Before Buying an NFT, Read The Terms Carefully

Jan 27, 2022
4 min read

These NFT blockchain tokens are making quite a stir at the moment, and it is expected that the demand for them will only grow.

Nevertheless, before you spend a dime on an NFT, or digital collectible, you should understand exactly what you're getting.

NFT: What is it?

"Non-fungible token" is the abbreviation for "non-fungible token." Non-fungible tokens are digital assets that can be transferred across a blockchain. Because they can't be duplicated or divided, their uniqueness gives them a wide range of uses.

In contrast, fungible tokens are those that are easily replaced by other identical tokens. One example would be cryptocurrency tokens, such as Bitcoins.

Among the different types of NFTs, there can be different rules attached to them. These rules are referred to as Smart Contracts, which are governed by their programming code, which handles the transfer of ownership of NFTs. Presently, we're seeing NFTs mainly used for selling "digital collectibles" such as digital art, articles online, music, tweets etc.

Are You Buying What You Say You Are?

You're paying for a unique item when you purchase an NFT from one of the many NFT marketplaces. To put it another way, you're paying for a very short digital record (approximately a few bytes in size, and commonly containing a serial number or URL) to be transferred to your blockchain address. That is all there is to it.

Owning this token allows you to establish that you own a certain item and that the object you own is genuine—similar to having an authentication certificate.

Unless you sell (or gift) that NFT to someone else, no one else can have it.

Having custody of a house's deed is equivalent to owning an NFT. The deeds, not the house, constitute an ownership record. In the same way, an NFT is a record of an asset's ownership or validity, not the asset itself.

Here's what an NFT isn't

An NFT isn't a digital asset in and of itself. The NFT is not the picture file if you purchase the NFT for a work of digital art. Authenticity records or ownership records are the only records that are stored on a blockchain. The image file will be stored on a different server.

It would be the same as buying a limited edition print of a photograph. When you own the print, you would not own the copyright to the photograph. You couldn't sell your own photo reprints.

In addition, you couldn't sell your own reprints of the photo. It couldn't be used for commercial purposes either. But, the fact that you own an authentication certificate makes your print more valuable.

An NFT by itself does not automatically grant you any rights to any of its intellectual property. By default, the original author of the work (whose record is stored in the NFT) retains ownership of the copyright.

If there are no additional terms or written agreements, you get very few rights by default.

Terms Associated With NFTs

There are often additional terms that come with NFTs that outline just what you are able to do with your purchase. Because of this, it's imperative that you read and understand the terms of each NFT you buy.

CryptoKitties creator Drabble Labs Inc. has developed a simple license that describes what you can and cannot do with an NFT. You own licensed content rather than any copyright. This license makes this very clear.

The “NFT License” does not automatically apply to all NFTs, but any NFT project can adopt it if they wish. Different types of licenses will likely be developed in the future.

Before you buy an NFT, read the terms carefully to make sure you know what you can and can't do with it.

Why Might It Go Wrong?

When buying NFTs, there are a bunch of options that might go wrong.

NFTs are still in their early stages of development. Traditional purchase methods are currently unprotected by legal frameworks. If an NFT author, for example, rips you off by producing extra copies of your "unique" digital product, you will probably have little recourse.

Likewise, when buying NFTs you should check to make sure the seller has the right to sell ownership or outright copyright. A transfer of ownership should certainly be documented in writing, so it's protected by the current legislation.

Second, many NFTs simply provide a link to the desired digital object. You may lose the value of your NFT if this link breaks, expires, the owner redirects the URL to another address, or if the hosting account is not extended. NFTs are increasingly being hosted via IPFS, which greatly mitigates this risk.

Third, an NFT you buy could come with excessive royalties. This means that if you sell the NFT to a third party, the author may receive a significant amount of the proceeds. This is something you should look into before purchasing your NFT.

Still interested in that NFT?


NFTs are the craze of 2022, and you need to know what you're actually getting when you buy one.

A lot of promises have been made in this space, and that has sparked speculation. With this in mind, think about the hazards before you spend your money, and do your homework before buying something.

It's imperative for you to have the knowledge needed here, from what a blockchain is to how you can use the assets you purchase.

PS: This is not an investment advice. This is purely the opinion of the writer.