In recent years, the market for non-fungible tokens (NFTs) experienced a significant increase with its value exceeding $23 billion last year alone, according to DappRadar. However, this growth also led to an increase in NFT scams where bad actors stole login credentials or deceived buyers.
In this blog, we explain how these scams operate and provide tips on how to avoid them.
What Are NFTs?
Non-fungible tokens, or NFTs, are a type of digital asset that represent unique objects such as art, music, videos, and games on a blockchain digital ledger. Unlike traditional cryptocurrencies, like Bitcoin or Ethereum, NFTs cannot be exchanged for an equal item, as each NFT is one-of-a-kind and unique.
Essentially, NFTs allow owners to gain sole possession of a prized digital item, just as a collector would with a physical item.
How Do NFT Scams Work?
NFT scams typically involve fraudsters trying to access an individual’s NFT account to steal their NFTs or funds. The scammers achieve this by using various phishing scams to trick people into giving up their private wallet key, which is essentially the password to their NFT account.
These phishing scams can take the form of fake emails or messages that appear to be from legitimate NFT platforms, prompting the individual to enter their private key to complete a transaction or verify their account.
Once the scammers have access to the account, they can quickly transfer the NFTs or funds to their own account before the individual realizes what has happened.
As a result, recovering stolen NFTs or funds can be challenging, making it crucial for individuals to be cautious and never share their private key with anyone.
NFT Scams In Action
Here are some common scams that NFT fraudsters use to steal NFTs and funds.
A rug-pull scam in the NFT world involves developers building hype around an NFT project or investment, collecting a large sum of money from investors, and then shutting down the project and taking off with the funds.
These developers use social media to promote their NFT, build trust and excitement, and disappear once they have amassed enough funds. Rug-pull scams can be challenging to detect, so it is essential to exercise caution when investing in any NFT project and conduct thorough research before investing.
NFT phishing scams are a common way hackers gain access to your NFT account. They trick you into clicking fake links, often through email or social media, to steal your private wallet key.
Last year, scammers stole almost $1.7 million of NFTs in a phishing attack on OpenSea. To help avoid these scams, be cautious of clicking links and never share sensitive information unless you’re sure the link is legitimate.
Bidding scams are NFT scams where you sell your NFT in the secondary market. Scammers change the cryptocurrency used for the bidding without your knowledge, so you end up with a worthless cryptocurrency and no NFT.
To help avoid these scams, check the type and value of cryptocurrency used in the bidding process, accept only reasonable and legitimate bids, and research the potential buyer and platform before making any transactions.
Pump-and-dump schemes are NFT scams where fraudsters mislead buyers to artificially inflate the price of an NFT, then sell it when the price is high.
This leaves investors with worthless tokens. To help avoid these scams, thoroughly research before investing and be cautious of overly hyped or suspicious offers.
Counterfeit or Plagiarized NFTs
Counterfeit or plagiarized NFTs are a scam where fraudsters create fake NFTs that look like the original artwork. Then, they use advanced technology to replicate the NFT and sell it as an original.
OpenSea reported that over 80% of NFTs created using its minting tool were fake. To help avoid this scam, research the creator and NFT platform before buying. And check for similar NFTs that might be fake.
NFT Giveaways (Airdrop Scams)
NFT giveaway scams, or airdrop scams, offer free NFTs in exchange for promoting an NFT and signing up on a website. However, scammers use this to steal your account details and cryptocurrency.
Therefore, it’s essential to be wary of unsolicited offers and thoroughly research before participating in any NFT giveaway.
NFT “Investor Scams” are fake projects presented as good investment opportunities. Scammers use false information to convince people to invest, and once they get enough money, they disappear, leaving investors with worthless NFTs.
Researching an NFT project before investing any money is essential to avoid falling for this type of scam.
Customer Support Impersonation
In the “NFT customer support impersonation” scam, fraudsters pretend to be customer support agents for an NFT marketplace and try to get you to give them your personal information. They do this through email, social media, or phone calls.
Be careful and never share your private information with someone you don’t know and trust. Always verify the legitimacy of the support agent before giving out any personal details. Giving out personal information can put you at risk for identity theft.
Fake NFT marketplaces are scam websites that appear real but are designed to trick people into buying fake or non-existent NFTs.
It’s essential to check the website’s URL and compare it with the developer’s documentation to avoid falling victim to this type of scam.
Fake influencers are scammers who pose as celebrities or social media influencers to promote fraudulent NFT projects, enticing unsuspecting investors to put their money in them.
How to Avoid NFT Scams
To help avoid NFT scams, it’s essential to take the following precautions:
- Don’t click on suspicious links. Clicking on fake links can put your account details at risk of being stolen by fraudsters.
- Never share your password or seed phrase.
- Before investing in an NFT, verify the seller’s identity and history.
- Use a virtual private network (VPN) to encrypt and anonymize your NFT traffic, which can add an extra layer of security.
- Protecting yourself from identity theft is crucial. With IdentityIQ services, you can get around-the-clock monitoring, real-time fraud alerts, and identity theft insurance from AIG for peace of mind.
Is an NFT a Good Investment?
While some people have made significant profits from investing in NFTs, it’s important to remember that NFTs are a relatively new and volatile market. Therefore, it’s crucial to do thorough research and understand the risks before investing in NFTs.
Is Investing in NFT Risky?
Investing in NFTs can be risky. NFTs are a relatively new and speculative market with high volatility. As a result, an NFT can fluctuate rapidly and unpredictably. There is no guarantee of return on investment.
Additionally, NFTs are susceptible to scams and fraud, which can result in significant financial loss for investors. Therefore, it is vital to conduct thorough research and exercise caution before investing in NFTs.
What Are The Most Famous NFT Projects?
Here are some of the most notable NFT projects:
- CryptoPunks: One of the earliest NFT projects that features 10,000 unique 8-bit pixel art characters.
- Bored Ape Yacht Club: An NFT project featuring 10,000 unique cartoon apes with different attributes and accessories.
- Art Blocks: An NFT platform that generates algorithmic art pieces that are unique and one-of-a-kind.
- Pudgy Penguins: An NFT project featuring 8,888 unique cartoon penguins with different attributes and accessories.
- NBA Top Shot: An NFT platform that features officially licensed NBA video highlights as NFTs.
To help avoid NFT scams, it’s essential to be mindful of common scam tactics and purchase NFTs only from reliable sources. By taking these precautions and being aware of potential red flags, you can safeguard yourself against NFT scams.