NFT Scams: What You Need to Know

NFT scams are a reality. As more artists and designers embrace NFTs and are exposed to these new technologies and revenue streams, the more NFT scams we will likely see. To keep yourself safe, you need to recognize that NFTs are a new technology and need improvements, and understand that NFT scams and crypto scammers are a reality of the current state of affairs.

NFTs, or non-fungible tokens, are a way to register digital files such as art, video and game assets on a blockchain, creating scarcity and adding a value to these items. They can be sold and resold, providing digital artists with a new revenue stream and promise of ownership and rights. We have a guide, What are NFTs, and a tutorial on how to create an NFT for free to explain more.

According to NBC, crypto fraudsters stole $14 billion in 2021 alone, largely due to the boom in decentralized finance. This comes on the back of more than $22 billion spent on NFTs in the same year, according to ArtNews. So, while more people than ever are entering the NFT and crypto space, there is also reason to be weary and educate yourself about the pitfalls of using NFTs.

Being able to avoid NFT scams can be knowing what to look out for, and often a little caution is a good thing. There is often uncertainty in purchasing an NFT, as well as panic selling buyer’s remorse can be common. But there are ways to keep yourself safe online and create and buy NFTs without losing to NFT scams.

A report by Privacy HQ found that most NFT holders and creators are already taking steps, such as using a desktop app over a mobile app. The survey also found 65% of NFT holders use two-step verification and 47% back up their NFTs – both good practices. Below we look at the most common NFT scams and offer advice on how to avoid them.

NFT Scams and How to Avoid Them

01. Pulling the rug

This happens when a new NFT project raises a lot of money in a short time through hype and hype, often associating itself with a current successful NFT. After people buy into the NFT project expecting a video game, community or art project, they may find that the creator ‘pulls the rug’ and leaves them with worthless NFTs.

A staggering 43.8% of respondents to Privacy HQ’s survey claimed to have purchased an NFT that disappeared entirely. One advice is to only buy an NFT from one of the best NFT marketplaces, which have verified artists and processes in place for complaints and refunds.

One of the biggest draws involved an NFT that jumped on the Bored Apes Yacht Club hype. Evolved Apes was a 10,000 piece NFT collection that promised to use the NFTs to fund a blockchain video game. After raising $2.7 million, the creator disappeared, leaving the NFT owners with jpegs and not much else.

You can often avoid a backhaul by doing some simple research, checking the social media accounts of the creator, looking at their history on NFT marketplaces, and following links to the project. Also check LinkedIn, a good development team will probably post their experience and associations.

Good NFT projects will have a robust Discord or social media community long before any NFT is minted or money is exchanged. Make sure you check engagement and not followers, often scammers will pay for followers but you can’t fake interest so make sure you check for any disparities.

Finally, check the details and make sure that the promises made are achievable. We also suggest looking at the NFT’s roadmap and looking it up on an NFT calendar, such as NFSea.tools. These are verified and authorized creators and projects so you can be sure they are real. But as always, make sure they match all the other controls above.

02. NFT Pump and dump schemes

Whenever hype and money are involved, you will find pump and dump – this is when a group buys up NFTs to artificially drive demand. That’s right, they will buy back their own NFTs under fake names and accounts. These now high value NFTs will be sold and the creators will exit the market.

Check the history of the wallets to avoid a pump and dump. The best NFT crypto will record all sales and transactions on the blockchain, and everyone can see it. On NFT marketplaces, such as OpenSea, you can view the transactions of an NFT. Using EtherScan, it is also possible to see every transaction on the Ethereum blockchain.

Again, it’s good to check a project’s community support in Discord or Twitter and check our engagement. Even if an NFT drops in value drastically, as with CryptoKitties, over time, if the support is really there, the NFT will regain its value. As a rule, good NFTs have utility.

03. Plagiarism NFTs and art theft

Digital artists with their art on sites like ArtStation and DeviantArt find their work being downloaded and copied, then sold as NFTs on blockchains. This is becoming a big problem for NFTs, and a source of many artists not liking the technology. This is potentially an even bigger problem as it becomes easy to create NFTs, as our list of the best nft apps for iphone shows.

