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Virtual digital assets have skyrocketed in popularity in recent years, and their trade volume has increased dramatically. A market where a virtual digital asset can be transferred for payment using another one of these assets is also starting to take shape. 

The Finance Minister’s announcement of a 30% tax on revenue from virtual digital assets (VDAs) in her 2022 Budget has recently rekindled attention on this subject. The budget also included a proposal for a tax deducted at source (TDS) of 1% on payments or transfers made using virtual digital assets beyond a certain level of money. 

But what are VDAs? Keep reading this article to know everything about VDAs, including their legal status and investment options, with examples of both international and Indian VDAs. 

What Are VDAs? 

A virtual digital asset is any information, code, number, or token that is generated through cryptographic procedures or otherwise, by whatever name it is called. This provides a digital representation of value and is exchanged with or without consideration, with the promise or representation that it has inherent value, or that it serves as a store of value or a unit of account. This definition also includes its use in any financial transaction. 

A virtual digital asset, to put it simply, is a digital holding that has been encrypted on the blockchain, enabling anyone to confirm its authenticity and determine who owns it. This becomes a unique asset that may be purchased, sold, or transferred to a new owner since it is non-fungible, which means that it cannot be replicated, copied, or hacked. 

Cryptocurrencies, non-fungible tokens (NFTs), and decentralised finance are examples of virtual digital assets. The numerous NFTs in digital assets can be virtual real estate, in-game coins or products, digital art, text, photos, movies, music, or other blockchain assets. As per the broad definition, VDAs may also include coupons, reward points given out by online retailers or credit card firms, airline miles, and so on. 

How To Earn VDAs? 

You must now have a basic understanding of what VDAs are. Let’s look at how one can earn VDAs. 

Virtual Landowners 

You can earn VDA as the owner of virtual land. One way people use VDAs is by buying digital real estate like LAND, a piece of virtual land in the Sandbox. Instead of a tangible deed, these virtual places use NFTs to show ownership of particular locations within a virtual environment. Similarly, if you want to buy Indian VDAs, you can buy virtual land of Indie’s.

Users can combine individual plots of land to form an estate if they own enough of them. The estate on Decentraland known as “The Secret of Satoshi’s Tea Garden,” which consists of 64 different parcels of land, is one example of it. Digital highways encircle the ‘land’ entirely, making it easy to get to. 

Renting And Lending 

People can rent out their NFTs to get passive income based on market demand. Through PARSIQ’s IQ Protocol, a decentralised finance (DeFi) network that offers options for game creators to make money, landowners in the metaverse can do that. 

The IQ Protocol allows virtual landowners to generate yield and rent fees through specified conditions that are negotiated with renters and enforced by smart contracts, simulating the dynamics of traditional property and real estate.

Do Charity To Earn Assets And Rewards 

Projects like Indie’s allow you to perform good deeds to earn rewards. You can plant trees or even practice meditation. You just need to provide proof of your work to receive indicoin that you can use to purchase their virtual lands or NFT avatars. 

Residual Dividends 

NFTs can let investors receive passive dividends in addition to the royalties that creators may be paid when their works are sold or resold on secondary marketplaces. A digitised Monaco racing track section from the F1 Delta Time game, which sold for $222K at auction in December 2020, is just one example of this. 

The owner of the digital track is entitled to 5% profits from all races held on it, including entrance fees for races and payouts from ‘Elite Events’, which require competitors to wager REVV for entry. 

Private Parties And Events 

NFT passes can be used to pay for virtual gatherings such as parties and concerts that are held in various metaverses. Snoop Dog, a rap artist, entrepreneur, and ardent supporter of NFT, teamed up with The Sandbox to hold a private party in September 2021. A total of 1,000 NFT party permits were made available to attend the event, with 650 of them being made available on The Sandbox’s marketplace. The Snoop Private Party Pass essentially provided people access to Snoop Dogg’s unique NFTs, events, and the possibility to have Snoop Dogg play a private concert on their LAND. 

These are only a few of the numerous examples of ways to earn VDAs. Let’s now look at ways to invest in VDAs. 

How Can One Invest In VDAs? 

There are several platforms that help you invest in VDAs. Some of them include : 

Coinbase: Coinbase has consistently ranked among the top cryptocurrency platforms. Although a lot of Coinbase users began staking early, it’s never too late to join in. The idea is straightforward — you register for a Coinbase account, keep your digital currency in the wallet, and do tasks for rewards. 

CoinDCX: The goal of CoinDCX, the most valuable cryptocurrency investment software in India, is to make cryptocurrency easily accessible. With solutions centred around cryptocurrency trading, investing, and education since its establishment in 2018, CoinDCX has addressed many issues that the Indian crypto community faced. 

