highlights and memorabilia
How NFT Ownership Works
Buying an NFT means owning a blockchain record proving you hold that unique digital token. However, it does not necessarily mean you own the copyright to the underlying content. The creator retains copyright unless explicitly transferred.
NFT Market in India
NFT trading picked up in India in 2021-22. Indian artists, cricketers, and filmmakers launched NFT collections. The crypto tax rules of 2022 (30% tax on gains + 1% TDS) significantly reduced NFT trading volumes in India.
Practical Example
A digital artist creates a painting and mints it as an NFT on Ethereum. She lists it on OpenSea for 0.5 ETH. A collector buys it, and the transaction is recorded on the blockchain. Smart contract royalties ensure the artist receives 10% of every secondary sale of that NFT.
Key Takeaways
– NFTs are unique digital tokens on a blockchain representing ownership of a specific item
– Each NFT is distinct; two NFTs cannot be swapped like-for-like, unlike cryptocurrencies
– Ownership of an NFT does not automatically mean ownership of the copyright to the underlying content
– Common use cases include digital art, gaming assets, music, and collectibles
– In India, NFTs are taxed as Virtual Digital Assets at 30% on gains, with 1% TDS on transactions above the threshold
