Currently, most people think that NFT or non-fungible tokens can only be tied or connected to digital goods. But, they should know that physical goods can also be represented by NFTs. For example, a real estate property can be exchanged or traded using NFTs.
However, it’s not recommended to use NFTs to trade every physical asset people have. After all, using NFTs as physical products have inherent risks, which are basically the same risks when they’re used for digital assets. To know what they are, continue reading.
Using NFT for physical assets—like NFT prints—can easily make it a financial instrument. And, as with every financial instrument, there are a lot of malicious individuals out there who’d be very much willing to scam you for it.
For example, it’s really easy for a person to lie through their teeth and sell you NFTs tied to a different asset than what was promised. Say, there are two lots in a town. The first lot has a size of 100 ft squared, while the second lot has a size of 1,000 ft squared. A scammer can easily get the first lot tokenized and sell it to you, saying that it’s the second lot.
Since many people are still ignorant and unaware of how NFT works and most aren’t really tech-smart, it’s easy to get them to trade in fake marketplaces or marketplaces full of NFT security issues.
These fake marketplaces can do a variety of things to an innocent individual. These include the following:
- As mentioned in the previous section, fake marketplace owners can scam people by trading tokens for different physical properties.
- These marketplaces are often used as phishing sites. These sites are disguised as legit NFT marketplace websites, and their only goal is to hack or steal the information of their victims.
- Another thing new people in NFT should avoid is the fake services that fake marketplaces offer. For example, some of them will offer people security services to protect NFT transactions. However, in reality, they’re only goal is to scam and steal from their victims.
Another risk in trading NFT as physical products is misinformation, which can lead to other potential devastating results. For example, know that if people want to tokenize physical artworks, they’ll need to acquire licensing. Without knowledge of this requirement, people can easily be victimized by fakers and scammers.
Also, another thing that people should know is smart contracts. With smart contracts, various conditions and limitations can be imposed by sellers or people who tokenize their physical properties. One of their most popular theoretical uses is creating shared ownership via royalties.
Say that a person owns a collectible toy through NFT. If a smart contract is in that NFT, whenever that NFT is traded or sold, the manufacturer or the one who made that toy can profit from royalties.
Lack Of Regulatory Frameworks
As of now, people can consider the realm of NFTs similar to the Old Wild West. It’s boundless and lawless, and anyone can easily become a winner or a loser. Currently, NFTs are still in their infancy stage. There’s no governing and regulating body that can safeguard token traders and owners.
Valuation Of Properties Can Be Difficult
Unless a person is going to tie in a real estate property or other physical assets with actual value on their NFT, it can be difficult to evaluate the price or value of a tokenized physical good.
Suppose a person bought an artwork from an unknown artist. If that person plans to wait until the artist gets recognized in the art world and sell when they think the works of that artist have improved in value, that person may wait forever until that happens. And, the sad thing is that even if the NFT is connected to the actual artwork, there’s a chance that they may own it, but may never get the actual work or be able to display it in their home.
While fraudulent tokenization of physical goods is still a theoretical risk, it must be considered, especially if a person wants to invest in NFT in the future. Say, a person wants to generate a token for a specific physical good—a home, for example. However, that person doesn’t exactly own the property. Nonetheless, that person can make fake documents and use them to go with tokenization.
To be honest, if you sit down for a few minutes and think deeply about physical goods, such as NFTs, you can think of multiple ways you can game the system and make it riskier for everyone. And, it’s unfortunate that it’s the current state of NFTs. Nonetheless, it doesn’t mean that you should avoid it like the plague. Like any investment opportunity, profit always lies in a place where you can mitigate and control the risks.