What are the Risks Involved in Buying NFTs and How can I Mitigate Them?

Non-Fungible Tokens (NFTs) offers a unique blend of art, ownership, and technology, captivating the interest of investors, artists, and collectors alike.

As with any emerging market, purchasing NFTs carries its own set of risks. Understanding them is crucial for anyone looking to dive into NFTs.

This article outlines few typical and advanced risks involved in buying NFTs and how you can get rid of them with CYAN’s Marketplace.

Typical Risks

1. Market Volatility

  • Fluctuating Values: The value of NFTs can be highly volatile, with prices swinging dramatically based on demand, trends, and market sentiment.
  • Speculative Investments: Many purchases are made with the hope that the NFT will increase in value, which is not always the case.
  • Influence of Hype: The value of NFTs can be significantly influenced by social media and celebrity endorsements, leading to rapid but potentially unsustainable price increases.

To better deal with these situations, make sure that your NFT investments are well planned. Do not buy or sell your NFTs in rush.

Even if you see some volatility, its best to wait it out.

2. Liquidity Issues

  • Limited Buyers: Unlike traditional markets, the NFT marketplace may not always have a ready pool of buyers, making it difficult to resell an NFT quickly. Further, the demand for common NFTs are always less.
  • Platform Dependency: The ability to sell an NFT is often tied to the platform where it was purchased, which can affect liquidity.

To your relief, we have a solution for you. You can choose to get a loan on your NFTs in case of urgent need of funds.

3. Fraud and Scams

These are the most common way we have seen where NFT buyers lose money.

  • Fake Listings: There are instances of sellers listing counterfeit NFTs or claiming ownership of digital art without the creator’s permission.
  • Phishing Attacks: Buyers can be targeted by scams designed to steal cryptocurrency or personal information.

Even those listings where everything is genuine but the NFT never gets launched can be grouped here.

4. Intellectual Property Concerns

  • Unclear Ownership: Buying an NFT does not always grant ownership of the underlying intellectual property, leading to potential legal challenges.
  • Copyright Infringement: There’s a risk of purchasing NFTs that infringe on existing intellectual property rights, which could result in legal issues.

An example was the SNES game which was launched on the Bitcoin blockchain (Yes! Bitcoin also has NFTs called Ordinals). Despite being launched by CryptoNinjas, there is a risk of Intellectual Property claims from Sony which owns a copyright on them.

Advanced Risks

1. Regulatory Uncertainty

  • Changing Laws: The legal framework governing NFTs is still evolving, and new regulations could impact the market significantly.
  • Jurisdictional Variance: Laws regarding NFTs can vary greatly by country, complicating international transactions.

Even the most comprehensive law like MICA fails to address NFT regulations. These situations make it a headache for NFT buyers as well as sellers.

In these situations, the best you can do is to hold NFTs in a cold wallet which allows you to safely store them and wait till the regulatory uncertainty is clear.

2. Technical Vulnerabilities

  • Smart Contract Flaws: NFTs are governed by smart contracts on the blockchain, and any bugs or vulnerabilities in the contract code can lead to loss or theft.
  • Platform Security: The security of the marketplace platform itself is critical; breaches can lead to stolen assets.

Since a smart contract can only be created once and cannot be modified, a flaw in its code could seriously impact the NFT collection.

3. Market Manipulation

  • Wash Trading: Some sellers engage in wash trading, creating artificial activity to inflate the perceived value of an NFT.
  • Pump and Dump Schemes: Groups may collaborate to drive up an NFT’s price before selling off their holdings, causing the price to crash.
  • Insider Trading: Several times with the advanced knowledge of buying and selling orders, insiders begin illegal activities like frontrunning, rigging of bids, etc.

While buying NFTs, you should make sure that your NFT Marketplace is well vetted like CYAN’s NFT Marketplace.

Multiple Security Audits of Cyan
Multiple Security Audits of Cyan

4. Loss of Access

  • Wallet Security: If you lose access to your digital wallet or your private keys are stolen, you could lose access to your NFTs.
  • Dependence on Third Parties: Using third-party wallets or platforms introduces risks if these services become insolvent or face downtime.

How CYAN Helps You Mitigate NFT Buying Risks

Cyan makes it super secure for you to buy NFTs on our marketplace. We have made it highly simple, yet retained the highest level of security.

Buying NFTs on CYAN’s Marketplace

Buying NFTs on CYAN is a simple 2 step process. We have made it super simple to buy NFTs on our website. You just need to connect wallet and approve the transaction.

Sorting and Filtering in Cyan's NFT Shop
Sorting and Filtering in Cyan’s NFT Shop
  • Connecting Wallet: No account creation needed; users can connect their wallets directly via the “Connect Wallet” option, supporting MetaMask, Wallet Connect, Unstoppable Domains, Rainbow, and Rabbit.
  • Buying Process:
    • Wallet connection not required for browsing the Shop page.
    • Over 107 Ethereum and 10 Polygon collections available for browsing in grid or list view.
    • Filters help select desired traits and pricing. Selecting an NFT opens financing terms for down payment and loan duration, with an option for automatic repayments.
    • Automatic Repayments deduct funds from either the user’s wallet or a Cyan Wallet, where NFTs on loan are held.
    • A Cyan Wallet is created upon the first purchase or loan, where purchased NFTs are stored until the loan is repaid.

CYAN also features easy NFT Loans (a.k.a. Buy Now, Pay Later) that help you pay for your purchases in multiple transactions and also allows users to sell the NFTs in just 1 click if they do not want the loan repayments anymore.


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