RISK INFORMATION

NFTs are based on blockchain technology or a similar decentralised network. A blockchain is a decentralised peer-to-peer network. This means that several computers join together to form a single network. They act independently of each other in economic and legal terms and can be scattered across the world. For such a blockchain to work, the majority of com-puters involved must follow the blockchain’s rules, which are dictated by the blockchain’s protocol written in a programming language. There is no central body that manages such a blockchain’s network. As a result, there are a number of risks involved which Fansea GmbH has no control or influence over. Such risks are therefore also present when purchas-ing an NFT (as defined in the NFT Purchase Agreement) on the Fansea GmbH (“Fansea”) platform. These are outlined below.

Please read this risk information carefully before purchasing an NFT.

1. TECHNOLOGICAL RISKS

1.1 Potential risks due to blockchain errors and failures

In technical terms, NFTs are blockchain-based tokens, which means they are digi-tally stored entries in a blockchain. An NFT is transferred within the blockchain from the transferor’s address to the recipient’s address. Transactions therefore do not take place within an environment provided, operated or monitored by Fansea. Fansea has no influence over whether the blockchain or any systems built upon it will function without errors or failures or will continue to exist in their current form.

The blockchain’s functioning may be affected by cyberattacks and unauthorised activities of third parties or other operational or technical difficulties and disrup-tions. This may cause interruptions, errors, distortions or delays in the execution of NFT transactions.

Such impairments may result in it no longer being possible to access NFTs, unau-thorised persons gaining access to NFTs, or NFTs being destroyed. This may lead to the buyer’s invested assets being partially or completely lost. The buyer is aware that the NFTs are stored on a specific blockchain and cannot be transferred to other blockchains. Fansea has no influence on the compatibility of NFTs with oth-er blockchains, platforms or systems.

1.2 Required knowledge and risks involved in using a wallet

To purchase access rights and control over an NFT, the buyer needs a wallet. A wallet is a form of software that buyers can use to manage their cryptographic keys and thus access and transfer NFTs. Such a wallet is not provided, operated or monitored by Fansea. The buyer must demonstrate a sufficient understanding of how to set up, maintain and correctly operate their chosen wallet before purchas-ing an NFT. Buyers will use their wallets entirely at their own risk and on their own responsibility. In particular, they must know how to secure the access data for their wallet. Fansea is not able to recover lost credentials or provide new cre-dentials.

1.3 Risk of using a wallet that is not compatible with the NFT purchased

There is a particular risk involved in using a wallet that is not compatible with the NFT purchased. This is the case when a wallet cannot access the blockchain on which the NFT is stored or interact with the specific type of NFT. Before setting up a wallet, buyers must ensure that the respective wallet service provider supports the NFTs offered by Fansea. Otherwise, this may result in buyers not being able to access their NFT or the NFT being lost and them losing the assets they have in-vested.

1.4 Risk when entering the addressee in an NFT transaction

Another risk in the transaction of NFTs lies in entering the wrong address (“public key”) of the recipient or the wallet address derived from this. Before executing the transaction, buyers must ensure that they have correctly entered the relevant public key/address for the transaction. Otherwise, the NFT may be transferred to the wrong address in the blockchain. This may result in the complete loss of the NFT and thus also the buyer’s invested assets. Fansea has no influence over, and cannot control or reverse, any transactions using the NFTs made by the buyer or any third party.

1.5 Risk in the event of loss of the private key or the seed phrase

An NFT is accessed either via a private key belonging to the buyer, which works like a password or the PIN used for online banking, or via a “seed phrase”. The seed phrase generally consists of 12 or 24 words and is equivalent to a password for gaining access to an NFT with the associated private key. If the buyer loses the private key or the seed phrase or if these access data to the NFT are stolen or oth-erwise go missing, this will result in an irrevocable loss of the associated NFT. Third parties who gain knowledge of the private key or the seed phrase can also gain access to the NFT and misuse or steal it for their own purposes.

