Do not fall for these NFT scams [Guide on NFT]
NFT scams cash in on the revolutionary opportunity for content creators to monetize their work. An NFT is a one-of-a-kind digital code representing digital objects like art or music.
Long-time internet users have appreciated the relatively open and accessible internet assets for years. For instance, most tutorials, videos, or articles come to users at no cost. Even if you pay for a course or a post, it is usually distributed among thousands of buyers. However, even classic entertainment channels like YouTube are not immune to the seismic shift NFT caused. Fans will now be able to own videos from their favorite YouTube creators.
So, NFT pioneers the idea that digital objects are fit for sale. In an NFT-driven environment, we might soon see galleries showcasing digital art and collectors bidding on online goods. Sadly, as NFT reports record revenue streams, interested parties will likely face more NFT scams.
What is an NFT?
A non-fungible token (NFT) is a digital asset stored on a blockchain. Owners can sell or trade these items that should be impossible to replicate. Usually, an NFT can represent anything, be it a Tweet or a picture, as an Ethereum-based asset. Having an NFT helps people assign or prove ownership of such unique items.
In January 2022, experts reported NFT sales reaching more than $4 billion. Despite high hopes for the marketplace, the numbers later turned up less than anticipated. However, NFT enthusiasts are far from ready to call it a day. After all, marketplace fluctuations are normal and somewhat expected.
Criminals recognize potential quickly, and NFT scams will likely continue rising. So, instead of supporting content creators in a unique way, people can send cryptocurrencies to fraudsters.
How do NFTs work? How do people buy them?
Essentially, owning an NFT means buyers can boast about owning the original version of a digital asset. Content creators generate them by a process called minting. The latter turns one’s digital work into an NFT by introducing a representation of the file on blockchain networks. The easiest way to perform minting is through NFT platforms and marketplaces like OpenSea.
Once creators generate an NFT, they can put it for sale. The only possible way to make an NFT purchase is via a crypto exchange. So, interested parties will need Ethereum to get their hands on NFTs. Many marketplaces are in auction form, so you might need to submit a bid and hope for the best.
Metadata is also highly important in NFTs. Content creators can retain the ownership of a piece even if they sell it. For instance, if a buyer decides to sell the item further, the original artists can continue receiving royalties.
Overview of NFT scams
Experts notice a slight cooling down period as the interest in NFTs goes up and down. While it might relate to the natural loss of sensationalism, experts note that common NFT scams hurt investors’ curiosity about legitimate projects. Additionally, content creators can also feel discouraged by fears of losing their earnings to criminals.
Therefore, here are some of the biggest NFT scams reported.
One of the most devastating NFT scams includes the classic rug pull. The term refers to situations where people falsely promote crypto, DAO, or NFT projects. After accepting investments or payments, the fraudsters ‘pull the rug’ and disappear with their loot. Such NFT scams can get well-publicized and receive attention from hundreds of enthusiasts.
An example of a rug pull involves an NFT collection focusing on Frosties digital art. Creators had posted a collection of radiant ice-cream-scoop characters with colorful outfits. The sale was in full swing until the official Discord server went down. Then, buyers quickly realized they had been scammed.
Criminals disappeared with victims’ money, promptly apologizing on Twitter before shutting down the account. Instead of becoming owners of promising art pieces, buyers suffered a significant loss of financial assets.
Abandoning projects as soon as they have enough investments or buyers is a well-known scam in the crypto arena. However, it remains relevant because it continues to work, regardless of hopes of raising awareness.
Pump-and-dump NFT scams are all about misleading investors and hyping up low-value assets. Therefore, content owners promote their items, pitching new buyers and spiking their prices.
Social media plays a dramatic role in such heists. Scammers could even pay influencers to promote or boost their products. For instance, Kim Kardashian, Floyd Mayweather, and Paul Pierce are some of the celebrities sued by EthereumMax crypto investors.
According to the allegations, these well-known public figures helped promote and sell the cryptocurrency. However, such social media advertising failed to reveal material connections between EthereumMax and the defendants promoting it.
In terms of NFT scams, pump-and-dump would also aim to distribute misleading information and promotions to raise their price.
Enthusiasts might wonder why some NFT examples go for millions while others fail to gain traction. The reasons behind such glaring differences might have nothing to do with the artistic talent of content creators. One of the common NFT scams aims to inflate NFT values artificially.
By imitating interest from outside parties, fraudsters can significantly raise the market value for particular items. Usually, owners sell the NFT to a new wallet belonging to themselves. Such back-and-forth trading allows scammers to earn millions, as reported in February 2022.
Also, these NFT scams exploit the fact that fraudsters can purchase digital assets without identifying themselves. Therefore, they can link multiple wallets on a platform.
Discord NFT scams
There are many servers on Discord dedicated to NFT creators, investors, and enthusiasts. Sadly, Discord hacking is one of the recent techniques for executing NFT scams. Essentially, hackers gain administrator-level access to Discord servers and post fraudulent messages to the communities.
Such scenarios had already hit the Monkey Kingdom and Fractal when their followers received deceptive messages of a limited edition NFT. Many interested buyers clicked the links that the posts featured. Instead of being proud owners of NFT, they saw their wallets drained of the Solana cryptocurrency.
Such hacks can happen due to vulnerabilities or tainted QR codes used for login.
More general NFT scams
NFT scams can take many shapes and forms. Here are some other heists that hurt legitimate projects and discourage newbies from becoming buyers.
- Art theft and plagiarism. DeviantArt is one of the popular platforms for digital creators to publish their work. Sadly, scammers can download art and put it for sale as their own. After all, anyone can mint a file as an NFT, and the process is anonymous. Many creators have noticed their art sold on NFT marketplaces without their consent.
- Untrusted sites posing as NFT marketplaces. Platforms like OpenSea, Axie Marketplace, Larva Labs, and SuperRare are reliable NFT platforms. However, you can also stumble upon fake websites, either mimicking reliable sites or implementing a new look. Such scams can perform various things, like offering NFT that you pay for but never receive.
- Airdrops hiding malicious coding. Legitimate airdrops serve as a marketing strategy for attracting more attention to cryptocurrencies or NFTs. Essentially, it means sending free tokens to users. However, airdrops can be malicious and require sensitive information like seed phrases or private keys. In such cases, you should never get involved.
Avoid the biggest NFT scams
NFT space began as an opportunity for content creators to monetize their work further. However, the initially small community that focused on art has attracted overwhelming attention from people, including criminals. As NFT scams continue to skyrocket, you should know how not to become a victim of this massive following.
- Buy NFTs from reliable marketplaces. Official platforms are the only places you should look for investment opportunities. Such marketplaces put specific security mechanisms in place, like continuously banning scammers’ accounts.
- Find the people behind the NFT. Plagiarism is a complex issue for the NFT community. Therefore, verify that the digital assets you are about to bid on come from reputable sources.
- Be skeptical of new but actively promoted projects. A highly prominent marketing campaign for NFTs does not mean that they are reliable. As mentioned, scammers can mimic the hype by purchasing ads or influencer posts.
- Think before following links on Discord. Like any heist, NFT scams rely on users’ emotions. For instance, an announcement about limited edition NFTs from a popular creator can quickly generate a buzz. However, do not be hasty to act on it without more information.
- Do not trust NFT giveaways. A free token can come with strings attached. If strangers randomly give you tokens, do not let your guard down. Provide as little information as possible, and never supply your private keys.