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How to Avoid Falling Victim to NFT Scams
With cryptocurrency-related scams getting increasingly sophisticated, falling for them is easier than ever. Here's how to safeguard your NFTs.
If you Google "NFT frauds," you're likely to end up in a rabbit hole filled with genuine cartoon bunnies.
In the last 12 months alone, non-fungible tokens (NFTs) have blossomed into a multibillion-dollar segment of the cryptocurrency business. Rare collector's goods, such as those from the Cool Cats and Bored Ape Yacht Club collections, can fetch upwards of $30,000 or more.
If you think that five- and six-figure price tags for a JPEG are excessive, the NFT developers offer one word for you: usefulness. Due to the fact that NFTs create an irreversible digital record of your ownership on the blockchain (the same technology used to create cryptocurrency), owning a digitally tokenised work of art can also serve as your membership ticket to exclusive online clubs, gaming communities, Discord chat rooms, and interactive experiences.
That is, in theory. However, in practise, NFTs are still in their infancy and can be a bit clumsy. While blockchain aficionados regard them as an encouraging indicator that mainstream cryptocurrency adoption is on the horizon, NFTs present some extremely lucrative chances for scammers due to the sheer volume of money exchanged.
Following that, we'll discuss the most typical NFT scams, how to avoid them, and why they're growing more prevalent.
Typical NFT frauds (and how to avoid them)
Scams using phishing and dubious pop-up windows
To purchase your first NFT, you'll need to create an account with a wallet that supports Ethereum transactions. For NFT collectors, MetaMask is probably the most popular Ethereum wallet. However, MetaMask users were recently the target of a phishing scheme that used bogus adverts requesting users' private wallet keys or 12-word security seed phrases (a big red flag). Additionally, malicious pop-ups are being distributed via Discord, Telegram, and other public forums, linking to legitimate-looking login pages for MetaMask and other prominent websites.
If a rogue actor obtains your private information through a phishing attempt, they can deplete your digital wallet of all cryptocurrency.
How to avoid falling victim to these con artists
As a general rule, you will only need your seed phrase if you are building a hardware backup of your crypto wallet or if you need to recover it. Never enter data into the MetaMask pop-up window, or any other pop-up window for that matter. Always submit your information directly on the verified website, never via links, pop-ups, or your email. Create a paper copy of your seed phrase and never distribute it to anyone – don't even save a photo of it in your phone.
Catfishing and the use of fictitious identities
Because NFT sales are conducted online and all marketing is conducted via social media, it's easy to become a victim of catfishing. Popular NFT groups frequently employ influencers and celebrities to promote them, making it difficult to determine which are authentic.
How to avoid falling victim to these con artists
Never respond to a direct message from someone claiming to be a creator, celebrity, or influencer. It is well accepted etiquette in the NFT community that C-level personnel will never DM you unless you first send them a message or reach an agreement in a public Twitter thread or Discord channel. It's similar to when you were a child and your parents warned you not to give up any personal information to a telemarketer who called your house. The same holds true in the NFT realm — if someone DMs you first, refrain from clicking links or disclosing any information.
Schemes based on pump-and-dump operations
Unfortunately, pump-and-dump techniques have become rather predictable in the bitcoin and NFT realms. The term refers to when a group of individuals purchases a large quantity of NFTs or cash and artificially inflates demand. Once successful, the schemers pay out at inflated prices, leaving others who were not involved with worthless possessions.
Similarly, you may have heard the term "paper money" in regard to non-financial transaction (NFT) ventures that are not technically fraudulent but have limited liquidity due to a small number of competitive buyers.
"When you have 5,000 NFTs controlled by twenty of the world's top collectors and none of them is under any obligation to sell, anyone interested in buying into that collection must do so at a very high floor price," explained a pseudonymous NFT collector known as Whale Shark, who owns over 400,000 NFTs. If you're investing in NFTs, your prospects improve when the project has a larger buyer base and hence more liquidity.
How to avoid falling victim to these con artists
Examine the project's history and wallet data. This is where the transparency provided by blockchain technology comes in helpful. View the number of transactions and buyers for the NFT collection on OpenSea or any other NFT marketplace. With EtherScan, you can view all incoming and outgoing Ethereum blockchain transactions.