Loss, theft or other unauthorised access by third parties to the private key or the seed phrase will result in buyers no longer having access to their NFT. This may lead to the buyer’s invested assets being lost completely.

1.6 Risk of theft and hacking

Points of attack for hackers or other persons may include – apart from the private key and the seed phrase – the smart contract underpinning the NFT, the underly-ing software application and the software platform. Smart contract means a com-puter program that is stored and executed in the blockchain to create an NFT, as-sign it to a specific address and transfer it to other addresses. Neither the software underlying the smart contract nor the software platform is made or operated by Fansea. There may be bugs in the programming or other technical vulnerabilities that allow hacking, theft, or other attacks, which may result in NFTs being partial-ly or completely lost. This may make it impossible to access the NFT, thereby im-pairing its value. The occurrence of these risks may lead to the buyer’s assets being partially or completely lost.

1.7 Risk associated with updates and forks of a blockchain

When an update is issued for the blockchain, due to the decentralised structure of the network, each computer in the blockchain network can decide whether or not to update the blockchain protocol. Updates can change the way in which the blockchain works and thus the way in which the NFTs work. In addition, the network, and thus the blockchain, may split (hard fork). A hard fork means that some of the computers on the network have installed the update and some of the computers do not accept the update. After such a hard fork, the network splits to create two versions of the blockchain. Then the NFT’s owners essentially own it on both the original and the updated version of the blockchain. Updates can thus have an impact on an NFT’s price performance and lead to the assets invested by the buyer being partially or completely lost.

1.8 Risk due to innovations

The blockchain technology employed and the smart contract standards used for tokens and wallets may become vulnerable or no longer compatible with new ver-sions. There is a possibility of technologies being developed that interfere with the blockchain’s functioning or allow third parties to access, modify or transfer NFTs.

Innovations such as quantum computers pose an additional risk to tokens and the underlying blockchain technology. These innovations may result in a subsequent change of ownership and adversely affect NFT transactions, potentially leading to the buyer’s invested assets being partially or completely lost.

1.9 Risk with regard to the medium linked to an NFT

Blockchain technology enables ownership of NFTs and associated rights to be as-signed to a medium linked to the token. However, the technology does not protect against third parties unlawfully copying the medium linked via a token or the con-nection between the token and the medium’s storage location being disrupted. This may have an impact on the token’s price performance. As a consequence, the buyer’s invested assets may be partially or completely lost.

2. LEGAL RISKS

Both at national and international level, legislative amendments or new laws con-cerning blockchain technology and similar decentralised technologies and tokens based on them may result in extensive changes. Specific details on the legal risks:

2.1 Risk with regard to future regulatory requirements

NFTs and the media linked to them will likely be subject to regulation in the fu-ture. There is a risk that NFTs might then be classed as securities or some other regulated asset class. Another risk stems from how authorities or courts decide to construe regulatory requirements.

Changes in regulatory requirements may result in access to a blockchain, NFTs or trading platforms being restricted. These and other restrictions may – as Fansea cannot yet be aware of them – mean that buyers are no longer able to gain access to the NFT and its linked medium; as a result, the latter might lose financial value or suffer a complete loss of value.

2.2 Risk to the validity of NFT contracts

In addition, a court might declare this NFT Purchase Agreement invalid in whole or in part. The fact that this is a very new and innovative legal field, combined with the resulting absence of established legal practice, means this risk is relatively high.

2.3 No legal link between token and medium by statute

There is a possibility that the NFTs will no longer fully reflect the ownership of the linked medium. NFTs are not deeds that are inseparable from the rights em-bodied in them. Although the contract seeks to keep both medium and token to-gether, a situation may arise when transferring the rights to a medium where a holder does not transfer the associated token along with those rights, or where a holder does not transfer the linked medium when transferring a token.

