Looking at the trend since 2021, we know how non-fungible tokens (NFTs) have emerged and boomed into a multi-billion sector in the crypto universe. The top collector items, like the rarified pieces from the Bored Ape Yacht club and the Cool Cats collections, would cost you over $30,000.
While it might seem like a lot for a JPEG, NFT creators would counter your argument with one word: utility. With the NFTs, you gain an ingrained record of your ownership on the blockchain. Additionally, ownership of these tokens would also serve you as the membership ticket to some exclusive online clubs, discord chat rooms, gaming communities, interactive experiences, etc.
While all this might sound tempting in theory, in reality, NFTs are still quite new and messy in certain aspects. Keeping aside the benefits, it also attracts various types of scams. These scams are unfortunate yet natural side-effects of the increasing interest in this sector. NFT scams are similar to the crypto scams that occurred during the bullish market trend, where people lost approximately $14 billion yearly.
However, scams should not prevent you from investing in this sector. You can easily learn how to spot a scam and prevent yourself from getting into such traps. In this article, we will help you with that. We have come up with some of the most common NFT-based scams and have mentioned ways by which you can protect yourself from those.
Before we get into it, we must understand that as long as there is a situation where profit can be made, scams will exist. Crypto-based scams and other illegal blockchain-related activities are nothing new. This sector is no different from other finance-related sectors. There are various reasons why scams are increasing in the case of NFTs.
As compared to any other blockchain-based concept, NFTs have gained more success in gaining popularity amongst the mainstream public. As recorded in 2021, there were approximately 280,000 buyers and sellers of NFTs and around 185,000 unique wallets. Since most of these users are new to the crypto universe, they are more likely to fall victim to these fraudulent activities.
2021 witnessed the global sales of NFTs rising to their all-time high. Unfortunately, along with it, google searches for 'NFT scams' also reached their peak.
One common place where users fall victim to such scams is that they are unaware that if they get an NFT containing an image that doesn't declare their actual ownership. They wouldn't be able to use that image commercially or reproduce it in any way. All they get is the ownership of the record of their purchase on the blockchain. Other people can also purchase the record of the purchase of the same image. Due to this, it is difficult to regulate the NFT market the way a classical art market is regulated.
For instance, you will be charged with legal penalties if you steal a Van Gogh painting. The dealers of art and enthusiasts look for the originals. Only a very small, tightly-knit community forms the classic art world.
In the case of digital artists, NFT greatly assists as it creates scarcity and allows buyers to purchase and own unique digital files. However, issues like the resource cost of blockchain transactions and the multitude of hustles and scams are yet to be addressed and resolved. As of now, we can better understand the scams, their types, and ways to prevent ourselves from falling into the trap.
With the start of the bearish trends from early 2022, and the rampant fraudulent activities and scams, google searches portray that the interest in NFTs, Bitcoin, other crypto assets, decentralized autonomous organizations, and other Web3-based innovations has been cooling down.
Several incidents of NFT scams have recently come into the news. These include the one where Todd Kramer, a New York-based art collector, was ripped off of NFTs worth o$2.2 million in January. A month later, NFTs estimated worth around $1.7 million were stolen in an alleged phishing scam that took place on the world's largest NFT market, OpenSea.
Users of Metamask, one of the most popular crypto-wallet, have been reporting unauthorized transactions from time to time. In fact, within a quarter in 2021, MetaMask users were reported to have lost approximately $500,000 in a targeted phishing attack.
Dan Ives, a tech analyst at investment firm Wedbush, says that this downward NFT trend will likely continue throughout 2022. He stated, "It's been a very slow start for the NFT market in 2022 with some major growing pains ahead. Along with a handful of high-profile scams, there has been a black cloud over the NFT market. Some bad actors have taken the bloom off the rose."
If we talk about the NFT rug pulls, one of the most notorious examples is the "Squid games" rug pull in 2021. Here, a group of developers, totally unrelated to the Netflix hit, created a P2E crypto-card game. The team asked public investors to purchase a "Squid coin" to fund its development. At the time, the coin gained its peak value of $2,860. Later, these creators abruptly halted the project, citing "stress." They disappeared with a total of $3.3 million from the wallet.
Such rug pulls are a familiar means of scamming users. The scam isn't even innovative. However, they do scale well. The users should be specifically aware of the small-scale schemes, as there have been numerous instances where the same scammers have carried out the rug pull.
Talk about a project that is worse than the ones that are not realistic. It's the NFT that wants people to pump money into it, leaving them with no return on the investment. Otherwise referred to as the pump and dump schemes, these are quite predictable in the crypto and NFT universe.
