Initially, NFT was designed with exclusively good intentions. Non-fungible tokens were supposed to help artists monetize and sell their artworks without a buying agent. And if initially, NFT seemed to be a new step in the development of digital art, today, unfortunately, the NFT phenomenon is increasingly being associated with a “bubble”. The unpleasant truth is that the NFT market is filled with scammers and fraudsters, which are harmful both to artists and buyers.
NFT still remains an unknown field for many, and this fear is understandable. Indeed, the development of Web 3.0 is bridging for users not only a better Internet of the future but also room for fraud and scam schemes. Nevertheless, it’s important to remember that it’s not the fault of NFT invention but cybercriminals. It’s like blaming the cars for the accidents on the roads. In fact, when something new becomes extremely popular, like decentralized finance (DeFi) or the latest version of Web 3.0, there are always risks.
Instead of just being afraid, it would be more reasonable to be able to recognize the danger. Understanding the most common types of NFT fraud should help you to avoid it. Let’s look at the common scam schemes related to NFT:
One of the most unpleasant types of NFT fraud is pump-and-dumps. This is a manipulative scheme to raise the value of a cryptocurrency with a subsequent price collapse. Large asset owners artificially increase (“pump up”, “pump down”) their value to sell later as much as possible to small traders. As a result, the value of the asset goes down, and hence, investors lose money.
NFT scammers often use false information to raise the minimum price of the NFT (it is a representation of the lowest price of a commodity updated in real-time) that a potential buyer is interested in. If the scammers succeed, they sell their goods and leave buyers empty-handed. This type of scam is very common in Telegram or Discord. Be aware: sometimes, even celebrities and influencers can actively promote such tokens. If such a celebrity writes to you in your personal message with the offer, most probably, it is a fraudster.
The second type of scam is an “old-good” fishing scam, which aims to get the user’s identity information. Scammers can use fake pop-ups to link to perfectly normal and not suspicious-looking pages (such as your crypto wallet). This often works for newbies, as they find it difficult to make a transaction, and without thinking twice, they accept the offer to invest in NFT. That is how they fall into the scammers’ trap. After the user inserts their personal data, the information immediately falls into the criminals’ hands.
This type of NFT scamhappens when someone tries to resell their own non-fungible token. When scammers achieve the highest bid, they switch out the cryptocurrency to one of lesser value.
Staying anonymous while selling or buying NFTs makes it easier to create investment scams. Criminals create a seemingly lucrative project for investment. Once scammers obtain the money, they disappear without a trace.
Another common NFT scam concerns intellectual property and copyright. For example, scammers simply take the artist’s work and turn it into an NFT. Buyers will think they are investing in original artwork and will bid high when, in fact, it is just worthless fiction.
The main problem with the NFT market now is that the platforms where artists (as well as scammers) post content for sale do not check the works for authenticity or establish copyright in any way. Theoretically, any user can collect pictures of different authors from the Internet and put them up for sale as a collection. Often, the illustrators are not even aware that their work is for sale; meanwhile, the scammers make money.
Now, since we know the potential danger, the next step will be to learn several rules on how to protect yourself from the scam schemes:
Watch your information security carefully. Keep your keys safe and private. Never share cryptocurrency wallet information with anyone. And, obviously, don’t put your personal information into various unverified pop-up windows.
Create strong passwords. It sounds trivial, but creating strong passwords for NFT accounts and cryptocurrency wallets is essential.
Don’t click on questionable links. This can be fishing or a virus.
Follow the news. Scammers never sleep and come up with new ways to still money.
Check NFT sellers. Before purchasing NFT, take a look at the seller’s NFT marketplace account. They must have a blue check verification mark. Also, it will not be superfluous to have a glance at the seller’s social media accounts and online reviews.
Cross-check NFT prices. Before buying an NFT, look at the trading platforms (Axie Marketplace, Mintable, or OpenSea). Prices must be similar. If the NFT price seems much lower or higher than on legitimate trading platforms, most probably, it is a scam. It’s always better to use legit NFT exchange markets, such as OpenSea, Rarible, Mintable, Foundation, MakersPlace, and Axie Marketplace.
Know what you’re doing and why you’re doing it. For example, before you buy an NFT, it would be wise to look at the entire history of transactions on it. In addition, find the creator's contact information and make inquiries about them. If all transactions were made around the same specific date, that should obviously raise some suspicions.
Many may say that NFTs are nothing more than overpriced PNG files that are simply a scam. But there is also an opposite view: NFT opens new horizons for artists and art buyers. Obviously, there is always someone trying to gain from NFT scams. But don’t rush to make certain conclusions that all NFTs are scams. After all, when we make an important purchase outside the Internet, there is always the risk of meeting unscrupulous sellers, right?