2.4 Tax risks

It is not certain that the current tax treatment will continue to apply. Changes to tax legislation, administrative opinion and/or case law can change the assessment of the tax concept and its consequences in terms of tax treatment. There is a risk of a higher tax burden. Buyers are advised to consult a tax specialist to accurately assess the benefits, charges and other consequences of the purchase.

3. RISKS WHEN RESELLING AN NFT

The buyer is aware that NFTs have no fixed value and that the price paid for an NFT is not indicative of its intrinsic value or future performance. There is a possi-bility that an NFT cannot be resold or can only be resold at a loss, which may re-sult in a partial or complete loss of the assets invested by the buyer.

3.1 Risk relating to the tradability of an NFT

Supply and demand determine the sale and value of an NFT. These depend on whether a buyer can be found and what purchase price that buyer is willing to pay. There is a risk that the consideration offered by a potential buyer for the NFT will be less than the original purchase price. This may lead to a partial or complete loss of the buyer’s invested assets.

3.2 Risk of NFT trading prices fluctuating and lack of prospective buyers

The value of an NFT may undergo significant price fluctuations based on various unpredictable developments, such as increased volatility of cryptocurrencies hit-ting the NFT market or a lack of market demand. Fansea has no influence on an NFT’s value or on third parties’ interest in buying NFTs.

3.3 Risk of errors in an NFT transaction

Transactions between the buyer and a third party involving an NFT are generally irreversible and no longer revocable. Errors made in an NFT transaction can lead to the loss of the token and the invested assets.

3.4 Risk of impossibility of resale of the NFT

Fansea does not offer the possibility of resale and has no influence on whether third parties offer the possibility of resale. Therefore, it may happen that the buyer will never be able to resell the NFT.

3.5 Risk of restricted tradability on secondary trading platforms

No regulated market exists for NFT trading. This means that each trading platform (if available at all) is free to decide independently whether to admit an NFT for trading. Each trading platform’s terms and conditions or formal requirements may preclude trading in the relevant NFT. It is also conceivable that an NFT transac-tion on a trading platform cannot be completed due to incompatible token stand-ards for technical or other reasons. There is no enforceable right against Fansea or any other trading platform for an NFT to be admitted (or remain admitted) to trading.

3.6 Risk of supervisory regulation of trading platforms

If a trading platform operates without a required permit, the regulatory authorities may intervene and ban the trading platform’s business model. Therefore, buyers must ensure they are properly informed before offering an NFT on any trading platform that is not operated by Fansea. Trading on an unlicensed platform may result in a partial or complete loss of the value of the NFT or the NFT itself if ac-cess to the tokens traded on the platform is restricted or denied.

3.7 Risk of high transaction fees in NFT transactions involving a buyer

Transaction fees (also known as “gas fees”), which can fluctuate considerably, may be incurred for NFT transactions. Paying a higher fee can affect the speed of the transaction. This may temporarily or permanently limit the possibility of NFT transactions, resulting in a loss of the assets invested.

3.8 Exchange rate risk when using cryptocurrency

If buyers use cryptocurrencies to acquire NFTs or if they receive cryptocurrencies from the sale of NFTs, they must consider that this may result in significant price fluctuations. The buyer independently determines the timing of any NFT purchase or resale, and the exchange of cryptocurrency into a fiat currency, e.g. euros. Cir-cumstances may have changed in the meantime, resulting in worse exchange rates, higher fees, or negative price performance. The price performance of a cryptocur-rency can deteriorate significantly, either temporarily or permanently. The buyer bears this risk.

4. GENERAL RISKS

4.1 Financial risk

There is a risk of partial or complete loss of the assets used by the buyer to acquire the NFT (partial or complete loss risk). Buyers should therefore only buy an NFT if they are able to bear the partial or complete loss of their invested assets.

4.2 Reversal risk

No reversal (i.e. the retransfer of an NFT) is provided for unless the buyer has a right to a reversal by law or if Fansea has expressly granted this right. This is gov-erned by the general terms and conditions of Fansea, which are available at https://staging-32e7-fansea5.wpcomstaging.com/terms-conditions.

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