Additionally, join the project's Discord channel and follow it on Twitter. To ensure a project's liquidity and/or long-term communal or aesthetic value, it must attract a sufficient number of engaged investors and collectors, as well as an active community where individuals may interact, engage, and share information.
Bidding swindles
Bidding scams occur most frequently on the secondary market, after you have purchased your NFT and wish to sale it to the highest bidder. Once you've listed your NFT for sale, bidders may change the cryptocurrency they're using without informing you. Instead of 5 ETH (about $15,000 to $20,000) for your preferred NFT, you may receive $5.
How to avoid falling victim to these con artists
Verify the currency used and never accept a bid that is less than what you want.
NFTs that are counterfeit or plagiarised
It's worth noting that minting an artwork as an NFT does not imply ownership of the artwork's intellectual property (IP). Anyone, regardless of whether they hold the rights to the IP, can convert any photo or image into an NFT using OpenSea's user-friendly software. Scammers and other unscrupulous actors can easily steal an artist's work and create a bogus OpenSea account to sell counterfeit artwork. This effectively renders your NFT worthless once the community discovers what the scammer is up to – and there is no way to recover your money.
How to avoid falling victim to these con artists
Before purchasing an NFT from any marketplace, conduct your own investigation to ensure that the artwork is being sold by a verified user. On OpenSea or other NFT markets, look for the blue check mark next to the artist's profile photo. If there isn't one, you can contact the artist via Twitter, their website, or other social media outlets. Inquire directly with the artist if the artwork you wish to purchase is theirs and if you have the appropriate user profile. Additionally, check to see if the artist or NFT project has a Discord channel and enquire with other members of the community.
Keep an eye out for forged blue checks. True verified accounts display a blue check on the profile image's perimeter, not on the interior. Consider this excerpt from an NFT fraud quiz prepared by Curious Addys' Trading Club. The second instance is correct.
Unreliable storage facilities
This is another ethical grey area, albeit one that is less likely to be a hoax. Once purchased, NFTs may go missing. That is because the contract that is stored on the blockchain (the NFT) is distinct from the artwork itself. Consider uploading an mp3 file of original music to a portal such as OpenSea. When a collector is ready to purchase it, they put a bid and pay you in ether, which results in the creation of a smart contract, which serves as a record of ownership.
What is truly minted on the blockchain is the smart contract. However, the file you uploaded (i.e. the content and metadata) are distinct. It may sound esoteric, but keep in mind that NFTs are just about the ownership of an asset, which may be anything.
Therefore, if you choose to keep the artwork, house deed, or other digital content associated with the smart contract on a centralised site, ensure that the platform is trustworthy. Additionally, avoid purchasing an NFT that only refers to a URL via an image. Whatever website or artwork is stored at that URL can be modified at any time without your consent, leaving you with a token that effectively leads to nothing.
In conclusion
If you purchase an NFT, ensure that you also own the tangible or digital product outright (in the form of a JPEG, mp3 or PDF file).
The definitive guide to avoiding NFT frauds
Scammers are constantly infiltrating the NFT sector, which is why you cannot go it alone. The best approach to avoid current and future NFT frauds is to keep educated, which is why networking with other NFT fans becomes critical.
Your journey towards NFT may begin with self-education, according to Denise Schaefer, co-founder of cryptocurrency teaching platform Surge. However, you will ultimately run into a brick wall and become overwhelmed - at which point you will need to rely on more seasoned collectors and makers with whom you identify.
"As I began investigating independently and down the rabbit hole, two concerns were clear to me that I wanted to assist in resolving," Schaefer explained.
"For starters, I felt as though there was a dearth of simply accessible and digestible content available. And the other was that the place had an overwhelming male presence."
If you're new to NFTs and unsure where to start, check out Surge's free Discord channel for women and non-binary persons interested in creating and collecting NFTs, or Curious Addys' Trading Club, a crypto community for novices.
"It's been incredible to see how quickly things have grown," Schaefer told CoinDesk. "We now have a newsletter and a Discord server that is a safe area for women."
Within the Surge Discord channel, you may come across someone who has never created a Metamask wallet before receiving guidance from someone operating a decentralised finance (DeFi) group, Schaefer explained.
