Non-fungible tokens are generating huge profits for digital creators. There are many works of art being sold online every day. It is even possible for a creator to make millions in just a few seconds when their NFT is sold in the digital space. It is also visible that people buy, NFT Development services sell and invest with more enthusiasm in the digital market instead of doing the same in the physical market.

This leads to a significant increase in the possibility of cyber attacks and online fraud . There are high chances of harm to digital assets and investors who buy and sell NFTs in the market. Although there is great potential for the NFT market, there are certain risks that need to be considered.

If you are thinking of entering the NFT market, then you need to understand these risks and challenges with NFT to get a better idea.

Risks of smart contracts and NFT maintenance

The risk of smart contracts and the maintenance of NFTs is one of the main ones that is currently prevalent in the NFT market. There are several scenarios where hackers attack a DeFi (Decentralized Finance) network and steal a large amount of cryptocurrency. Recently, the most famous DeFi protocol called Poly Network was attacked by hackers and $600 million was stolen in this NFT theft. The reason behind that theft was because the security of smart contracts was not adequate.

Hackers successfully exploited smart contract flaws to perform a large-scale attack on the Poly network. NFT Development company The Poly network is very useful for exchanging tokens on different blockchain networks. This tells us that if smart contracts have even a small flaw, they cannot be expected to be complete.

Assessment challenges

The main challenge facing the NFT market is the uncertainty in determining the price of NFT. Now, the price of any NFT will depend on creativity, uniqueness, scarcity of buyers and owners, and much more. There are considerable fluctuations in NFT prices because there is no fixed standard for any particular type of NFT.

People cannot determine the factors that can drive the price of NFT. Due to this, fluctuations in prices remain constant and the evaluation of NFT becomes very challenging.

legal challenges

There is no legal definition of NFT known throughout the world. Different countries like the UK, Japan, and the EU are coming up with different approaches to classifying NFTs. This makes it necessary to create an international body of non-fungible tokens to establish regulations and legalization throughout the world.

There is a considerable increase in the NFT market, and that is why it is essential to have a regulatory body. There is a large visible increase in NFT use cases. Now, this requires a regulatory body that is compliant with NFT rules and regulations.

Current laws related to NFT are still stuck in finding the correct definition for it. With the market and variety of NFTs constantly growing, it is becoming increasingly difficult to find a solid foundation for NFT compliance.

Cyber ​​Threats and Online Fraud Risks

The popularity of NFTs has also increased the chances of cyber threats to the NFT market. Many cases are visible where replicas of the original NFT stores are placed on the Internet. These stores appear authentic because of the original logo and content. These fake NFT shops are a huge risk because they can sell NFTs that are not even present in the digital world. On top of that, there are chances of counterfeit NFTs being sold in a fake NFT shop.

Another risk is when someone poses as a famous NFT artist and sells fake NFTs. The risk of online fraud is huge due to copyright theft, fake airdrops, fake NFT giveaways, and replication of popular NFTs. Some people even promote these giveaways on social media to gain more traction. While promoting NFT, some people get scammed at these fake stores.

INTELLECTUAL PROPERTY RIGHTS

Ownership of any NFT is another important issue to consider. When you try to buy an NFT on the market, you need to find out if the seller actually owns that NFT or not. There are scenarios where people pose as sellers while only having replicas. Here, you will only receive the right to use that NFT, but not the intellectual property rights.

If you review the smart contract metadata, you will find the terms and conditions for ownership of that NFT. There should be a rule that artists can only display NFTs they own. It is not possible to relate NFT markets to traditional property laws. Non-Fungible Token Development New intellectual property rights such as the right of publicity, trademarks, copyrights, and moral rights must be taken into account for decentralized blockchain technology.

The challenge of considering NFTs as securities

Several people consider buying NFTs as securities. The chairman of the SEC (Securities and Exchange Commission) stated that most NFTs on the market are sold as securities. But in reality, the Supreme Court has associated NFTs only with investment contracts. Now this is a big risk for NFT. If NFTs want to be eligible as securities, they must pass certain parameters of the Howey test.

Conclusion

Before you jump into something just because of the hype, you need to do some extensive research. When it comes to non-fungible tokens, it is much better if you understand all the risks and challenges first. This will even make it easier for you to buy and sell NFTs in the market by removing risks.

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