NFT Scams: What is it? How to Avoid Them?
The billion-dollar NFT industry has everyone intrigued. In 2021, NFT sales hit an astonishing USD 24.9 billion. It’s a significant rise from USD 94.9 million the year before. As the popularity of tokenized digital assets sweeps the crypto world, investors need to be cautious about their NFT investments.
Recently, there have been multiple instances of fraud where scammers have stolen millions of dollars from unsuspecting investors. The NFT community and market have encountered a growing number of scams and phishing incidents. Factors like lack of regulations and limited information have fueled rampant scams and fraudulent practices.
Let’s break down the different types of NFT scams and how to avoid them so that you don’t lose your money to cybercriminals:
Are NFTs a Scam?
The term non-fungible tokens were virtually unknown before 2019 although they have been around since 2015. After the record-breaking sale of Beeple’s “Everydays- The First 5000 Days” at a Christie auction, the popularity of NFTs grew massively. Big names, including global corporations (Nike, Samsung, Coca Cola, etc.) and celebrities, released their own NFT collections in the market, hoping to replicate Beeple’s success.
While NFTs have gained massive popularity in the digital space, many people are still skeptical about spending money on intangible digital items. Cynics are convinced that NFTs are a digital bubble that will burst sooner or later. NFT use cases are still in development. Therefore, it’s difficult to predict how NFTs will transition from the niche art world and apply to different industries and ecosystems.
Another big reason for apprehension in NFT adoption is the growing number of scams. According to a recent report by OpenSea, almost 80% of the NFTs minted through their platforms are fakes, scams, or plagiarized works. There have been multiple instances where scammers have stolen millions of dollars worth of NFTs from unassuming users.
While there are numerous fake websites and hoax NFT drops, not all NFTs are scams. Verified marketplaces like UPYO take necessary precautions to ensure that the collections they endorse are original and genuine. Buyers must be careful when investing in tokenized assets to avoid falling prey to these scams.
What are the Most Common NFT Scams?
Below are the top 8 NFT scams that consumers must avoid:
- Counterfeit NFTs:
An increasing number of cybercriminals are stealing artwork from creators and selling plagiarized NFTs on various marketplaces. Scammers put these inauthentic assets on auction for unsuspecting customers to purchase. These counterfeit assets have no value once it’s revealed that they are counterfeit. There is no way to get your cryptocurrency back once you invest in a fake NFT.
It’s vital to understand that minting a digital asset or file does not create a new piece of intellectual property or grant you ownership of it. Instead, the minting process converts a digital file into something that can be stored on a blockchain network.
The reason the market is flooded with counterfeit NFTs is that it’s very easy for people to mint an asset on an NFT platform. Even if a person does not have intellectual property rights to an image or artwork, they can mint the asset in a marketplace. However, any non-fungible token that has been stolen from an artist doesn’t hold much value in the crypto world.
- Phishing scams:
Phishing scams aim to steal users’ crypto wallet information such as seed phrases and private keys through fake pop-ups. If scammers get a hold of your wallet details, they can steal your cryptocurrency and any NFT collection stored in it. The most recent phishing scam targeted MetaMask users. As per the recent report by Check Point Research, MetaMask users have collectively lost approximately $500,000 in phishing attacks.
Scammers post phony advertisements on platforms like Discord and Telegram to attract users. When you click on these links, you’re asked to provide your secret seed phrase, which the scammers use later to steal your tokens.
- Fake websites:
Scammers with advanced skills are capable of creating fake websites and marketplaces that replicate real ones. Most of these fake websites are incredibly detail-oriented and well built, so much so that even experienced NFT users face difficulty distinguishing between legitimate websites and counterfeit. Fake websites sell plagiarized NFT collectibles; therefore, investors may lose thousands of dollars on fakes that have no resale value in the market.
- Bidding scams:
Bidding scams are common in secondary marketplaces where NFTs are resold to the highest bidders. What happens in a bidding scam is that once an NFT is sold, scammers who pose as genuine bidders change the cryptocurrency to one with lower value without any prior notice. This prevents owners from earning the agreed NFT price.
