NFT market may witness a correction in the short term

The National Payments Corporation of India has advised fintechs to keep aside money and management bandwidth for regulatory compliance, the costs of which are likely to be high

Question: In my friends’ circle, there is a lot of talk about buying and selling, even investing in, NFTs. Is there any merit in this form of investment and what are the hazards?

Answer: NFTs, or Non-Fungible Tokens, are unique digital items which are stored on a blockchain. Anything which is digital, namely videos, music, images, can be converted into a NFT and monetized. NFTs are certificates of authenticity and most use the blockchain of ethereum. Just like the crypto currency, trading in NFTs has no legal backing. The lack of statutory or government regulation implies that it is prone to price manipulation. Many persons who had put money in crypto were tempted to invest in NFTs as a new medium of investment. Some speculators have been attracted to NFTs as the value of a token is derived from what buyers are willing to pay for it and it is therefore expected that the NFT market may witness a correction in the short term. NFTs enable digital content creators and owners of intellectual property to monetise their work or assets without having a middleman; they earn royalty every time the NFT is resold. The world’s most expensive NFT, which was a collage of 5,000 pictures, was sold last year for $69 million. These stray cases prove tempting for many persons to invest in NFTs but the risks are enormous as lack of regulation may lead to price rigging.

Question: There is a phenomenal increase in digital transactions in the last few months, which are primarily undertaken on fintech company platforms. Is there a downside to this growing trend as these companies are not sufficiently regulated?

Answer: The Reserve Bank of India is concerned about the risks involved because the payment ecosystem has become extremely complex as ten to twelve participants are involved in completing a transaction in five seconds. The regulator is therefore providing guidelines in terms of tokenization and data storage. The National Payments Corporation of India has advised fintechs to keep aside money and management bandwidth for regulatory compliance, the costs of which are likely to be high. The Reserve Bank has written to some fintech companies requesting them to give details of the algorithms which they use in their business. An independent fintech department has been set up by RBI to monitor these companies. In order to reach the goal of a billion digital transactions per day, a robust law enforcement agency is being set up and emphasis is given on a high level of customer education.

Question: Many students from rural background especially from Gujarat are not prepared to seek admission in engineering colleges as they are not comfortable speaking or reading English. While Skill India is a new mantra, is anything being done to give an opportunity to rural based students to go in for engineering courses?

Answer: The All India Council of Technical Education has launched engineering courses in Indian regional languages, such as Hindi, Marathi, Gujarati, Kannada, Tamil, Telegu, and Bengali. Data from the AICTE shows that in the current financial year it has approved 1,230 additional seats in 19 engineering institutes across India. Text books are being prepared in these regional languages based on the experience of countries like Germany, Japan, and Korea which provide engineering education in their national languages. In these three countries there is a high level of research and development being undertaken. Following these success stories, many colleges in India have also started computer science courses in regional languages.

— H. P. Ranina is a practicing lawyer, specialising in tax and exchange management laws of India. Views expressed here are his own and do not reflect the newspaper's policy.