Do you like digital art or collectibles? Non-fungible tokens (NFTs) may have piqued your interest recently, and for good reason. NFTs provide a one-of-a-kind opportunity to acquire digital assets that cannot be recreated or duplicated. That may sound appealing and fun.
However, there are risks associated with NFTs, as with any intriguing new trend. Unfortunately, scammers and fraudsters have already begun to exploit the popularity of these tokens by running sophisticated scams that target vulnerable populations.
But don’t worry! We are here to investigate and tell you about the many tactics and techniques scammers employ and, most importantly, discover how to defend yourself against these fraudulent actions.
Let’s break down some of the common NFTs scams. Read on to learn how to navigate the NFT world safely—and correctly!
What are NFTs?
NFT is an abbreviation for ‘non-fungible token.’ Fungible implies interchangeable; for example, bitcoins are fungible because you can exchange one bitcoin for another and still have something with the same worth.
Each NFT is unique. This means it cannot be replaced by another right away. Any digital content, including pictures, movies, and audio files, can be NFTs. NFTs have garnered a lot of interest since they are a unique blend of technology and art that can be sold to an interested party.
Non-fungible tokens (NFTs) include a ‘token’ that represents a digital asset. However, buying an NFT doesn’t mean you own the actual digital asset it’s linked to. You generally can’t make copies of it or use it for commercial purposes.
Let’s make this easier to understand with an example. Say you bought an NFT for a digital artwork created by a renowned artist you admire. When you make this purchase, you are buying a unique and verifiable certificate of ownership for that specific NFT, rather than the artwork itself.
Therefore, while you own an NFT connected to the artwork, you are not granted the artist’s copyright. What does this mean? Simple, you cannot make and sell copies of the original artwork, use it for commercial purposes or prevent others from buying or selling it online.
Simply put, you have a digital collectible linked to an artwork. It is special in its own respect, but you do not own the full rights to the original artwork. But are NFTs a scam on principle?
Luckily not. You just need to know when are NFTs safe and when they may be hiding something malicious.
What are NFT Scams?
Scammers have recently started to take advantage of this emerging market for non-fungible tokens, just like they would with any other asset market. NFTs scams take several shapes, but they always have the same goal: to defraud individuals of their money.
By gaining a person’s login information to access another person’s digital or crypto wallet, NFT scams can be carried out directly or indirectly. Unfortunately, this makes recovering lost digital wallet credentials or stolen money after a scam quite difficult.
Let’s take a quick look at some popular types of NFT scams to help you gain a better understanding of the types of fraud lurking on the internet, recognize warning signs and remain proactive.
Types of NFT Scams
Both cryptocurrencies and NFTs operate in unregulated markets. It means that thieves have the capacity to exploit loopholes and commit fraud.
You may have seen widespread media coverage of OpenSea scams, NFT Ponzi schemes, NFT art finance scams, and other similar schemes. Among the most well-known NFTs scams are:
- Rug pull scams
- Phishing
- Airdrop/giveaway scams
- Impersonation/catfishing
- Pump and dump scams
- Counterfeit/plagiarized NFTs
- Bidding scams
- Investor Scams
- Plagiarized NFTs
Let’s take a look at each of these in detail.
Rug Pull Scams
A “rug pull” is one of the most damaging scams in the NFT world, where scammers create fake NFT projects that appear too-good-to-be-true.
Their offerings almost always look promising. They engage customers using slick websites, eye-catching designs, and heavy social media promotion.
Often, the sellers make enticing promises of huge future profits, perks, or community benefits, which drives a ‘fear of missing out’ among potential investors. Once enough people buy-in and the scammers have profited, they quickly “pull the rug” by deleting all online traces of the project, including websites and social media accounts, leaving buyers with worthless NFTs.
Since NFTs’ value is often tied to the project’s existence, these abandoned tokens are virtually unsellable, with buyers left at a total loss, as blockchain transactions are irreversible and recovering funds is nearly impossible.
Phishing
To purchase an NFT, you must first create a cryptocurrency wallet. Customers are frequently the targets of NFT phishing scams, which pose as legitimate adverts. These scammers solicit individuals’ private wallet keys and 12-word security passwords, for instance, over platforms like Discord, Telegram, and other public forums.