WazirX: You can buy and sell USDT for Fiat directly with other buyers and sellers using WazirX P2P. It is always safe and legal. 

A quick piece of advice — If you wish to use Fiat to trade cryptocurrencies, purchase USDT via peer-to-peer (P2P), and then use that USDT to purchase other cryptocurrencies on WazirX! 

OpenSea: Users can buy and trade non-fungible tokens on OpenSea, a decentralised marketplace. The NFT exchange, which was established in 2017, started as a market for CryptoKitties but has already extended beyond collectables. 

Legality Of VDAs

Now let’s come to the most important part of the article — what is the legal status of VDAs? Interest in this topic was recently revived with the Finance Minister’s 2022 Budget declaration of a 30% tax on income from virtual digital assets. 

The legal status of VDAs says:

• The term ‘Virtual Digital Assets’ is defined in the Finance Bill’s new clause 47A, implemented in 2022. A virtual digital asset, according to the bill, is any data, code, number, or token generated using cryptography or another method. 
• The Act also declared a 30% tax on the profits of virtual digital assets, whether held for a long or short period of time. Any standard deduction, expenditure, or allowance does not apply to this tax. 
• The government warns individuals against engaging in such transactions even though the virtual digital assets mentioned in the act are now subject to taxation. It can be invested in, transferred, saved, or exchanged electronically due to its significant price volatility and virtual value (as it is impossible to determine the value of a non-physical object). It cannot, however, be utilised as a means of exchange or be a component of any investment scheme. 
• According to standard income tax regulations, any losses incurred by the investor or trade cannot be adjusted against any other revenue. 

Now, let’s undertake a case study of a few international and Indian VDAs. 

Some Global And Indian VDAs 

Here is a list of some global and Indian virtual digital assets that are generating a lot of buzz these days. 

Global VDAs 

Sandbox: Players can create, own, and monetise their game experiences in the virtual world known as The Sandbox using the Ethereum blockchain. 

By giving developers of existing games like Roblox and Minecraft genuine ownership of their works in the form of non-fungible tokens (NFTs), they hope to upend the status quo and encourage their engagement in the ecosystem. 

Indie’s: As the top meta brand, Indie’s is working to build a Massive Multiplayer Online Open-Ended Soul based Non-Game Play2Earn Genre Virtual World/Metaverse where 11,111 Indie’s guild members can purchase a virtual plot in the New Kashi, IndiVerse, using their special Indie’s NFTs. 

They can lease out the land to start a business, a mall, or a theme park or invite their friends over, plan an event, or even work calmly from home.

Doodles: Doodles has evolved into one of the most significant and cherished NFT initiatives ever. The collection of vibrant line-drawn characters has practically taken over the world and is one of the most well-liked and successful PFP (profile-picture) collections. 

CryptoPunks: CryptoPunks, created by Larva Labs, is a two-person development company. They have experience working on a wide range of projects, including mobile games and utilities, online infrastructure, digital design, and art. The team created a pixelated character generator inspired by the London punk scene, cyberpunk literature, and films. 

A few of the global VDAs include Bored ape, Decentraland, Bitcoin, and Ether. 

Indian VDAs 

Indie’s NFT: Indie’s Guild is a closed virtual world community made up of 11,111 NFT Avatars, which are individually created digital valuables. These have been designed and developed by Inditex LLP, with funding from StraightCircle VC. They are introducing their brand-new, 11,111-piece NFT collection. Every Indi is a distinct VRactive avatar that serves as the heart of the online community.

Digital Prateek’s Jorr Token: The fundamental goal of this community-driven NFT project is to create an outstanding community (JorrParivar) around the realities of branding, marketing, and motivation. It consists of 1,254 tokens centred around 22 original intellectual properties that Digital Pratik owns and mints. 

Future Of VDAs 

The technology for securing and storing VDA related-data is still in its infancy stage. In the eyes of the Indian public, they are quickly becoming a gateway for wealth development. According to CREBACO, there is an estimated $15 Bn market value for digital assets in India. This is indicative of the fact that the country has seen notable growth in this area. 

The recent inclusion of clause (47A), under Section 2 of the Income Tax Act, in the Finance Bill 2022 has only increased the credibility of digital assets, thus supporting the use of digital assets. This has increased the confidence of potential stakeholders and customers to invest in cryptocurrencies and other virtual digital assets such as NFT. 

The digital asset economy will continue to change with the change in business tactics and consumption habits in the years to come. There are a few crucial steps, such as capability and skills building, that can be taken right away to capitalise and shape this new era.