Whether they support non-fungible tokens (NFTs) or not, investors, brands and businesses cannot ignore this new technology. In 2021, the NFT marketplace exploded, with a reported total market value of $40 billion and support from celebrities including Snoop Dogg, Mark Cuban and Stephen Curry. However, as NFT popularity skyrocketed, so did public interest in NFT scams, with Google searches hitting an unprecedented all-time high in early 2022.
As more money flows into the NFT industry, so do malicious actors hoping to extract value at the expense of everyday NFT users. Over the last few months, NFT scams have been getting increasingly more sophisticated and severe, ultimately emphasizing the caution that users need to exercise in a decentralized environment. Various types of scams exist, and it’s pivotal to know how to recognize them so you can avoid them.
The following discussion will examine the most common NFT scams and ways in which they can be identified and avoided.
What are NFTs, Actually?
NFTs are a type of cryptographic token that represents a unique asset. NFTs function as verifiable proofs of authenticity and ownership within a blockchain. These tokens can represent real-world items such as artwork, real estate, property rights and individual’s identities. Because they are based on the blockchain, NFTs can remove intermediaries, create new markets and simplify transactions.
Fungibility refers to the property of an asset whose individual units are interchangeable and virtually indistinguishable from each other. For example, cryptocurrency and all fiat currencies are fungible. As implied by the term non-fungible, NFTs cannot be traded or exchanged at equivalency with each other, so they introduce scarcity from uniqueness to the digital world.
Common NFT Scams to Watch Out for
NFT scams work by either tricking you into believing you successfully purchased or sold a legitimate NFT or stealing confidential information such as your crypto wallet login credentials. Cybercriminals are attracted to the monetary value attached to NFTs, which is why they constantly adapt and improve their typical hacking methods, such as phishing and social engineering, to break into user accounts and steal NFTs.
Here is a list of five NFT scams to know –– and avoid them.
Fake NFT offers: NFT scammers often pose as reputable trading platforms and send fake offers to NFT owners via email. The purpose of these phishing emails is to get you to follow a link to a fake NFT marketplace. The implication here is that to use these marketplaces users typically have to enter their login credentials and recovery phrase to connect their wallet to the site. Scammers then use keylogging or other types of spyware to record your information and steal your NFTs remotely.
How to avoid this NFT scam: Verify the sender address of any email received from an NFT-related source.
Fake NFT projects: Another strategy used by scammers is referred to as a rug pull scam when a scammer creates a seemingly legitimate NFT that turns out not to be resellable, effectively stripping it of all future value. This action allows the malicious creators to profit generously from the initial sale of the collection; however, NFT holders are left holding the bag once they realize that the asset they paid for won’t appreciate as they believed it would.
How to avoid this NFT scam: Do your research before investing into an NFT project and look out for red flags, such as lack of innovation and an anonymous team.
Bidding scams: Bidding scams happen when investors want to resell their purchased NFTs in a secondary market place. Once they list their NFT for sale, bidders might switch your preferred currency with low-valued cryptocurrencies without telling you, leading to potential losses for the seller.
How to avoid this scam: Double check the currency used before selling and never accept bids lower than you initially intended.
Counterfeit or plagiarized NFTs: It is important to recognize that minting a digital file doesn’t make it a fresh new piece of intellectual property. However, many users are unaware of this, which allows scammers to trick people into believing they are buying a unique NFT. Malicious users will steal an artist’s work and open a fake on an NFT marketplace where they list counterfeit artwork for sale. Unsuspecting buyers will mistakenly make purchases on an NFT that may become valueless once others realize it’s a counterfeit.
How to avoid this NFT scam: If possible, look for a blue verification tick on the selling page to verify the project’s credibility; otherwise, only use links provided in the project’s official Discord to navigate to the legitimate collection on the secondary marketplace.
Pump-and-dump schemes: Pump-and-dump schemes refer to when a large group buys up a small, illiquid NFT collection thus artificially driving up the demand and price over a short time span. Once it gains enough attention, unsuspecting investors will start to believe that the NFT collection has value and popularity. When enough unsuspecting investors start to make purchases, the original group will take profits and tank the price of the collection.
