Risks of NFT Trading: Do I Own NFTs?

Investing in NFTs requires extreme caution. One of the typical risks of NFT trading is selling fake NFTs to inexperienced users.

Be careful when investing in NFTs: This can create fake NFTs.

More and more people are investing their money in so-called NFTs, which are conquering the art market more and more over time. But what exactly is an NFT? How does NFT trading work? What are the risks and what is the best way to avoid them?

What exactly are NFTs and where can you buy and sell them?

NFT is an acronym for Non-Fungible Tokens. They represent unique cryptographic tokens on a blockchain that have special value in the digital and spiritual world. NFTs can include art, music, tickets, tokens or digital identities.

Unlike fungible cryptocurrencies, such as Bitcoins, NFTs are not fungible because of their proven unique nature. In other words, they can not be exchanged for other NFTs.

One can find NFTs in various digital marketplaces. These are invested in NFTs. They are bought, sold and influenced by many users. The following markets are considered to be the most well-known marketplaces for NFT trading: OpenSea, Axie Infinity, Rarible and SuperRare.

As the value of and interest in NFTs increases, so does the number of people trying to deceive inexperienced users, for example by creating fake NFTs.

How are non-fungible tokens classified legally?

Disputes of a legal nature are not only the result of legal transactions concerning physical objects, but also disputes concerning digital works. It is therefore important to classify NFTs legally and determine what rights you have to them.

The legal nature of objectified works of art is already clearly regulated today. As movables, these are proprietary and can be taken possession of. Transfer of ownership is also possible under § 929 sentence 1 BGB.

It is doubtful whether one can also acquire ownership of tokens and how their transfer should be legally assessed.

According to the current state of law, only property, ie physical objects, can be established. NFTs are digital, decentrally stored devices that can not be spatially delimited, so it can not be based on their design. Therefore, no ownership can be established in these. A similar treatment of the NFTs would be possible if a comparable regulation had been issued with section 90a, which states that the rules that apply to things must apply to animals. However, such efforts have not yet been made.

However, there is some evidence that NFTs can be classified as other rights under Section 823 (1) BGB. The prerequisite for this will be a property-like position with the right holder. Only the holder of private access data, which is stored in a wallet to which only the holder of the wallet has access, can dispose of the non-fungible tokens. So the one who can access the wallet is the only one who can dispose of the token. This corresponds to the actual power of disposal, as with lawful possession. It is therefore obvious that the non-fungible tokens must be classified as other rights under § 823 (1) BGB.

However, this has not yet been resolved in court, making it extremely difficult to find proper funds for counterfeit NFTs and other violations caused by NFT trade.

How is the legitimacy of an NFT project recognized?

As NFT trading continues to increase, the risk of acquiring fake NFTs from scammers or encountering an illegitimate NFT collection increases. This would then lead to large losses. Taking certain factors into account when analyzing an NFT project reduces this risk. In particular, the following factors should also be taken into account:

The brand perception or market awareness of NFT: If an NFT collection shows an increasing value of the respective NFTs and a history of active trading, then their legitimacy can be assumed.

Community Size: If it’s a famous NFT collection, it basically has a lively community of collectors. If the collection is officially introduced or approved by a well-known artist, major brand or celebrity, then there is an even greater likelihood that it is legitimate.

Tracking NFTs: NFTs are traceable, allowing you to identify, among other things, the original creator, the individual buyers and sellers, and those who invented it.

Intellectual property rights: Ensure that the NFT mark has the necessary intellectual property rights. If these rights are violated, the owner of the intellectual property may sue the creator, resulting in a diminishing value of NFT.

The underlying Blockchain: By taking a close look at the blockchain network on which the NFT project is hosted, one can see how secure NFT will be in the long run. Established blockchains, such as Ethereum, have high success rates in terms of stability and continuity. As a result, it can be assumed that the NFTs have been around for a long time and have confidence in their legitimacy. Should an NFT be stored on a blockchain that does not survive, it risks becoming worthless. So before you buy an NFT, be sure to research which blockchain the NFT is running on.

Free NFTs and Sweepstakes: If you are offered a free NFT or invited to participate in a lottery, you should question its legitimacy. Most of the time, the perpetrators do this in an attempt to get the victims’ crypto wallet logins, thereby enabling them to steal the NFTs and any other digital currencies or tokens found there.

Need help with NFTs

The legal issues surrounding investing in NFTs and NFT trading are extremely complex and case-by-case. We are therefore happy to support you with our expertise. You can also contact us in confidence at the following e-mail address for questions in advance: info@rechtsanwaltkaufmann.de.

The content of this article is for general information only, does not refer to the specific situation of the persons concerned and does not in any way constitute legal advice. The underlying information can not replace personal advice from experienced and qualified persons in specific individual cases.

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