Challenges and risks associated with NFTs

NFTs are becoming famous and surely you have heard a bit about them. They are very popular in the world of cryptocurrencies and are gaining popularity in other sectors as well.

Can you even believe that a GIF file sold for $590,000 at auction? Now, you might be wondering what that GIF file will contain. Well, it was just Nyan the cat. NFT that gained so much wealth to the creator. Isn’t it shocking?

What if I tell you there’s more?

You may be surprised to learn that Beeple sold NFT art for $69 million. That is the power of NFT in this modern world.

Now, let’s understand a bit more about NFTs to get a better idea of ​​them.

What are NFTs?

NFT (Non-Fungible Tokens) is a digital certificate of authenticity. At present, NFTs are known to be the most popular things. NFTs can easily be understood as digital tokens that can include digital arts, digital assets, music, video, or any other asset in the digital world that is built based on blockchain technology.

If you ever visit an auction, you’ll see classic artwork, antiques, vinyl, first edition books, and other historical items being sold there. These items are certified to be authentic.

NFTs are created with a similar concept, but their existence is in the digital world. NFTs can allow any video, MP3, image, GIF or any other file format and certify it as unique. Previously, there was no technology available for ownership of digital assets. You can now claim ownership of your digital assets due to blockchain technology.

You can collect, sell, buy or even destroy NFTs in the digital world. Blockchain technology will keep a record of every transaction you make, along with the price of that NFT, visible to everyone on the internet.

NFTs and games

When we talk about NFT, the first thing people usually associate it with is gaming. The best thing about NFTs is that you can change the digital ownership of any digital asset. So far, we have not been able to own any digital assets.

Whenever players used to buy some in-game items, they considered them as their own. Actually, they belonged to the game publishers. For example, if you have a large amount of in-game items in League of Legends and the publisher decides to shut down the game, you end up losing all digital assets.

Now, the scenario has completely changed. The game creators do not have centralized control over Crypto kittens and NFT collectibles because they are managed through smart contracts. So even if the game goes down tomorrow, you can easily transfer or sell your crypto kitties. That sounds amazing, right?

Previously, in-game items were never unique. Due to the concept of NFTs, you can now create items with different characteristics and also give them a personal touch. Crypto kittens have boosted the base of NFTs in the gaming world as well as other industries.

Well, not everything is so good on the NFT side. There are also certain challenges and risks associated with them. Let’s go through one by one.

What are the challenges and risks of NFTs?

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

This results in a considerable increase in the possibility of cyber-attacks and online fraud. There are high chances of damage to digital assets and investors buying and selling 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 NFTs to get a better idea.

Smart Contract Risks and NFT Maintenance

The risk of smart contracts and maintenance of NFTs is one of the main ones currently prevailing 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 heist. The reason behind that theft was because the security of the smart contracts was not adequate.

Hackers successfully exploited smart contract flaws to carry out a large-scale attack on the Poly network. 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. safety.

Evaluation challenges

The main challenge facing the NFT market is the uncertainty in determining the NFT price. 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, the fluctuations in prices remain constant and the evaluation of NFTs becomes a great challenge.

Legal challenges

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

There is a considerable increase in the NFT market, and this is why it is essential to have a regulatory body. There is a large visible increase in NFT use cases. Now, this calls for a regulatory body that accommodates the rules and regulations of NFTs.

The 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 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 shops are placed on the internet. These stores look 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 on a fake NFT store.

Another risk is when someone impersonates 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 attraction. While promoting NFT, some people get scammed by these fake shops.


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

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 wish to be eligible as securities, they must pass certain parameters of the Howey test.


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

Read about the best cryptocurrency lending platforms below. Here is the complete guide to Minting and listing your first NFT.

Previous articleHow to choose the best online master’s degree
Next articleApple Company History