"It's fantastic to have people of various levels assisting one another on their path," Schaefer remarked.
Why is it that NFT scams are so prevalent?
"NFTs are essentially at the ICO [initial coin offering] stage right now," said Nelson Merchan Jr., co-founder and CEO of blockchain public relations firm Light Node Media. "Anyone can simply hire an artist to design a specified amount of NFTs and then leverage crypto influencers to generate a lot of publicity."
This "hype" makes it difficult to determine who is a trustworthy creator in the NFT sphere and who is a bad actor, all the more so now that so many NFT collectors and makers employ popular cartoon NFT profile images (PFPs) and anonymous Twitter handles.
And it is not just cryptocurrency newcomers who are at risk: Merchan, who has been investing in cryptocurrencies since 2017, has bought NFTs from the popular Pudgy Penguins collection since it launched in July 2021. Now facing what some sites are referring to as a coup, the founders of Pudgy Penguins are under fire from irate collectors who allege the initiative fell short of its promise to create an in-depth virtual game.
"People are developing these NFTs for between $50,000 and $60,000 – and sometimes even less – and then earning a million dollars in NFT sales if they do it well," Merchan explained. This raises issues of governance and transparency, as collectors naturally expect an NFT inventor or community founder to follow through on a $1 million commitment.
"They're quite well compensated," Merchan stated. "However, at that point, the NFT's value is effectively zero. There is no commerce, there is no game, and there is hardly any community. They have a big treasury fund, but a project that is a complete failure. And it is extremely concerning."
However, are these types of endeavours synonymous with scams? Merchan stated that time will tell.
"When the market turns against everyone, which I believe will take some time, these people will be deemed essentially criminals, because collectors spent all this money on their NFTs, which are now effectively worthless. What are the founders' plans for the money? Are they going to return it? What did they do with it?"
Along with the ethical grey areas associated with NFTs, there are a number of well-known NFT scams in which the bad actors are readily identifiable – and the damages are quite real. Therefore, remain vigilant, make the most informed investment selections possible, and never invest more than you can afford to lose.
Support us!
View all episodes
By Crypto PiratesWith cryptocurrency-related scams getting increasingly sophisticated, falling for them is easier than ever. Here's how to safeguard your NFTs.
If you Google "NFT frauds," you're likely to end up in a rabbit hole filled with genuine cartoon bunnies.
In the last 12 months alone, non-fungible tokens (NFTs) have blossomed into a multibillion-dollar segment of the cryptocurrency business. Rare collector's goods, such as those from the Cool Cats and Bored Ape Yacht Club collections, can fetch upwards of $30,000 or more.
If you think that five- and six-figure price tags for a JPEG are excessive, the NFT developers offer one word for you: usefulness. Due to the fact that NFTs create an irreversible digital record of your ownership on the blockchain (the same technology used to create cryptocurrency), owning a digitally tokenised work of art can also serve as your membership ticket to exclusive online clubs, gaming communities, Discord chat rooms, and interactive experiences.
That is, in theory. However, in practise, NFTs are still in their infancy and can be a bit clumsy. While blockchain aficionados regard them as an encouraging indicator that mainstream cryptocurrency adoption is on the horizon, NFTs present some extremely lucrative chances for scammers due to the sheer volume of money exchanged.
Following that, we'll discuss the most typical NFT scams, how to avoid them, and why they're growing more prevalent.
Typical NFT frauds (and how to avoid them)
Scams using phishing and dubious pop-up windows
To purchase your first NFT, you'll need to create an account with a wallet that supports Ethereum transactions. For NFT collectors, MetaMask is probably the most popular Ethereum wallet. However, MetaMask users were recently the target of a phishing scheme that used bogus adverts requesting users' private wallet keys or 12-word security seed phrases (a big red flag). Additionally, malicious pop-ups are being distributed via Discord, Telegram, and other public forums, linking to legitimate-looking login pages for MetaMask and other prominent websites.
If a rogue actor obtains your private information through a phishing attempt, they can deplete your digital wallet of all cryptocurrency.