DeviantArt has over 70 million members and it is trying to protect its users by creating a tool called DeviantArt Protect that can scan blockchains and NFT marketplaces and alert members if their art has been stolen. Notably, it also scans DeviantArt itself. It has sent more than 50,000 warnings to DeviantArt members about possible art theft since August 2021.

DeviantArt will not automatically take down art and neither will NFT marketplaces like OpenSea. You’ll have to contact the sites and file a complaint, but at least DeviantArt Protect provides evidence. Similarly, the benefit of blockchain technology is that you can track who minted the work first, but this only works if you first created the NFT.

When buying an NFT, as always, do your research. Check the seller’s account for verification, on OpenSea it is a blue checkmark. Follow the seller on social media and also check their history on NFT marketplaces. Also look for complaints, if the art is stolen you will likely find records of the rightful owners online.

Art theft and plagiarized art is a big problem for NFTs. This puts artists off participating and leaves a vacuum of accountability. NFT marketplaces like OpenSea still aren’t doing enough to combat this problem, but we can all help by reporting when we see stolen art using OpenSea’s form of theft.

04. Phishing scams

Phishing scams are not new, but in the new and complex world of NFTs and cryptocurrency, it can be easy to get taken in if you are new to this technology. As always, phishing scams prey on two emotions, fear and greed. As new NFT drops come thick and fast, it can be easy to get swept up in the hype.

But phishing scams can happen to anyone, according to Privacy HQ’s survey 16% of those asked were victims of hacks. Scams will often ask for your security details or wallet address. Never give out information willingly, and never give your 12-word security phrase – and save it offline, ideally on a USB drive.

To stay safe, only share wallet details with sites you trust, and never offer details when asked. Only offer details when you’ve gone to a site address yourself, not linked via an email or Twitter post. There are also good guidance sites, such as the female-led Surge, which provide excellent education on staying safe online and when creating and buying NFTs and cryptocurrency.

05. Untrustworthy Sites and Links

The NFT smart contract that lives on the blockchain and the actual artwork are two separate things, this is one of the reasons why some people don’t like NFTs. When you buy an NFT, you buy proof of ownership of the data, the link, in a sense the artwork is a thing to hang off the NFT, as our brain likes to visualize big ideas to make them accessible (the NFT can represent access to a community, ownership of real asset, and much more).

If you do buy an NFT, make sure you store the asset or digital file representing that NFT somewhere safe, don’t simply accept a URL to link to the digital file. Make sure you have it, and ideally save it offline on a USB. Seriously, don’t store your associated NFT file on Dropbox or GoogleDrive. Understanding how to back up your NFT is a great way to protect yourself from scams.

There are steps to solve the asset and smart contract separation problem, for example Arweave will store your data permanently, and Solona and Avalanche are developing ways to store both the digital file (the art, video, mp4, etc.) and the NFT metadata files in one package.

NFT Scams: Frequently Asked Questions

How do I spot a fake NFT?

Do a reverse Google image search to check the authenticity of the art. The NFT market will also offer verification of its sellers. Look for a blue mark or checkmark. Check Discord and social media, and ask people.

Are NFT airdrops a scam?

It may be, but not all airdrops are scams. For example, if you see an NFT airdrop on Twitter, it’s best to track down the project and its creators. Often, legitimate NFT creators will have a roadmap of drops and events, and NFT calendars will also have details of verified planned drops.

What rights do I get when I buy an NFT?

Usually, you don’t acquire the rights to the original artwork when you buy an NFT, unless the seller allows it in the smart contract. Many newer NFT projects enable this through either full ownership or part ownership. Always check the contract.

Disclaimer: The opinions expressed in the article are for general information purposes only and are not intended to provide specific financial or investment advice or recommendations for any individual for any investment product. The article is only intended to provide general information and opinions about NFTs. The views reflected in this article are subject to change at any time without notice.

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