NFT Trading Risks: Do I Own NFTs?

Keep your eyes open when investing in NFTs: this is how fake NFTs can be identified

You hear about them everywhere. NFTs are increasingly conquering the art market over time, which is why so many people are investing their money in them. But what exactly is an NFT? How does NFT trading work? What are the risks and what is the best way to prevent them?

What are NFTs? Where can you buy and sell them?

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

Unlike redeemable cryptocurrencies such as Bitcoins, NFTs are non-fungible due to their proven uniqueness, which means they cannot be exchanged for another NFT.

NFTs can be found in many digital marketplaces where users invest in, sell and also make. The most popular markets for trading NFT are OpenSea, Rarible, SuperRare and Axie Infinity.

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

How are non-fungible tokens legally classified?

Legal disputes arise not only from transactions involving physical objects, but also from transactions involving digital business, which is why the legal classification of NFTs is so important. This is the only way to find out what rights you are entitled to.

The legal nature of physical works of art is now clearly defined. It can be possessed as property and can also be possessed. Ownership can be transferred in accordance with Article 929, sentence 1 BGB. Whether tokens can be owned as digital units and how transfer NFTs can legally qualify is still a matter of debate.

According to the current legal situation, ownership can only be established in things, i.e. physical things. Since NFTs are decentralized digital entities that cannot be spatially constrained, their embodiment cannot be assumed. Therefore, their ownership cannot be verified. One way to treat NFTs accordingly is to issue regulations that comply with Section 90a. This states that the regulations that apply to things must also apply to animals. However, no such attempt has been made so far.

However, there are indications that NFTs are classified as other rights within the meaning of Section 823(1) BGB. This assumes that rights holders are in a similar position to owners. Anyone with personal credentials stored in the wallet that can only be accessed by them can access the NFTs. So anyone with access to the wallet is the only one who has access to the NFT. This is analogous to the actual disposition inherent in lawful possession. Therefore, the classification of the NFT as another right within the meaning of § 823 paragraph 1 BGB is clear. To date, however, this issue has not been resolved in court, which makes it difficult to find appropriate treatments for fake NFTs and other injuries caused by the NFT trade.

How do we recognize the legitimacy of the NFT project?

With the growth of NFT trading, so does the risk of being scammed by other users with fake NFTs or facing an illegal batch of NFTs and incurring huge losses as a result. However, there are a variety of factors to consider when analyzing an NFT project that can help you identify legitimate NFT groups.

First of all, brand awareness or market perception of NFTs is one such factor.

If an NFT group has a history of active trading and an increased value for the NFTs involved, it can be considered legitimate with a high probability of success.

Community size must also be considered, as the more well-known NFTs tend to have vibrant aggregation communities. The group’s legitimacy is further confirmed when it is officially endorsed or launched by a major brand, celebrity, or recognized artist.

Another way to avoid buying fake NFTs from scammers is to keep track of the NFTs you are investing your money in. NFTs are traceable, allowing you to see who originally created them, how many people bought and sold them, and when they were minted, among other things.

You also need to make sure that the NFT brand owns the intellectual property rights to what you’re selling. If these rights are infringed, the intellectual property owner can sue the author. This reduces the value of the NFT.

Moreover, the underlying blockchain can also be an indicator of the legitimacy of a group. Looking at the blockchain network that the NFT project is working on, one can see how secure NFT is in the long run. Given the high success rate of established blockchains like Ethereum in terms of stability and continuity, it can be assumed that NFTs will be around for a long time and therefore can be trusted. NFTs that are not stored on such a blockchain or on a chain that does not survive may become worthless. So before you buy an NFT, you should ideally research the blockchain that the NFT is running on.

Finally, a scam is when you are offered a free NFT or asked to enter a raffle. This is how scammers try to get your crypto wallet credentials. Thus, they can steal existing NFTs and any other digital currency or token.

Need help with NFTs

The basic legal issues of investing in trading NFTs and NFTs are complex and are dealt with on a case-by-case basis. We will be happy to assist you with our expertise. You can also contact us with confidence at the following email address for initial inquiries: info@rechtsanwaltkaufmann.de.

The contents of this article are for general information only, do not relate to the specific situation of the person concerned and do not constitute legal advice. The information provided cannot replace individual advice from competent persons in specific individual cases.

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