NFTs: fundamental risks and dangers to avoid at all costs

NFT, LEGAL

Author: Nikita Kosmin

 

Snimok ekrana 2022-06-22 v 21-32-23 Interchange and Nyan Cat meme

 

The fact that NFTs have become widely known (and even admired) is an illustration of the deep-seated instinct inherent in all of us: making easy money with minimal effort is an irresistible temptation. An old Italian proverb goes: “You’ll only find free cheese in mousetraps”. Does that apply?

 

Getting an NFT for free and selling it for millions is something that appeals to us so undeniably, not only because we humans are wired to seek the greatest reward with minimal effort, but also because it is the golden rule of Wall Street billionaires: minimize the risk, maximize the ROI. The deals with the optimal ROI-risk ratio are the best.


In this world, the profits are truly colossal, and the risks approach zero. Ergo, NFTs (if you can get them for free) are such a tempting idea. If you buy a cryptopunk for 11 cents (transaction cost at the time of the transaction) and sell it for $11.75 million, you have yourself the best ROI-to-investment ratio imaginable. But are there really no risks?

 

Volatility 

NFTs are a tempting prospect for new traders who can easily get excited by the stories of easy and effortless wealth generation. But! For every winner, as always, there are countless losers. Buying an NFT for $1,000,000 only to sell it for $139,000 is a reality not covered in the press as much as the stories of fame. As a result, many are not adequately informed about the many ways to lose money, which is just as easy. 



Liquidity 

NFTs are not very liquid. Liquidity is the ability to sell something quickly when you need it. 

 

Chances are you can sell, say, a fantastic steak, or gasoline anytime (viewers at home, these are not to be mixed even if they’re sold together) because people need some products more than others. 

 

Works of art like NFTs are only valuable when someone wants them. If you need capital badly, that can cause problems. 



Financial arrangements 

The world is still getting ready for anything related to cryptocurrencies, but it takes a while to turn a big ship around. Some countries have been very enthusiastic about cryptocurrencies from the start, others - still not so much. China, for example, insists on its NFT ban, which is something to keep an eye on, as are different regulatory environments. 

 

Different countries have very different approaches to taxing cryptocurrencies, even if they allow them. How much tax will you have to pay? Will you have to painstakingly fill out a 300-page form like in the US? Will you be investigated for money laundering? These are all questions you will have to answer. 



Hacks 

This probably won’t surprise you, but NFTs are a particularly desirable target for hackers. They’ve also already proven they can do it. The basic problem with hackers is that by default the average user is dealing with people who are extraordinarily more adept at IT, which makes them much more powerful and likely to win



Conclusion 

Now that you have considered at least some of the risks, you can develop a strategy that will increase your chances of avoiding them. 

 

Learn how Artessere can make you safer here.



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