You can also receive phony alert emails from scammers posing as MetaMask. These emails warn you that your wallet will be suspended due to security concerns and request that you click a link in the email to confirm your account. This fraudulent link instead steals your account information, draining your online wallet.
Airdrop/Giveaway Scams
Watch out for NFT freebies. Scammers occasionally use social media to promote free NFT giveaways, luring people to share their details by signing up for their website in exchange for a free NFT. Once the recipient is ready to accept the gift, the con artists will ask about their cryptocurrency wallet and hack their account to steal NFTs and Bitcoin.
In one airdrop fraud, consumers were offered five times as much RARI cryptocurrency if they sent 200–25,000 RARI on a phony Rarible website. In the end, the con artist simply kept the cryptocurrency and never sent anything back.
Impersonation/Catfishing
Con artists often create fake social media accounts and spam websites to persuade clients to purchase fake NFTs. These profiles frequently copy actual artists, maliciously profiting off stolen designs.
Other scammers make false accounts for tech support. The scammer may send messages requesting account details to assist the victim before stealthily stealing their login information.
According to statistics from the cybersecurity firm BrandShield, the top celebrities whose likenesses were exploited for phony NFTs include Tom Brady, Mike Tyson, and Kim Kardashian.
Pump and Dump Scams
When an organized criminal group purchases a large number of cryptocurrencies to increase demand and drive up prices, it is known as a pump-and-dump fraud. When the value increases, the scam artist sells the assets and takes their money, leaving other individuals out of pocket.
One example of a pump and dump was when influencers for the video game team FaZe Clan promoted the new cryptocurrency Save the Children. Fans invested money in the coin, but almost immediately, its value fell, This meant people invested a lot into what was essentially nothing.
Counterfeit/Plagiarized NFTs
Theft of intellectual property is an unfortunately widespread practice, and fraudulent NFTs are often sold on reliable websites. The victims frequently discover too late that the phony or stolen NFT has no value after paying for it.
One hacker named Monsieur Personne created replicas of the well-known Beeple NFT, “Everydays: The First 5000 Days,” which peaked with bidding of $200. This was in major contrast to the original, which sold for $69 million.
Bidding Scams
Bidding scams occur when a fraudster places the highest bid on an NFT, but when it’s time to pay, they substitute a lesser-value coin. While selling your NFT, always check the cryptocurrency the top bidder uses before accepting.
When it comes time to pay, a con artist may appear to be offering five ETH for an NFT, but they will actually use a far lower-value currency, such as Dogecoin.
Plagiarized NFTs
NFTs are fundamentally about producing distinctive digital tokens. Unfortunately, plagiarism is increasing on a lot of NFT platforms. Over 80% of NFTs created with the use of OpenSea’s minting tool were false, according to a recent analysis. So, there’s a reasonable risk you might be purchasing a fake version of a legitimate artist’s creation.
Unsurprisingly, as soon as it is discovered that your NFT is a fake, its value will plummet. That’s why you should check an NFT before buying it. Additionally, look up the seller on social media to validate whether or not the artwork is authentic and theirs.
What Are Some Examples of NFT Scams?
NFT scams have been on the rise for a while now. Here are some of the most infamous scams that have left many victims and lost resources in their wake:
2021: Evolved Apes
An NFT rug pull occurred in October 2021, during which 10,000 ‘Evolved Apes’ artworks were sold as a collection. Customers were expected to receive a special ape artwork with individual parts that could engage in combat with other NFT apes in a virtual reality fighting game for cryptocurrency incentives.
The primary purpose of the NFT sale was to raise money for the game. The developer, known as “Evil Ape,” raised 798 Ether, or almost $2.7 million at the time, but after that, they vanished, leaving investors with little more than a jpeg to show for their money.
2021: Fractal
The NFT market for game items is called Fractal. In 2021, scammers organized and publicized a fake NFT giveaway, which cost users more than $150,000 in cryptocurrency.
Customers anticipated receiving a limited-edition NFT. Instead, they were shocked when they realized that a link they had clicked on through the project’s official Discord channel was a scam designed to steal cryptocurrency.