- Fake brands:
A common NFT fraud is the impersonation of famous brands. Scammers pose as the original brand and sell fake NFT projects to investors. They meticulously develop their fake brand to replicate the real one. With so many renowned companies launching their own collections, it’s essential to verify the authenticity of the NFTs before buying them from a marketplace. Once they manage to sell their counterfeits, the scammers vanish without a trace leaving collectors with a loss.
- Rug pull:
Scammers sometimes leverage new NFT projects to get customers to buy fraudulent NFTs. This trick is called an NFT rug pull. Cybercriminals start new projects with no intention of seeing them through. They purposely create a seemingly authentic NFT, but it turns out to be unsellable. The NFT owner then discovers they paid a high price for an item that would not appreciate as much as they expected.
- Direct messages and email scams:
Scammers sometimes contact prospective purchasers, claiming to have knowledge about NFT drops. The majority of them occur on social media sites where you receive anonymous direct messages informing you that you have won rewards. Investors should avoid these messages and emails since they are deceptive. The email or direct message will ask you to click on a link, and if you do, the hackers will gain access to your information.
- Pump and dump schemes:
Experienced NFT fraudsters use a tactic called “pump and dump” to artificially raise the price of an NFT. Pump and dump schemes are inspired by securities fraud. They accomplish this scam by placing multiple bids in a short period of time to give the impression that a specific NFT is popular. When they successfully drive the asking price, they usually cash out. Later on, buyers come to the realization that the NFT they bought is not nearly as valuable as they thought.
How to Identify an NFT Scam?
The only way to identify NFT scams is to stay vigilant. You must act responsibly and do your research before investing in an NFT project. It helps to be part of online NFT communities to verify the legitimacy of new NFT drops from artists. This is especially critical if you’re purchasing assets from an unknown seller. Cautious collectors only invest what they are willing to lose. This way, even if they get scammed, it doesn’t financially ruin them.
How to Safeguard Yourself From NFT Frauds?
Follow the steps below to protect yourself from NFT frauds:
- Avoid suspicious links:
The first rule of the internet is to avoid suspicious links and pop-ups. More often than not, these links are designed to steal your personal information. Phishing emails sent by hackers can easily steal your wallet details and take your money.
- Avoid easy passwords:
The biggest mistake that NFT users make is to set easy-to-guess passwords for their NFT accounts and wallets. These passwords can be decoded with little effort, leaving owners vulnerable to fraud. Once fraudsters have your passwords, they can bar you from accessing your account. Therefore, you can lose all your cryptocurrency and NFTs.
- Enable two-step verification:
Secure platforms always offer a two-step verification process to their customers. It’s vital to enable this feature to protect your account from hacking. Most notable wallets are equipped with two-step verification methods like facial recognition and fingerprint scanning, making it impossible for scammers to impersonate your identity.
- Use verified NFT platforms:
Verified NFT marketplaces take every precaution to prevent the buying and selling of counterfeits. Therefore, it’s safer to buy from or sell on these platforms. Moreover, if you’re buying from a seller, always confirm the authenticity before putting down an offer.
- Never disclose your seed phrase:
Your seed phrase should be stored securely such that only you have access to it. Any website or email that asks you to disclose your seed phrase is probably fake. If scammers discover your seed phrase, they can steal your tokens and lock you out of your account. Therefore, never share your seed phrase with anyone.
- Cross-check NFT prices before buying:
Given how typical pump and dump schemes are, it’s essential to verify the price of an NFT on official NFT marketplaces. If the price looks to be far cheaper than what is published on an actual NFT trading platform, it is most likely a hoax.
Since NFTs are a new concept, most people are still trying to figure out this crypto ecosystem. Cybercriminals leverage the lack of general awareness to trick buyers and sellers of their hard-earned money. Scammers have minted millions of dollars out of investors’ pockets in the last year alone. Though scams are prevalent in the NFT space, investors can avoid these schemes by implementing basic cybersecurity practices.
Whether you wish to learn about NFT, Blockchain, Web3.0, Metaverse, or other emerging technologies, we have the vital resources that will enlighten and help you make an informed decision.
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