There was a noticeable increase in activity in the NFT market in 2020, with transactions in the millions of dollars’ worth of cryptocurrencies representing a 300% increase from the previous year.
Despite this, hundreds or even millions of dollars’ worth of cryptocurrencies are being driven by the market every day, providing enough opportunity for fraudsters and prompting many concerns about the security of this asset.
Formerly, thieves would have to get past many guards and cameras inside a museum before they could steal an artwork; now, malware and social engineering may be used to break into a digital wallet.
The NFT market is ripe for fraud of all stripes due to the absence of any meaningful regulation. Many businesses, including Adobe, are working on developing authentication stamps that may be used to confirm a token’s authenticity.
It’s a dynamic environment where users’ actions matter greatly, despite the presence of safeguards against fraud.
What are NFTs?
Let’s take a moment to stop and define non-fungible tokens (NFTs) before diving into the reasons why you should be wary of them.
A non-fungible token (NFT) is a digital asset that cannot be exchanged for other tokens. Most NFTs, like cryptocurrencies, may be stored on a blockchain and are distinguished from one another using identifying codes and information.
The Ethereum blockchain is widely used to facilitate NFTs. It’s important to remember, though, that alternative blockchains exist and do enable NFTs as well.
NFTs cannot be sold or exchanged for value in the same way as fungible tokens (such as cryptocurrencies and fiat currencies) may. So, you can’t utilize an NFT to make a commercial purchase of any kind.
As fungible tokens are interchangeable, it is possible to pay for an item with a huge number of the same token. If you can’t use an NFT to buy anything, there’s no use in having one.
NFTs Explained
An NFT is a virtual token used to represent an asset. The asset in question need not be specified. Assets can be either virtual, like artwork posted online, or physical, like a house.
Video game products like digital collectibles and avatars are a popular kind of NFTs, but you may also come across other forms, such as event tickets and domain domains.
If you’re a creator, you should know that NFTs offer you a new and potentially lucrative way to make money off of your creations. NFTs have liberated creatives from the monopoly of traditional distribution channels like museums and auction houses.
Instead, they can convert their works of art into NFTs, sell them on an NFT marketplace, and make a substantial profit almost immediately.
To ensure that they continue to earn money from the sale of their work even after it has been purchased by another person, artists can set up royalties in an NFT. Artists, who often don’t benefit from more sales, will find this to be especially helpful.
Buyers may get their hands on an asset with potential future value quickly and easily using NFTs (although there are no guarantees).
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How Do NFT Scams Work, Anyway?
The goal of most NFT scammers is to gain access to your NFT funds. They accomplish this by employing a wide range of phishing scams in an effort to trick you into divulging your secret wallet key. Scammers will empty your account before you have time to realize anything is wrong.
Scammers will take advantage of people’s FOMO and desire for rapid profits by creating a false or worthless NFT project if they are unable to obtain the login data of existing NFT holders.
Basically, the crooks disappear with the money once the NFT takes off and investors start pouring in.
Most Common NFT Scams
NFT marketplaces are increasingly accustomed to holding auctions with millions of dollars at stake. As a result, wealthy individuals are pouring their money into digital artifacts in the hopes of becoming extremely wealthy very rapidly.
Auction houses such as Sotheby’s, Christie’s, and OpenSea are successful because of the exclusive items they provide to potential investors.
Despite the remarkable growth of NFTs, scammers in the industry are continually thinking of new methods to trick unsuspecting investors.
Rug pulls
The NFT market has acquired a classic crypto fraud. Rug pulls are prevalent because of the scam’s most advantageous trait: by the time the victim realizes what happened, it’s already too late.
The fraudsters will create a lot of buzz about the idea, try to get you to invest, and then suddenly stop working on it.
Once they have “drained the investors” to their complete satisfaction, scammers typically vanish from online markets and social media after removing all of their money from an NFT wallet.
Fake NFT marketplaces
Common NFT marketplaces like OpenSea are regularly cloned by fraudsters who set up phony NFT shops.
Even a seasoned NFT buyer may be duped by the authenticity of these sites, which can seem nearly identical to the originals, into purchasing a phony artwork for a high price when it is actually worthless.
So, how can you stay alert and not get taken in by this sophisticated con?
The first step is to learn as much as possible about the NFT you plan to use. Several fraudulent online marketplaces sell NFTs for tens of dollars when their true market value is in the hundreds of thousands.
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Pump-and-dump scams
One or more people acquire a big quantity of NFTs (or cryptocurrencies) and then resell them to themselves, creating a false impression of huge demand for the asset. In this approach, the competitive nature of the market will boost revenues from resale.
For potential purchasers, this plan gains credibility via the endorsement of influential people who promote the NFT via their social media platforms. The victims’ hopes of making a profit by reselling the item at a higher price are dashed once the con artists make off with their money.
Social media impersonation
The screenshot above was taken from the official Larva Labs Twitter account. Yet, fraudsters frequently create phony versions of well-known NFT accounts that seem quite similar to the originals.
Scammers utilize these false profiles to trick customers into buying their counterfeit NFT artworks. It’s just another method for them to make money off of forgeries.
Those who don’t know better might be seriously put at risk by the fraudulent social media profiles that hold giveaways. That’s something we’ll get to in a minute.
Checking for a verification tick next to the username is the first line of defense against these bogus accounts.
A lack of this checkmark isn’t necessarily a red flag, though, since some genuine NFT social media profiles don’t have it. Instagram is another popular platform for NFT scammers, so be wary of any profiles or messages that seem fishy.
It’s also a good idea to do a quick search for the NFT creator’s social media profiles on Google to check if there are any accounts with a similar name that have a significantly larger number of followers.
You may also discover whether this NFT maker has any further social media profiles by checking their other accounts.
Fake NFT artist accounts are just as likely to be found as phony NFT corporation ones. Fraudsters will pose as well-known NFT artists in an attempt to offer consumers fake reproductions of popular NFT artworks at much reduced costs.
Are NFTs a Scam?
Like vintage baseball cards, NFTs have the potential to become highly sought-after collectibles. Digital entertainment in the form of an NFT is possible; perhaps it is the priceless art of a fleeting instant.
Many people feel this is just a fad that will ultimately pop, and they may be right. Yet, it is premature to make such predictions at the present moment, as business is thriving.
Because to the complexity of security and compliance, NFTs can be easily compromised. Coincidentally, the remainder of the neighborhood is still a bit unfamiliar with crypto, blockchain, and NFTs. There is heightened danger associated with the unknown.
Although NFTs are not a hoax, they may be easily stolen, and as the NFT market expands, so too will the number of assaults. Hackers, meanwhile, will become more ingenious and technologically savvy.
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How Do You Protect Yourself from Being Scammed?
While NFTs provide several chances for financial gain, they also present numerous dangers. It’s unfortunate, but scammers will never stop trying to take advantage of people in NFT marketplaces.
Researching projects thoroughly is so essential. Strong passwords and two-factor authentication should be used.
Be wary of taking any action on a government website. Before acting, be sure you’ve double-checked everything.
But, despite the potential for fraud, no one is willing to pass up a chance for financial gain. One’s investing style should prioritize caution above greed. By paying careful attention, individuals can lessen their chances of being duped by these scammers.
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