In these scams, a group makes misleading statements or misrepresents the investor demand for the currency or NFTs and conduces in an artificial hike in demand. Once this happens, these scammers sell off these currencies or NFTs at high prices and leave others with assets of no value.
This scam method is also common in cryptocurrency trading, where scammers engage in wash trading. Here the buyers and sellers of an investment come together to artificially inflate the value of the investment and make it appear as if a major outer interest exists. Sometimes, the buyer and the seller are the same person or organization. As the currency of the NFT seems attractive to naive traders, they invest in the deal, thinking that it is profitable and that the price will increase further.
How Can You Avoid This Scam?
To save yourself from falling for such scams, you should start by checking the history and wallet records for the project. OpenSea or any other NFT marketplace would let you see the total number of transactions and buyers purchasing these NFT collections.
Apart from this, make sure you follow the project on social media. Go through their Twitter, and join their Discord server. Make sure you invest in a project only if it has a lot of investors and collectors. This would mean that the collection has good liquidity, artistic value, and a long-lasting community.
Plagiarized or counterfeit NFTs have recently become quite popular. The reports of NFT theft have considerably increased, with Artists having their works copied. Minting an artwork as an NFT is not the same as having intellectual property ownership of it. With beginner-friendly software like that of OpenSea, anyone can convert any image into an NFT whether or not they have ownership rights to that intellectual property.
Now, the scammers or the bad actors use these platforms to steal any artist's work easily and then create a fake OpenSea account where they enlist these counterfeit artworks for an auction. So basically, you would own a valueless NFT once the community finds out what the scammer is up to. To add to it, there is no way you can get your money back.
One such popular online community is DeviantArt, with over 70 million members and over half a trillion pieces of art. Several artists have claimed that they have fallen victim to theft. To regulate, DeviantArt has launched a new tool that would scan public blockchains and third-party marketplaces. If there is a possibility of an art piece being fraudulent, it alerts the members of it. As per the statement given by the company executive, DeviantArt has sent over 90,000 alerts regarding possible frauds or NFT violations.
How Can You Avoid This Scam?
Before purchasing an NFT from any marketplace, thoroughly research and ensure that your artwork is from a verified account. On OpenSea or other NFT marketplaces, a blue checkmark next to the artist's profile picture indicates that they are verified.
In case there is no such checkmark, you can find the artist on Twitter or through their other social media channels or websites and ask them directly if the artwork you are willing to purchase is theirs and if the user profile you have is the right one. You can also look if the given NFT project has a Discord channel and ask others in the community to verify the information and details.
To make NFT purchases, you must sign up for a crypto wallet that can transact on the Ethereum blockchain. One of the most popular Ethereum wallets for NFT collectors is MetaMask. However, the users of Metamask were targeted in a phishing scam, where the scammers used sham ads. Through these ads, they asked the users to give out their private keys or the 12-word security seed phrases. To add to it, there were numerous fake pop-ups through Discord, Telegram, or other such public forums. These pop-ups are linked to any 'seemingly genuine' login pages like MetaMask, or other popular websites.
Through a phishing attack, if the malafide actor gets hold of your personal information, they would easily drain your digital wallet. "CryptoBatz," a collection of 9,666 digital bats by Ozzy Osbourne, was also subject to this attack. Merely two days after they issued the tokens, several supporters started being targeted with the phishing scam. The criminals drained users' cryptocurrencies from their wallets through this phishing scam.
How Can You Avoid This Scam?
The best way to avoid such scams is to ensure that you keep your personal information private. All you need is your seed phrase to create a hardware backup of your crypto wallet or to recover your wallet. Under no circumstance should you enter this information into a MetaMask pop-up or any other pop-up. For any cryptocurrency transaction, you should avoid using links, pop-ups, or emails to enter your details. Instead, it would be best to go directly to the verified websites. Jot down your seed phrase on a piece of paper, and ensure that you never give it out to anyone. Don't even store it in your phone in any way.
As NFT sales take place virtually, all the marketing and promotion are led via social media platforms. Popular NFT communities generally hire social media influencers or celebrities to carry out their promotional campaigns. However, with our finite knowledge about the project's marketing information, we are likely to fall for fake endorsements. Before we even realize that the supposed influencer or celebrity brand ambassador is not involved, several people might lose money.
How Can You Avoid This Scam?
To avoid falling into the trap of fake endorsements, thoroughly research the project and check if the celebrity endorsement is the real deal. If you ever receive a direct message from anyone claiming to be a founder, celebrity, or influencer, DO NOT respond.
