Non-fungible tokens or NFTs have been soaring in popularity in recent months. The NFT marketplace exploded, with a reported total market value of $40 billion in 2021 and support from celebrities including Snoop Dogg, Mark Cuban and Stephen Curry, among others. However, as NFT’s popularity skyrocketed, so did the public interest in NFT scams, with Google searches hitting an unprecedented all-time high in early 2022. The increasing sophistication of NFT scams emphasises the caution that users need to exercise in a decentralised environment.
Various types of scams exist, and it’s pivotal to know how to recognise them so you can avoid them. Here we highlight five of them.
1. Phishing NFT Scams
Phishing scams have been around way before the creation of the NFTs. But now scammers are using them to attack NFT owners by creating fake advertisements, asking users to input their private wallet keys via email, discord, telegram and other public forums. When users click on the link, it will redirect them to a fake website where they’ll be asked to enter their private information like their wallet keys or their security seed phrases.
How to avoid phishing NFT scams?
- It is advisable to always check the sending email address
- Never open links from an unknown sender.
- For technical support, users should always go directly to official customer support websites and
- Never give out your wallet’s private key or passphrase.
2. Catfish Scams
These are instances in which a cybercriminal will impersonate another person. More often attackers impersonate an influencer from the NFT community and start sending direct messages to everyone. These direct messages will ask people for their personal information for reasons like “offering help with your NFT collection” or for “winning an NFT prize”. Either way, victims give out their information believing the person on the other side is trustworthy.
How to avoid catfish scams?
- You need to look for profile verification (such as the blue check mark) if a brand or person messages you before continuing a conversation
- Click on links sent from users you don’t know.
- If a company or individual messages you, look at their page for followers, engagement and the age of the profile. A new user with few followers or friends may be a red flag.
- Upon receiving messages from a suspicious user, use Google’s reverse image search tool to see if the profile picture is stolen.
3. Pump and Dump schemes
This is one of the most common scams, and many NFT investors have fallen prey to these scammers. Some people might publicly hype up an NFT to make the price of their NFT go up to make people believe it’s some wild new investment that’ll make them millions of dollars. Once the price is way up, the criminal cash out and leave the victims with an overpriced NFT that no one will be willing to pay for. This means, your investment is not worth as much as you believed, and you end up with pretty much nothing. In March, for example, NFT influencer and Rug Radio founder Farokh was accused of pumping and dumping. This accusation came right after he hyped up “Cool Cats” and immediately listed “5 Cool Cats” for sale. The matter nonetheless remains controversial.
How to avoid pump and dump scams?
- Verify the credentials by checking the history and wallet record of the project you’re interested in. You can do this on OpenSea or any other marketplace by viewing the number of transactions and buyers for the NFT collection.
- If an influential person or celebrity suddenly starts hyping up a new NFT collection, be wary as there is a good chance it’s a scam.
- Also follow the project on Twitter and Discord, legitimate collections with good liquidity will have an active community of investors where people talk and share information.
4. Rug pulls
In the crypto world, a rug pull occurs when creators of a project suddenly stop backing it. As a result, the price of the NFT falls to zero, which leads to massive losses for investors. A good example is the Doodled Dragons, an NFT collection that promised to donate proceeds to charitable organisations. The creator announced a donation of $30,000 to the World Wildlife Fund (WWF), but instead, he took the money and ran. They even announced the rug pull on Twitter from the now-deleted account just two minutes after announcing the huge donation. In 2021, rug pull scams reportedly led to a loss of around $2.8 billion collectively in the NFT world.
How to avoid rug pulls?
- Doing background research on the project team can help. For example, if someone is promising to deliver a game, you might look for past game development experience.
- Following official links on Twitter accounts or web pages is always a good idea.
5. Counterfeit or Plagiarised NFTs
In this type of scam, scammers are ripping off artists by making copy collections and trying to confuse people into buying the wrong asset. Minting an NFT is easy as anyone can upload a photo or image into an NFT, regardless of whether they own the intellectual property rights to it. Scammers are creating fake OpenSea accounts to sell their counterfeited NFTs to investors who are then left with valueless assets.
How to avoid counterfeit NFTs?
- Consider whether the price of the NFT seems legitimate and check if the contact address of the NFT aligns with that from its creator’s website.
- Does the artist have a blue checkmark to signal their verification status on OpenSea or other NFT marketplaces?
- Find the artist on Twitter or other social channels and see if you can verify the artwork as belonging to them yourself.
As more money flows into the NFT industry, malicious actors would continue to extract value at the expense of everyday NFT users. However, many basic cybersecurity precautions hold true in the NFT space. Users need to stay alert and ensure they’re on the lookout for cyber threats. As long as they exercise caution and protect themselves with the best cybersecurity software, their NFTs and other digital assets should be safe.