According to a Chainanalysis report, the global NFT market reached $41 billion in 2021. For comparison, the value of the art and antiques market in 2020 was estimated at $50 billion.

Trading in NFT tokens – "non-fungible tokens"—tokens that are non-fungible and have no equivalent in other tokens or items—has become an extremely popular phenomenon in recent months. Even traditional auction houses have expanded their offerings of artwork to include trading in digital products linked to NFT tokens. As is often the case, the widespread popularity of a trend often means it is distorted or misused for its original purpose.

The Polish Financial Supervision Authority has repeatedly drawn attention to the risks associated with acquiring cryptocurrencies, pointing out numerous factors that should be taken into account when investing in the crypto industry, including, above all, the high volatility of cryptocurrency values ​​and their use in the process of money laundering or terrorism financing.

In today's post, we would like to point out the key risks associated with investing in NFT tokens.

To describe an NFT in its simplest terms, it can be compared to a certificate of authenticity that can be assigned to a specific person, certify the uniqueness of a given item, allow for the tracking of transactions using it, etc. However, it is not a work of art (image, recording, visualization, etc.) in itself.

What is recorded on it is a matter freely regulated by the parties, which, on the one hand, allows for control over what, in what form, and under what terms we purchase, but on the other, in the absence of such control, may allow for abuse by the seller. We must also remember that we are usually purchasing the token itself, not the copyright to the work. Therefore, we can resell it but do not have the right to reproduce, share, modify, etc. Of course, the token may include other rights of the buyer, but this is not the norm. Furthermore, under Polish law, recording the transfer of copyright to the work in a token, as defined by copyright law, will not be effective, as the transfer of copyright requires written form under pain of nullity. As indicated above, an NFT token typically exists "alongside" the digital work, and the image is usually not incorporated into it. There have been proposals to consider the digital file associated with the token as a copy of the work within the meaning of copyright law (which would allow for the assumption that any transfer of ownership of the NFT token also transfers ownership of a copy of the work), but this is still only one concept.

It's also important to keep in mind the significant investment risk associated with investing in this constantly evolving and therefore uncertain market. It's important to remember not to invest more in these assets than you can afford to lose.

Due to the high risk of fraud and theft, if possible, you should purchase tokens on reputable exchanges and carefully vet the creators of the project you're interested in. If possible, it's worth purchasing tokens through auction houses. When purchasing NFTs on the secondary market, pay close attention to whether the tokens come from verified collections and a reputable owner.

When embarking on your NFT investing adventure, you should certainly exercise the same level of care as you would with other online transactions. Ensure the security of your digital wallet by not sharing your access details with anyone and by preventing interactions between it and websites of unknown origin. The basics of safe online navigation and maintaining a low level of trust in others are highly recommended.

This alert is for informational purposes only and does not constitute legal advice.

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