What Are The Most Common Types of NFT Scams?
TL: DR
- It is becoming increasingly difficult for NFT creators to collect their hard-earned digital assets from fraudsters as the NFT market grows.
- Fraudulent NFTs, bid scams, pump-and-dump schemes, and phishing are among the most prevalent.
- You must avoid phishing websites and never give out your master password to anyone or any website to protect your NFTs. Be sure to research and verify any NFT you are interested in purchasing before you buy it.
Keywords: NFT, scam, market, project, price, rug-pull, fake, Pump, Dumps.
Introduction
In 2012, colored coins were the first hint at the future of non-fungible tokens (NFTs), which some refer to as "nifties." A decade later, these blockchain-based assets, representing just about anything, are becoming increasingly popular among artists, sportspeople, and gamers.
As of 2020, the NFT market has grown by more than 300% compared to the previous year and has moved millions of dollars in cryptocurrency. This growth was traceable to the massive hype and adoption in various use cases such as games and integration with the web3. However, the sale of these tokens has seen a bad time as the number of active wallets and average sales plunged, within a year, by 27% and 52%, respectively.
Source: Nonfungible.com
The recent decline in the NFT market is a congruence of many factors, including the increasing rate of scams. Scammers have also gained access to the market, making the trust for these intellectual properties non-progressive. A scam can destroy your NFTs in seconds or even make them worthless.
Although the market is still going through some shakings, scammers have diviced many means to defraud unsuspecting users of their digital assets. This raises concerns about cryptocurrencies' safety. Previously, a thief would have to go through several barriers and cameras inside a museum to steal a work of art. However, now malware or social engineering can be used to crack open a digital wallet.
Scammers took advantage of the time when digital artist Qing Han died in 2020 by selling her work on her behalf as NFTs. In September, Banksy's website was hacked; an ad for what was supposed to be his first NFT was posted; a collector paid $336,000 for it.
The Most Common NFT Scams
One of the major ways to curtail scams is to create sensitization and awareness on how they are run and what to look out for. With this, you can know what to do when in a similar situation. Here are common types of NFT scams:
1. Pump-and-dumps
In crypto and now in the NFT markets, pump-and-dump schemes have become predictable. The pump-and-dump technique refers to the process of a group purchasing NFTs or currency and artificially inflating demand. Then, when prices rise, the scammers sell off, leaving others with nothing.
The practice of wash trading is common in cryptocurrency trading as well, where the same person purchases digital assets. Consequently, the price rises. It appeals to naive traders who believe the asset will rise in value or believe they have just found an unbelievable bargain.
Pump-and-dump practices have also been alleged in NFT projects. The Athletic, for instance, alleges that SoRare NFTs football players purchased the cards to increase interest in them. Similarly, Beeple's record-breaking digital sales were attacked as well. Metakovan, who uses the pseudonym Metakovan, has been reported to have purchased the work to fund a pump-and-dump scheme involving his token, B.20.
A major example is the NFT called CryptoKitties. These were hugely popular NFTs after their release in late 2017. The cats were sold for $155,000 worth of ether. By six months later, the price had fallen 95%.
2. Bidding Scams
You can often see bid scams in the secondary market when selling your NFT. Scammers will naturally bid the highest price for your NFT when you make it available for sale. It is possible, however, for these scammers to modify the cryptocurrency used for bidding without your knowledge.
Suppose a fraudster bids 5ETH on your NFT art. According to the current going rate, you should receive around $7,730.75. A scammer can, however, switch the crypto for 5 DOGE, worth less than $0.3.
3. Rug-Pull Scams
An NFT rug-pull occurs when developers hype an NFT but withdraw after receiving considerable investment funds. They often use social media to create buzz and trust around their NFT while they wait for investors to pour money in. Then, as soon as they have enough funds, they shut down the entire project and disappear with the funds.
One of the most classic NFT rug-pull scams involves a pair of young men, Ethan Nguyen and Andre Llacuna, operating the Frosties scam. Several guarantees were made with their NFT, including exclusive mint passes, giveaways, and early access to a metaverse game. However, as soon as they recorded a $1.3 million investment, their website and social media accounts were shut down.
1. Fake crypto influencers
NFTs have received numerous celebrity endorsements because of their popularity. There are many ways in which these celebrities profit. Despite this, since NFT trades are conducted online, there is a limited amount of information that the public has about the marketing of the project. A certain type of scam involves fake endorsements. Several people will likely lose their money before realizing that the alleged celebrity brand ambassador is not involved.
An example of this scam occurred in October 2021 when social media posts about 6ix9ine's NFT Trollz collection caught the attention of many people. Avatar creation would produce royalties for the NFT holder, with 5% of every trade going back to the original Trollz token owners. The legitimacy of the process was immediately questioned. There was a claim that $100,000 would be donated to various charities. Now, many buyers of the NFTs claim nothing of the sort has happened. Royalties were also never paid. As far as philanthropic work is concerned, none of the project's promises were fulfilled.
2. Plagiarized NFTs
An NFT is, at its core, a unique digital token to the user. Sadly, plagiarism is rampant across many NFT platforms. A recent report by OpenSea claimed that more than 80% of NFTs minted using the tool are fake. Thus, it's likely that you're purchasing a stolen version of the work of a real artist.
It's no surprise that the value of your NFT will plummet once it is revealed that it has been faked. It is for this reason that an NFT should be verified before purchase. By checking their history and social media profiles, you should verify if the art is original and belongs to the seller.
How to prevent NFT scams?
In the absence of regulations, the NFT market provides an environment conducive to scams of all kinds. While there are some fraud prevention barriers, this is an extremely fast-paced environment largely dependent on the behavior of users. Some companies, including Adobe, are, however, developing authentication stamps to help verify the validity of tokens.
Here are some tips to help you collect and store your NFTs safely.
Be careful not to click on links from unknown sources or attachments. Also, when seeking help with issues on NFT platforms, you should always seek assistance from the official customer service on official NFT trading sites instead of someone who approached you via social media.
Before investing in it, consider the NFT's website, roadmap, social media channels, and creators' biographies.
NFTs should be addressed by the place they were minted. Verify the information is authentic on the creator's website if you're not sure.
Ensure that your seed is stored in a safe place, and don't share any pictures. You should also use strong passwords and enable two-factor authentication (2FA) so your accounts are more secure.
It is common for malicious apps to impersonate official ones. Ensure that your wallet app or browser extension is downloaded from the legitimate, official site to protect yourself from getting phished.
Conclusion
The technology behind NFTs is capable of revolutionizing the digital world, but the industry is still in its infancy. In this space, it can be challenging to determine which creators are trustworthy and which are bad actors. There are lots of scams, and you can lose all your digital assets if not careful.
You must ensure you're alert and don't invest in digital assets until you've done your due diligence.
Author: Gate.io Observer: M. Olatunji
Disclaimer:
* This article represents only the views of the observers and does not constitute any investment suggestions.
*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.