All the users who clicked the link and connected their cryptocurrency wallets hoping to receive an NFT discovered that the scammer had received all of their cryptocurrency holdings.
2022: Frosties
The Frosties NFT scam was a rug pull fraud that netted at least $1.2 million. The creators of the Frosties NFT collection defrauded investors of their money. They then proceeded to sever all contact with the group, which peaked at about 40,000 members, all of whom had been promised a number of advantages.
How Can I Prevent NFT Scams?
The big question is: how to avoid NFT scams? NFT fraud can even scam individuals with an above-average knowledge of internet safety. Here’s how you can stay safe:
Do Your Research
Before approving any transaction, double-check the details. Are you using a reliable and well-known marketplace? Can you see the transaction history for the buyer or the seller? To find out if there have ever been grievances about a creator’s transactions read evaluations and consider their level of engagement. If you’re going to invest in a project, make sure the developers are real.
Don’t Open Files from Unknown Senders
Hackers have developed viruses that specifically target cryptocurrency wallets. You should avoid clicking links in unsolicited emails since they may take you to scam exchange sites. Never open any attachments or links from unrecognized sources.
Watch Out for Giveaways
Giveaways and “free drops” are frequent in the NFT industry; however, they can frequently pose security issues. Every NFT is governed by a contract that defines its permissible usage, which means that hackers have the ability to add authorizations such as accessing your wallet, selling your assets, and more. It’s crucial never to accept an NFT from an unknown or untrustworthy person.
Do Not Share the Private Key or Seed Phrase to Your Crypto Wallet
Keep your seed phrase and private key safe. Anyone with these details can access your wallet, rendering any NFTs or cryptocurrency untraceable. Use secure passwords for your cryptocurrency wallet and other NFT accounts where all your NFT accounts are eligible for two-factor authentication.
Verify the Creator Behind the Project
Before transferring money, verify the information of the NFT creator you purchase from. Confirm the project creators’ sincerity and ask for a disclosure of their identities. A warning sign is when you can’t clearly identify the organizations sponsoring a project.
Deal with Official Sites
When doing crypto transactions, always visit authorized websites. Never enter your wallet’s key information into any links or pop-ups. Don’t fall into the trap of so-called bargains, which could lead you to unreliable and questionable blockchain networks.
Avoid Visiting Untrustworthy Sites
It’s easy to mistype a URL, but even a small error of one or two letters can lead you to the wrong website. In the NFT world, this is particularly risky, as scam sites often mimic legitimate ones to steal personal information or trick users into fraudulent transactions.
Always verify the URL twice to make sure you are on the right website, and refrain from taking any actions that make you uncomfortable. Remember that if an offer appears too good to be true, it generally isn’t.
Double-Check the NFT Project Price (H4)
Before making any NFT purchases, check the pricing on an authorized trading platform like OpenSea. If the price is lower than what is advertised on a reputable trading website, it could be a hoax.
Use Burner Wallets
With a burner wallet, you can set the maximum amount of money you’re willing to spend on a single purchase, including cryptocurrency, for transaction costs. It reduces your exposure to risk in the event of a scam.
Check Verification Marks
On OpenSea and other NFT marketplaces, most trustworthy NFT vendors will have a blue checkmark next to their usernames and a clear listing of the collection’s attributes.
Check that the artist you buy from has a verified account and is legitimate. Check out the artist’s social media channels or website. Ask them if the artwork you want to buy is theirs and check if they have the correct user profile.
Final Thoughts
You must monitor the situation in the NFT space to avoid losing all of your digital assets. Rug-pull, phishing, bidding, and pump-and-dump schemes are some of the most common NFTS scams.
Protect your NFTs by creating secure passwords for your NFT accounts and turning on two-factor authentication. No matter what, avoid disclosing your seed phrase and clicking on dubious links that prompt you to input your private wallet keys.
If you are looking to remain protected when dealing with online transactions, it is wise to consider IT managed services in Bloomington. Appropriate cyber security solutions ensure you can continue collecting digital artwork without compromising safety.
Contact Imagine IT today, the leading provider of managed IT services in Bloomington, Wichita, Sterling, Zeeland and Garden City. Our expert services will offer absolute protection against the threat of NFT scams and other prevalent cybercrimes.