Nonfungible tokens (NFTs) are taking the digital world by storm with people making money and trading these digital assets. With this high-profile billion-dollar industry, there comes the opportunity for fraudsters to enter marketplaces and take advantage of a growing market of consumers. Many consumers are purchasing NFTs for the first time. As a result, they may not be aware of the fraud risks associated with these marketplaces.
NFT scams either deceive people out of money directly or get credentials to access a person’s digital wallet or cryptocurrency wallet. Unfortunately, recovering lost money or stolen digital wallet credentials is hard after a scam.
Here are some of the common NFT scams to watch for:
1. Rug pull
Scammers pull buyers in by promoting a fake NFT project or collection and promising them that they will make money. The scammers hype this asset on social media, but after it is purchased, all the promotions and any unfulfilled promises go away. This causes the value to drop drastically. The scammers also remove the ability to sell this NFT.
2. Phishing
Phishing may be an old scam, but it’s still popular. Typically, a phishing scam involves phony advertisements, emails, and pop-ups taking people to a fake website. The fake website then requests users’ private wallet keys to gain access to their digital wallets. Once scammers get a hold of this private information, they can deplete any NFT collections or cryptocurrency in the digital wallet.
3. Social media impersonation
Cybercriminals create online social media profiles to convince people to buy fake NFTs. They use social media to make their fake websites look legitimate.
4. Pump and dump
A pump-and-dump scam happens when a group buys a large amount of cryptocurrency or any other currency to drive the price up for demand. After the price increases or is pumped up, the group then sells or dumps the asset to cash in on the gains, and everyone else loses out.
5. Counterfeit NFTs
Scammers may steal or copy artwork and then list this counterfeit content on legitimate sites, such as OpenSea. Because it was stolen, copied, or fake, the NFT has no value. The person has already purchased it before realizing it is counterfeit.
Recognizing Scams:
Navigating the world of Non-Fungible Tokens (NFTs) requires vigilance and a solid understanding of potential scams. Here’s a guide to help you recognize and protect yourself against NFT scams:
1. Fake Platforms:
- Be cautious of unknown or newly established platforms. Stick to well-known and reputable NFT marketplaces.
- Check for secure website connections (https://) and verify the website’s legitimacy.
2. Impersonation:
- Verify the authenticity of the artists, creators, or platforms through their official social media accounts and websites.
- Watch out for fake accounts or profiles pretending to be legitimate artists or platforms.
3. False Promises:
- Be wary of exaggerated promises of quick and guaranteed returns on investments. NFT values can be volatile.
- Avoid projects that promise exclusive access or high profits without a clear value proposition.
4. Plagiarism:
- Research the history of the NFT and the associated digital assets. Ensure that the content is original and not plagiarized.
- Verify the provenance and authenticity of the digital art.
5. Unrealistic Discounts:
- If an offer seems too good to be true, it probably is. Unrealistic discounts or giveaways may signal a scam.
6. Hidden Fees:
- Read the terms and conditions carefully before engaging in any transaction. Some scams involve hidden fees or unclear terms.
Security Measures:
- Use reputable NFT marketplaces: Choose established platforms with strong security measures and user verification processes.
- Store your NFTs in a secure wallet: Hardware wallets offer the best offline protection. Avoid using online wallets for long-term storage.
- Never share your private keys or seed phrase: This information grants access to your entire wallet, not just specific NFTs.
- Be wary of unsolicited links and messages: Don’t click on suspicious links or download attachments from unknown sources.
- Do your research: Before buying an NFT, research the artist, project, and community. Read the smart contract, understand the utility of the NFT, and check the project’s website and social media for red flags.
- Stay informed: Keep yourself updated about the latest scam trends and security best practices. Follow reliable sources and experts in the NFT space.
As the NFT market matures, it will become increasingly important for banks, card networks, and merchants to work together to develop frameworks for handling disputes related to NFTs and other ephemeral digital assets. By staying informed, verifying sources, and adopting secure practices, you can minimize the risks associated with NFT scams and enjoy a safer experience in the NFT space.