How to avoid this NFT scam: Review the price history of the desired NFT collection and identify any red flags that indicate that its growth is purely artificial.
Investor scams: Investor scams are common because of the relative anonymity of the NFT space. Scammers use this to their benefit by creating projects that seem to be worth an investment and then disappear with the funds they collected from interested people. This scam happened recently with an NFT developer referred to as “Evil Ape” who collected almost $3 million in investments before disappearing from the Evolved Apes project.
How to avoid this scam: Make sure you can verify the creator behind the project, and see if you can identify any prior complaints in regards to how they deal with others.
Customer support impersonation: Scammers will use the questions NFT owners have against them by posing as customer support staff for blockchain marketplaces and reaching out to unsuspecting buyers through Discord or Telegram. These scammers create fake links for people to connect to and ask for personal information before resolving their problems by gaining access to their targets’ cryptocurrency wallets.
How to avoid this scam: Access a specific Telegram or Discord server via the NFT creator’s official webpage or social media account.
Why are NFT Scams so Common?
The NFT space is still in its experimental stages; it offers no overarching community support and no governing authorities to report your losses. Yet the space still generated billions of dollars. The decentralization aspect makes the NFT space an ideal breeding ground for scammers.
Additionally, the NFT industry is built on a strong sense of community, meaning that most NFT projects are supported by large Discord or Telegram groups that connect NFT holders and prospective buyers. Social media sites like these make it easy for anonymous scammers to infiltrate conversations and manipulate unwary holders. All it takes is one momentary lapse in judgment to compromise your beloved NFTs.
How to Avoid NFT Scams
Blockchain technology provides autonomy, transferring responsibility from intermediaries to users. Assuming the infrastructure is free of issues, if you lose your funds by mistake it is your fault. With freedom comes responsibility; however, many users are unused to not having a safety net. As a result, it is best practice to assume everyone is a scammer until proven otherwise.
Do your due diligence, try to avoid opportunities that are too good to be true and never share personal information or wallet information with anyone.
How to Keep Your NFTs Safe
securely through Ledger Hardware Wallet’s
Launched in 2014, Ledger has transformed into a fast-paced, growing company developing infrastructure and security solutions for cryptocurrencies as well as blockchain applications for companies and individuals. Born in Paris, the company has since expanded to more than 130 employees in France and San Francisco.
With 1,500,000 Ledger wallets already sold in 165 countries, the company aims at securing the new disruptive class of crypto assets. Ledger has developed a distinctive operating system called BOLOS, which it integrates to a secure chip for its line of wallets. So far, Ledger takes pride in being the only market player to provide this technology.
- ERC-20 tokens
- All experience levels
- Easy to set up and use
- Supports more than 1,500 different digital assets
- Tamper proof
- Long-lasting battery
- Bluetooth connectivity features
The safest place to store your NFTs is in a cold-storage hardware wallet like Ledger. Hardware wallets are protected by a password and seed phrase, and they remain offline, meaning hackers can’t gain access to your account remotely.
Are NFTs a Good Investment?
While it is true that the majority of NFTs today will phase out in the long run, several NFT use cases have the potential to redefine the global digital economy. While Web 2.0 introduced the participatory web, it allowed a handful of tech giants to control and monetize personal data. NFTs extend Web3 and have the ability to drive value by redistributing the power of ownership to creators and the community. A few interesting examples include:
- Medical records and identity verification: NFT ledgers can store an individual’s medical records without compromising confidentiality.
- Gaming industry: NFTs can be integrated into the gaming world by allowing NFT cross-platform playability. Without intermediaries, gamers will be incentivized to keep playing if they own their characters and items within it — games like Axie Infinity are already implementing these principles.
- Intellectual property and patents: NFT tokens allow users to prove their ownership of a piece of content.
Bottom line, investing into an asset just because it is tokenized as an NFT is not a great idea. NFTs themselves are not investments. As an investor, you need to understand the value of the underlying asset that NFT represents before purchasing.
An NFT is a unique digital asset waiting for a given purpose. Inherently, they are not scams; however, they can be used by malicious users to facilitate scams.
A common way people get scammed is by purchasing or selling illegitimate NFTs from an entity that pretends to be a verified NFT collection. Impersonating another entity’s or individual’s legal identity is illegal.