Protection of Nonfungible Tokens in Sri Lanka

Introduction

Sri Lanka and Nepal have seen a substantial increase in the number of cyber-security threats, while Bangladesh is leading the world in terms of the percentage of mobile malware infections. In order to address these risks, Sri Lanka and Bangladesh both approved the Digital Security Act in 2018 and the Framework for Proposed Data Protection Bill in Sri Lanka. The Individual Privacy Act, 2018 and the Information Technology Bill, 2075 were just passed by Nepal. Although each bill or act aims to solve issues with cyber security, they are still a part of a larger IT regulatory environment.

NFTs in Srilanka[Image source: Shutterstock]

The Ministry of Digital Infrastructure and Information Technology created the Cyber Security Bill and Data Protection Bill in response to Sri Lanka’s first “Information and Cyber Security Strategy 2019-23.” The cross-sectoral proposals are a part of the effort to strengthen the legal framework addressing new issues with data protection and cyber-security. Both measures, if passed, would be an addition to the current Computer Crimes Act, Electronic Transactions Act, Payment Devices Frauds Act, Telecommunications Act, and Intellectual Property Act.

The goal of the Cyber Security Bill is to defend critical data and services against cyber-attacks. The Sri Lanka Computer Emergency Readiness Team, the National Cyber Security Operations Center, and the government are all given the authority to create a Cyber Security Agency with the goal of protecting Critical Information infrastructure.

The Data Protection Bill, which was introduced immediately after the Cyber Security Bill, intends to safeguard personal data and control how it is processed in accordance with the fundamental constitutional rights to knowledge and privacy. Additionally, it aims to boost consumer confidence and guarantee the expansion of digital democracy and innovation. It provides definitions for personal data, specific data categories, and data processing and control principles. Additionally, it creates the Data Protection Authority, a body with the authority to oversee the passage of the Data Protection Bill and consider cases involving data protection.

NFTs, or non-fungible tokens, are the current name for the technology, which evolved over time. This year, there have been a lot of discussions about NFTs on social media, but few people are familiar with the technology or know what it is specifically. The market has experienced substantial growth; Bloomberg estimated its value at $1 billion in March. However, Sri Lanka’s first NFT auction, run by Urban.lk, took place on June 12 and 13 and saw the primary piece sell for $1,275.

Non-Fungible Tokens are referred to as NFT. A blockchain-based digital ledger called a blockchain stores data units called NFTs, which are used to verify the uniqueness and non-interchangeability of digital assets. Although NFTs can be anything digital (such as music, drawings, or even your brain downloaded and transformed into an AI), the present buzz centres largely around exploiting the technology to market digital art. Digital assets in the fields of art, music, sports, and other mainstream entertainment are currently being commoditized using NFTs. The Ethereum blockchain has the majority of NFTs, although NFTs can also be implemented on other blockchains.

NFTs are dominating the market, with some NFTs auctioning for outrageous sums like $69 million. The discovery of an innovative technology that has the potential to upend both the art and technology industries is what gave rise to its appeal. The significance of NFTs rests in enabling the safe valuation, acquisition, and exchange of digital art through the use of a digital ledger.

The ability to receive recurring royalties is one characteristic that allows artists to continue profit from their work. The blockchain ledger, which will be able to track the origin and the sale record of the goods, will enable collectors to preserve and validate artwork.
Crypto-collectibles currently come with a number of dangers because NFTs have a lot of market risks, such financial and regulatory issues. Experts believe that any digital underpinning may be simply copied and can result in counterfeiting, which is one of the most significant hazards associated with NFTs. As the owners and stakeholders have seen the numerous incidents of fraud. You are in charge of your own security because nobody’s entity controls crypto collectibles (unlike with fiat currency where banks hold your money for you). Nobody else can access an NFT if you lose the private key (which functions as a login), which prevents you from using or transferring the NFT. This means that if you lose your private key then you are at risk of losing all the value stored in that NFT.

The demand for the underlying artwork or even the artist, as well as the prices of the underlying cryptocurrencies, all play a role in determining the value of NFTs. Blockchains are the foundation of several online markets for NFT trading. The most well-known ones are currently powered by the Ethereum blockchain. You will almost probably require ether, Ethereum’s native currency, for the transaction if you want to trade NFTs through one of the most well-known marketplaces.

The Central Bank of Sri Lanka (CBSL) announced in a notification that it has not given any Sri Lankan companies permission or a licence to carry out activities related to cryptocurrencies, such as exchanges, initial coin offerings (ICOs), and mining. Citing “recent trends with respect to virtual currency usage,” the central bank issued a warning against using virtual currencies. The market slump and the extreme volatility of the values of cryptocurrencies like Bitcoin were likely being discussed.

Conclusion

The Sri Lankan Cabinet approved the creation of a committee to research the laws and policies governing blockchain technology, cryptocurrency mining, and digital banking in other countries, as well as ways to stop money laundering, terrorism financing, and other illegal activities connected to those technologies. The group will research Know-Your-Customer procedures as well. The five-member group will research how nations including Dubai, Malaysia, the Philippines, Singapore, and the European Union have regulated and approached the crypto-related businesses. To keep up with the region’s worldwide partners and increase commerce to global markets, it is essential to establish an integrated system of digital banking, blockchain, and cryptocurrency mining.

Author: Tanya Saraswat, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

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