How to avoid falling victim to these con artists
As a general rule, you will only need your seed phrase if you are building a hardware backup of your crypto wallet or if you need to recover it. Never enter data into the MetaMask pop-up window, or any other pop-up window for that matter. Always submit your information directly on the verified website, never via links, pop-ups, or your email. Create a paper copy of your seed phrase and never distribute it to anyone – don't even save a photo of it in your phone.
Catfishing and the use of fictitious identities
Because NFT sales are conducted online and all marketing is conducted via social media, it's easy to become a victim of catfishing. Popular NFT groups frequently employ influencers and celebrities to promote them, making it difficult to determine which are authentic.
How to avoid falling victim to these con artists
Never respond to a direct message from someone claiming to be a creator, celebrity, or influencer. It is well accepted etiquette in the NFT community that C-level personnel will never DM you unless you first send them a message or reach an agreement in a public Twitter thread or Discord channel. It's similar to when you were a child and your parents warned you not to give up any personal information to a telemarketer who called your house. The same holds true in the NFT realm — if someone DMs you first, refrain from clicking links or disclosing any information.
Schemes based on pump-and-dump operations
Unfortunately, pump-and-dump techniques have become rather predictable in the bitcoin and NFT realms. The term refers to when a group of individuals purchases a large quantity of NFTs or cash and artificially inflates demand. Once successful, the schemers pay out at inflated prices, leaving others who were not involved with worthless possessions.
Similarly, you may have heard the term "paper money" in regard to non-financial transaction (NFT) ventures that are not technically fraudulent but have limited liquidity due to a small number of competitive buyers.
"When you have 5,000 NFTs controlled by twenty of the world's top collectors and none of them is under any obligation to sell, anyone interested in buying into that collection must do so at a very high floor price," explained a pseudonymous NFT collector known as Whale Shark, who owns over 400,000 NFTs. If you're investing in NFTs, your prospects improve when the project has a larger buyer base and hence more liquidity.
How to avoid falling victim to these con artists
Examine the project's history and wallet data. This is where the transparency provided by blockchain technology comes in helpful. View the number of transactions and buyers for the NFT collection on OpenSea or any other NFT marketplace. With EtherScan, you can view all incoming and outgoing Ethereum blockchain transactions.
Additionally, join the project's Discord channel and follow it on Twitter. To ensure a project's liquidity and/or long-term communal or aesthetic value, it must attract a sufficient number of engaged investors and collectors, as well as an active community where individuals may interact, engage, and share information.
Bidding swindles
Bidding scams occur most frequently on the secondary market, after you have purchased your NFT and wish to sale it to the highest bidder. Once you've listed your NFT for sale, bidders may change the cryptocurrency they're using without informing you. Instead of 5 ETH (about $15,000 to $20,000) for your preferred NFT, you may receive $5.
How to avoid falling victim to these con artists
Verify the currency used and never accept a bid that is less than what you want.
NFTs that are counterfeit or plagiarised
It's worth noting that minting an artwork as an NFT does not imply ownership of the artwork's intellectual property (IP). Anyone, regardless of whether they hold the rights to the IP, can convert any photo or image into an NFT using OpenSea's user-friendly software. Scammers and other unscrupulous actors can easily steal an artist's work and create a bogus OpenSea account to sell counterfeit artwork. This effectively renders your NFT worthless once the community discovers what the scammer is up to – and there is no way to recover your money.
How to avoid falling victim to these con artists
Before purchasing an NFT from any marketplace, conduct your own investigation to ensure that the artwork is being sold by a verified user. On OpenSea or other NFT markets, look for the blue check mark next to the artist's profile photo. If there isn't one, you can contact the artist via Twitter, their website, or other social media outlets. Inquire directly with the artist if the artwork you wish to purchase is theirs and if you have the appropriate user profile. Additionally, check to see if the artist or NFT project has a Discord channel and enquire with other members of the community.
Keep an eye out for forged blue checks. True verified accounts display a blue check on the profile image's perimeter, not on the interior. Consider this excerpt from an NFT fraud quiz prepared by Curious Addys' Trading Club. The second instance is correct.
