Stories of NFT Scams are in the news almost daily. Do you know what to look out for and how to avoid them? We got you covered.
Non-fungible tokens (NFTs) have undergone an explosion in their popularity since 2021. With sales volume touching the $24.9 billion mark last year – an incredible increase as compared to $94.9 million in sales the year before – NFTs are all the buzz right now, and perhaps rightfully so.
The fact that NFT creators can actually own their virtual assets is probably the biggest reason behind the success of this innovative technology. From visual artists to musicians to art collectors, everyone wants to jump on the bandwagon and profit from the ongoing NFT craze.
5 NFT Scams
However, as is common with all online industries, the NFT space is full of scams. As a result, NFT creators/owners have to take some extra steps to stay safe from these frauds and swindles. Following are five of the most common NFT scams that you should beware of.
1. The Infamous Rug Pull
One of the main objectives of blockchain technology is to allow users and NFT creators to make transactions and use the ecosystem without revealing their identity and personal data. Though it is a great solution for all the privacy concerns, frauds have learned how to use it to scam investors.
We have seen several incidents where malicious parties launch a project and work for months to market it. Using clever promotional tricks, they manage to create enough buzz around the project for investors to trust it. And just when people start putting their money into the project, the team behind it vanishes and slips away with investors’ funds.
Such scams are called rug pulls. According to the data compiled by Chainalysis, rug pulls account for 37% of the funds (about $2.8 billion) blockchain investors lost to scams in 2021. This figure seems much more frightening if you consider that the same statistic for 2020 was just 1%.
There are some red flags you can look out for to steer clear of rug pulls. For example, if the developers are not revealing their identity, it should serve as a big warning for you. Similarly, if a bonus offer feels too good to be true, do not fall for it. Because more than likely, it is just bait to make you join the project.
2. Phishing Beyond Emails
Emails have been used as a tool to scam people on the internet since they first originated on the scene. It is no different in the NFT world. These emails are curated by professional scammers who are extremely skilled at creating deceitful scripts.
A scammy email can be of many sorts. A fraudulent project may send you a mail asking you to fill out a form or agree to their terms & agreements to receive an airdrop of free NFTs. The language will be full of tech jargon and so difficult to comprehend that a normal person may never understand it. Scammers will use it as an opportunity to push you to agree to terms or give information you should not.
Another example can be the sender impersonating a famous NFT creator or other popular celebrity in the industry. The email may convince you to transfer your funds to an unknown wallet in return for even more lucrative rewards.
The best way to stay safe from phishing emails is to ask for help from a friend who understands tech-savvy lingo and knows how things work in the industry. Also, never share your credentials or authorization signatures with anyone.
3. The Bidding Switcheroo
Collectors often spend a lot of time keeping up with news regarding any upcoming NFT airdrops. It is a common practice that helps NFT creators market their projects, and collectors get these valuable assets for free.
However, many people who fail to benefit from these airdrops and giveaways head to the secondary marketplace to acquire these collectibles. Hence, selling those NFTs on these trading platforms can be highly profitable, but you need to be careful. You may encounter several scammers trying to get those NFTs for a lot lower than the actual price.
When confirming a trade, always check again to ensure that the currency you are receiving in exchange is the right one. Some malicious buyers bid with cryptocurrencies that will be much cheaper than your preferred option. For example, if you list an NFT artwork for 1.5 ETH (≈$3000) on a secondary marketplace, someone can offer to buy it for 1.8 tokens of another currency, such as EOS (≈2.25).
It requires a keen eye to notice and avoid such scams. Always double-check everything before you proceed with a transfer.
4. Forgeries and Plagiarized Content
Artworks have a huge market in the NFTs industry. Almost 16% of the global art market exists on blockchains in the form of NFTs. This is enough reason for a fraudulent person/team to use someone else’s artwork and cash it out by minting NFTs of it. They may not even consider giving credits to the original artist, let alone a share of the profits.
The issues regarding copyrights in the NFT industry have received a lot of media and public attention lately. The rising scams have led NFT creators and communities to create a Twitter page, NFT thefts, to hunt such projects down and make investors aware of them.
Another way to avoid such projects is to ignore NFT collections that use the lazy minting practices to lure you to save some bucks. Moreover, you can visit different marketplaces to ensure that the same artwork has not been listed twice or more.
Reviewing the ‘About Us’ section on the project’s official site can also help you notice some red flags. Similarly, you can inspect the community forums and discord servers to ensure the project is authentic and does not violate any copyright laws.
5. Pump and Dump Projects
Another common scam you will come across in the NFT industry is pump and dump projects. They have resulted in many crypto investors losing billions over the past few years. Unfortunately, the poison has also started infecting the NFT market.
Just like rug pulls, fraud NFT creators develop a fake project and then advertise it massively. They earn the investors’ trust and create a huge demand for the assets in the market. This pressure leads to a massive hike in the price, increasing the value of NFTs from a few hundred to several thousand dollars. But they keep the majority of the supply to themselves.
As soon as the price surges, the NFT creators sell all their holdings, increasing the supply in the open market. This causes the NFTs price to crash, and hence, investors lose all their money.
Properly researching the project you are about to invest in can save you from losing money in a pump and dump scam. Go through the roadmap, evaluate their progress, and ensure the objectives do not seem unrealistic.
NFTs are a great opportunity for creators and art lovers to buy and sell artwork like never before. It provides creators the global exposure to reach out to a massive audience. Collectors can explore several marketplaces and check out various artists with just a few clicks. However, it is crucial to be on your guard against online scams and phishing attacks.
NFTs could have lasting value but the jury is still out on which NFT projects (both present and future) are going to succeed and represent a solid store of value. Always use a reliable NFT marketplace when you’re ready to buy and do your research before you put any money at risk.
There are alot more NFT Scams out there. Here is one of the most recent scams on Opensea: Watch Out! The Latest NFT Scam on OpenSea
I write about blockchain, crypto, NFTs and other disruptive technologies and innovations.