NFT Frauds: How to Avoid Them in 2023
Are you worried about the safety of NFT projects you’re looking into and want to know how to keep yourself from being scammed? It’s essential that we stay safe from these schemes, but it can be difficult to know how best to safeguard our digital assets. Luckily, with the correct information, sidestepping fraud is achievable. In this article, we will delve deep into what exactly these scams are, explore their mechanics and more critically provide helpful tips on evading them in 2023!
What are NFTs?
Non-fungible tokens (NFTs) are a form of a cryptographic asset created through the same type of coding employed for cryptocurrencies. In layman’s terms, this is powered by blockchain technology and signifies that NFTs cannot be interchanged or substituted similarly to other cryptocurrencies.
Unlike popular digital currencies, like Bitcoin or Ethereum, Non-Fungible Tokens (NFTs) are unable to be exchanged and replaced because of their unique properties. On the flip side, fungible tokens like cryptos provide a unique ability to act as a medium for commerce because of their identical nature.
What are the types of NFT scams?
In 2021, the crypto market was driven to new heights by its unique offerings. Investors were allured in droves and NFT sales saw an unprecedented increase of $24.9 billion – that’s a jump from just $94.9 million in 2020! In 2021, the art world was captivated by Beeple’s “Everydays: The First 5000 Days,” which sold for an astounding $69 million and launched Mike Winkleman into fame. Even with the 2022 “crypto winter,” NFTs still managed to reach staggering figures at year’s end; concluding with eye-popping revenue of $24.7 billion!
As such digital art pieces continue to reach new heights of value, selling for millions, unfortunately, have become an ideal target for crafty scammers aiming to exploit innocent buyers. As the industry grows exponentially in popularity and financial success, so does the presence of unscrupulous individuals out to take advantage of those who are unaware. So, what are the most common NFT scams, and how can you steer clear of them? Let’s find out.
Rug-Pull Scams
A rug-pull is a fraudulent scheme where developers stir up huge attention and trust around their NFT projects before vanishing with investors’ funds as soon as they get enough. They use social media to generate hype about the project, fueling investor contributions until it’s time for them to disappear without a trace. By taking advantage of unsuspecting individuals in this way, these unscrupulous developers have pocketed countless amounts of money from innocent victims.
The Baller Ape Club is a notorious example of an NFT rug-pull scam with a collection of 5,000 NFTs for 2 SOL each (roughly $2 million in total), and then shut down their website and social media accounts after investors had contributed more than $1.3 million. To entice people to invest, the club made many enticing promises that were never kept.
Airdrop Scams
NFT giveaway scams also referred to as airdrop frauds, happen when criminals invite you to promote their brand and sign up on their site in exchange for one NFT free. Afterward, they will then follow up with a link requesting your wallet details purportedly so that the prize can be delivered – but really these scammers are just copying this data from you in order to break into your collection of NFTs! On September 21, 2021, a distressing revelation was made by Twitter user @babbler_dabbler – criminals had pillaged his digital wallet and pilfered Damien Hirst’s valuable Non-Fungible Token “The Currency”, which held an estimated worth of more than $41,000 at the time.
Phishing Scams
Generally, cybercriminals can gain access to your Non-Fungible Token accounts by utilizing phishing tactics. This could entail sending out fake links via email or social media outlets such as Twitter and Discord. Once the link is clicked on and account information has been entered, hackers use keylogging or spyware programs in order to hijack your account and exploit it for their own means.
Just in February 2022, scammers captured nearly $1.7 million worth of NFTs from OpenSea—the most well-known Non-Fungible Token platform—through a phishing attack. The trading platform had requested its users to update their contract details; however, the criminals imitated OpenSea’s email and sent out links to fake websites instead! It is thus more important than ever for us all to be wary of these malicious attempts at stealing our hard-earned digital assets.
Bidding Scams
Selling your Non-Fungible Token in the secondary market can often present a risk of falling prey to scams. Scammers may place an attractive high bid on your asset and make it seem like they are serious buyers, causing you to want to accept this offer. Without being aware, these bidders could switch up their cryptocurrency used for payment at any moment – so be sure that there is transparency throughout the bidding process when selling!
Pump-and-Dump Scams
Pump-and-dump NFT scams are a common form of investor fraud. In these schemes, perpetrators create false hype and spread misleading information about a Non-Fungible Token to drive up its value before “dumping” it on unsuspecting investors.
To gain attention for their scheme, they may use social media platforms or enlist the help of celebrities in order to deceive potential buyers into believing that the asset is worth more than its true market price. Additionally, they often invest significant sums themselves as part of this effort in order to make the scam appear legitimate and draw even more interest from ill-informed individuals looking for quick profits.
Plagiarized NFTs
At its essence, NFTs are all about crafting exclusive digital tokens. The issue is that there’s a lot of plagiarism on many platforms. OpenSea recently stated that more than 80% of the NFTs minted by using their tool were counterfeit items – meaning you might be purchasing an illegitimate copy of an artist’s real-world artwork if you’re not careful.
Beware of fraud! The value of an NFT could quickly plummet if it turns out to be a phony. Make sure you authenticate them before buying and take the time to investigate the seller’s history, social media accounts, etc., in order to guarantee that what you are acquiring is real art from them.
How to avoid such scams?
Unfortunately, malicious scams are plentiful and will attempt to swindle people out of cryptocurrency wallet information or con their victims into purchasing a counterfeit NFT. To make sure that you don’t fall victim to any scams, here are some tips on how to stay protected:
Maintain the utmost secrecy with your keys for an added layer of protection
Under no circumstance should you ever divulge your cryptocurrency wallet information to any other person? The answer is No! Your keys and recovery codes are confidential, so never let anyone have access to them for whatever reason.
Conduct thorough research on the seller
Before you decide to invest, make sure the seller has a verified marketplace account with an accompanying blue checkmark. Additionally, examine their social media accounts and other listings from them. Furthermore, don’t forget to browse for any online reviews before making your purchase!
Construct secure, unguessable passwords to enhance your digital security
For optimal safety of NFTs, it is critical to establish robust passwords for accounts and cryptocurrency wallets. An additional measure that should be taken into consideration is two-factor authentication; biometric measures like face recognition or fingerprints make identity thievery more difficult.
Only trust renowned NFT exchange markets
Steer clear of any deals that appear to be too good to pass up. As a plethora of new marketplaces is emerging, the security levels they provide may not be ideal. Make sure you trust your investments and only utilize reputable exchanges such as OpenSea, Rarible, Mintable, and Axie Marketplace for all of your transactions.
Avoid clicking on any suspicious attachments or links
Regardless of how original a link may seem, it can be deceiving. To ensure you’re heading to the right website, it’s best to access sites directly from your browser and avoid clicking on links.
Cross-check NFT prices
Before buying an NFT, go to trading platforms, such as Mintable, or OpenSea, to see if the prices are similar. If the price seems much lower or higher than those on these legitimate trading sites, it’s most likely a scam.
Ending Note
NFTs can be a great investment, but they also come with risks. To make sure you don’t become the victim of such scams, it is essential to keep your keys and wallet information secure at all times, conduct thorough research on the seller before investing in any NFTs, create strong passwords for accounts and wallets, only trust renowned NFT exchange markets when making transactions, avoid clicking on suspicious links or attachments, and cross-check prices across multiple sites.
By taking these precautions into consideration while engaging in digital art investments such as NFTs, you’ll have peace of mind knowing that you are protected from fraudulent activities online.
