It is no secret that non-fungible tokens (NFTs) are taking over the crypto market. In December 2021, Vignesh Sundaresan, an Indian cryptocurrency investor, bought an NFT artwork (by artist Beeple) titled ‘Everydays – The First 5000 Days’ for a whopping price of 69.3 million USD.
For the uninitiated, NFTs are unique digital assets that are only available on blockchains and cannot be copied. Although NFTs have been around for a while, their popularity skyrocketed in 2021, and the trend quickly spread after Sundaresan, also known as Metakovan, shelled out an astounding amount for Beeple’s NFT.
The global NFT market had a trading volume of over $40 billion in 2021, and it is projected that its size will increase from $1553.6 Million in 2021 to $7390.8 Million by 2028, at a CAGR of 24.4% during 2022-2028.
As NFTs have continued to attract investor interest, unfortunately, they’ve also caught the attention of fraudsters. The lack of regulation in the NFT market has made it a prime target for various types of scams. Here are some common NFT scams to watch out for.
Common NFT Scams
- Plagiarized NFTs
Yes, this sounds much like an oxymoron! The very essence of NFTs is that they are unique and cannot be replicated. However, there have been instances when scammers have sold counterfeited NFTs.
In January 2022, OpenSea posted on their Twitter handle: “Over 80% of the items created with this tool were plagiarized works, fake collections, and spam.”
Always verify the authenticity of an NFT before actually investing. Otherwise, such a purchase will tank the worth of your NFT and prove to be a loss for you.
In NFT marketplaces, phishing scams are designed to acquire a user’s wallet information through pop-ups, direct messages sent to your Discord account, or emails delivered to your mailbox. All of these will take you to a fake NFT marketplace. Once scammers have access to this private data, they can empty any NFT collections stored in the digital wallet.
A recent scam to quote would be when an estimated $650,000 was drained from NFT investor Domenic Iacovone’s OpenSea account, including several Mutant Ape Yacht Club collectables, on 14th April 2022.
- Airdrop of NFT Giveaways
This type of scam occurs when the scammers ask you to promote an NFT collection in exchange for a free NFT. They will ask you to provide your private wallet keys and promise to deliver the prize. However, no NFT is gifted. But the fraudsters compromise your private information and your NFT collection.
- Bidding Scams
Bidding scams usually originate in the secondary market. When you take your NFT to resell, bids are placed to buy it. You lock the bidder with the highest bid and decide to sell your NFT. In such scams, the cryptocurrency used for bidding is changed without bringing it to your attention.
For example, if you sell an NFT for 50 ETH, you can expect a payment of around $71,000 per current price. But the scammer might switch the mode of payment to another crypto, say Dogecoin. In such a case, the amount you receive will roughly be $3.27.
Hence, it is always advised to check the currency in which the transaction would occur.
- Pump-and-Dump schemes
A pump-and-dump scheme is where the price of an NFT is deliberately inflated. A person or a group of people buy a large number of NFTs and then resell them to themselves to spike their worth. Celebrities and social media influencers further augment the hype.
In a nutshell, the value of an NFT is “pumped”, which makes it difficult to ignore and then “dumped”.
Eventually, people fall into the trap of worthless assets.
- Rug Pull
In a rug pull scam, a creator or influencer raises money from the public in the name of a crypto token and then disappears without any trace.
A very popular rug pull scam was the Squid Game crypto scam in 2021. A group of developers solicited funds for the development of a Squid Game token – ‘Squid Coin’. Very soon, they canceled the project and vanished with 3.3 million USD.
How to avoid NFT scams?
- NEVER share your wallet details. Your cryptocurrency wallet details, recovery codes, seed phrases, and other sensitive data are exclusive to you. Never share it with anyone. You may also consider switching to a cold storage wallet to help you keep your digital assets offline.
- Create strong passwords. Use strong passwords for your NFTs and crypto-wallets. To add an extra layer of protection, enable two-factor authentication. You can also opt for fingerprint and facial recognition to stay extra secure.
- Do your Research. Before investing, it is important to thoroughly investigate the seller’s NFT marketplace. Check their identity, social media profiles, other listings, history, and blue check verification mark.
- Do NOT click on pop-up links. A pop-up link on your web page or your mailbox can be a potential trap. If you see an opportunity, check the site through your search engine. Clicking on such a link might give out private information which can be compromised.
- Use VPN. You can switch to a Virtual Private Network (VPN) to anonymize and encrypt your NFT traffic.
- Compare NFT prices. If you are interested in an NFT, check its price across all the marketplaces. Prices too low or too high from the authentic spaces need to be dealt with extra caution.
- Stick to reputable marketplaces. OpenSea, Axie Infinity, Mintable, and KnownOrigin are some of the reputable and legitimate places to buy and sell NFTs. Stick to such marketplaces and steer clear of any trade or transaction that seems shady.
The bottom line
NFTs are extremely valuable assets today. As long as you’re careful, do your own research, and stay away from anything that seems suspicious, you can successfully avoid falling prey to NFT scams.