Unreliable storage facilities
This is another ethical grey area, albeit one that is less likely to be a hoax. Once purchased, NFTs may go missing. That is because the contract that is stored on the blockchain (the NFT) is distinct from the artwork itself. Consider uploading an mp3 file of original music to a portal such as OpenSea. When a collector is ready to purchase it, they put a bid and pay you in ether, which results in the creation of a smart contract, which serves as a record of ownership.
What is truly minted on the blockchain is the smart contract. However, the file you uploaded (i.e. the content and metadata) are distinct. It may sound esoteric, but keep in mind that NFTs are just about the ownership of an asset, which may be anything.
Therefore, if you choose to keep the artwork, house deed, or other digital content associated with the smart contract on a centralised site, ensure that the platform is trustworthy. Additionally, avoid purchasing an NFT that only refers to a URL via an image. Whatever website or artwork is stored at that URL can be modified at any time without your consent, leaving you with a token that effectively leads to nothing.
In conclusion
If you purchase an NFT, ensure that you also own the tangible or digital product outright (in the form of a JPEG, mp3 or PDF file).
The definitive guide to avoiding NFT frauds
Scammers are constantly infiltrating the NFT sector, which is why you cannot go it alone. The best approach to avoid current and future NFT frauds is to keep educated, which is why networking with other NFT fans becomes critical.
Your journey towards NFT may begin with self-education, according to Denise Schaefer, co-founder of cryptocurrency teaching platform Surge. However, you will ultimately run into a brick wall and become overwhelmed - at which point you will need to rely on more seasoned collectors and makers with whom you identify.
"As I began investigating independently and down the rabbit hole, two concerns were clear to me that I wanted to assist in resolving," Schaefer explained.
"For starters, I felt as though there was a dearth of simply accessible and digestible content available. And the other was that the place had an overwhelming male presence."
If you're new to NFTs and unsure where to start, check out Surge's free Discord channel for women and non-binary persons interested in creating and collecting NFTs, or Curious Addys' Trading Club, a crypto community for novices.
"It's been incredible to see how quickly things have grown," Schaefer told CoinDesk. "We now have a newsletter and a Discord server that is a safe area for women."
Within the Surge Discord channel, you may come across someone who has never created a Metamask wallet before receiving guidance from someone operating a decentralised finance (DeFi) group, Schaefer explained.
"It's fantastic to have people of various levels assisting one another on their path," Schaefer remarked.
Why is it that NFT scams are so prevalent?
"NFTs are essentially at the ICO [initial coin offering] stage right now," said Nelson Merchan Jr., co-founder and CEO of blockchain public relations firm Light Node Media. "Anyone can simply hire an artist to design a specified amount of NFTs and then leverage crypto influencers to generate a lot of publicity."
This "hype" makes it difficult to determine who is a trustworthy creator in the NFT sphere and who is a bad actor, all the more so now that so many NFT collectors and makers employ popular cartoon NFT profile images (PFPs) and anonymous Twitter handles.
And it is not just cryptocurrency newcomers who are at risk: Merchan, who has been investing in cryptocurrencies since 2017, has bought NFTs from the popular Pudgy Penguins collection since it launched in July 2021. Now facing what some sites are referring to as a coup, the founders of Pudgy Penguins are under fire from irate collectors who allege the initiative fell short of its promise to create an in-depth virtual game.
"People are developing these NFTs for between $50,000 and $60,000 – and sometimes even less – and then earning a million dollars in NFT sales if they do it well," Merchan explained. This raises issues of governance and transparency, as collectors naturally expect an NFT inventor or community founder to follow through on a $1 million commitment.
"They're quite well compensated," Merchan stated. "However, at that point, the NFT's value is effectively zero. There is no commerce, there is no game, and there is hardly any community. They have a big treasury fund, but a project that is a complete failure. And it is extremely concerning."
However, are these types of endeavours synonymous with scams? Merchan stated that time will tell.
"When the market turns against everyone, which I believe will take some time, these people will be deemed essentially criminals, because collectors spent all this money on their NFTs, which are now effectively worthless. What are the founders' plans for the money? Are they going to return it? What did they do with it?"
Along with the ethical grey areas associated with NFTs, there are a number of well-known NFT scams in which the bad actors are readily identifiable – and the damages are quite real. Therefore, remain vigilant, make the most informed investment selections possible, and never invest more than you can afford to lose.
Support us!