In the world of NFT, it is a commonly known etiquette that a C-level staff will never initiate a direct message unless you DM them first or enter a specific agreement at a public Discord channel or Twitter thread. In the NFT world, you must adhere to a simple rule- if someone DMs you first, don't click on the link or reveal any personal information.
Mostly, the bidding scams take place in the secondary market after you have purchased an NFT and want to resell it to the highest bidder. When you list your NFT for sale, these bidders might switch up the cryptocurrency used without informing you. As a result, the NFT that otherwise would have fetched you 5 ETH (approximately $12,000 as of today's value) might end up granting you merely $10-$15.
How Can You Avoid This Scam?
Make sure to double-check the currency used, and never accept a bid that is lower than what you want.
These criminals often indulge in NFT scams where they create websites that would have a resemblance to some well-known NFT trading websites. They lure you into creating accounts on these websites or purchasing NFTs from these websites. Once you get on their website, they trick you into compromising your account information and all related personal details.
This method is often used by skilled NFT scammers who can work on every single detail. Due to the level of relevant details, it is often difficult for even a highly experienced NFT owner to tell the difference between a legitimate website and one that is impersonated. Many users have ended up spending thousands on counterfeit NFT via these scam websites
How Can You Avoid This Scam?
To avoid such scams, verify the URL of the NFT marketplace website you use before indulging in making purchases and logging in.
This type of scam works more or less like a phishing scam. Here the bad actors masquerade as the customer or tech support staff for various NFT projects and blockchain marketplaces. They try to reach out to unsuspecting targets via Telegram or Discord to establish contact with them and lure them into giving out their sensitive and private information.
For this, under the guise of executives who are helping them resolve the issues, these scammers send the target users the links that would lead them to an official-looking website that is fake. Through this website, they make you share your personal credentials. Alternatively, they might also ask them to share their screen with them so that they can resolve the issue. However, what they actually want to do is to see and screenshot the cryptocurrency wallet's credentials.
How Can You Avoid This Scam?
To avoid falling for such scams, steer clear of such personal messages on social media apps or websites. Do not click on these links and approach such messages with incredulity. Access a specific telegram channel or Discord server through the official webpage or the social media account of the NFT creator.
Obviously, everyone wishes to get hold of the 'crypto fortunes'. Nobody wants to miss out on an idea that holds huge potential in the future. Due to this, the world of crypto, blockchain, NFT, etc. is the center of attraction for several big and small entities from several fields across the globe.
However, scammers and bad actors are also aware of how quickly this stream is drawing the attention of more and more people worldwide. These scammers just take benefit of this sentiment and instinct of the investors and use several tricks to make a profit by scamming those who are involved in the NFT marketplace.
While the number of NFT-based scams is increasing, you should still invest in this sector. All you have to do is be aware of the type of scams that exist, how you can identify if you are a target of these scammers, and how you can avoid getting scammed. Make sure you thoroughly research before indulging in any project, and be cautious if you are being asked to give out any information. Never give out your personal information, like account details, seed phrases, etc., to anyone.
There are various types of scams related to the NFT marketplace. The bad actors target the audience to give out their personal information or purchase fake NFTs or various other tricks to trick users into losing their assets. They may falsely pretend to be some NFT marketplace or customer support executive and trick you into giving out your information. They may also trick you into purchasing fake NFTs, or NFTs which are valueless, by artificially increasing the value of the said NFT.
Many people think that NFTs are scams or digital bubbles. This is NOT the case. NFTs are LEGIT. They have several uses and have the potential to gain value. If one can genuinely understand the purpose of the NFT, it can be a legitimate investment. However, NFTs manifest scams and bubbles. To avoid falling into the trap of scammers or such bubbles, potential buyers should carefully study the seller's offers and conduct thorough research on the project before committing to purchase an NFT.
There are several ways by which you can find out if the said NFT is real or not. One of the simplest ways to verify the authenticity of the NFT is to use Google's reverse check tool. With this, you can take out important information about any image, including when the image was first uploaded, for how long the image has been online, how many different variants of the image exist, etc. You can also scrutinize the Metadata of the NFT using a blockchain explorer like Etherscan or an NFT explorer like Solana explorer, etc.
As a matter of fact, NFTs can be faked, and several scammers often indulge in replicating popular NFT marketplaces like OpenSea, where they create fake NFT stores. They also sell artworks that aren't theirs; often, they are taken from sites like DeviantArt. Just like purchasing a physical artwork, you must ensure that the NFT is real. Make sure you perform thorough research and verification before investing in any NFT.