© Protocols And Tokens Pvt. Ltd.
Scams have always been a significant threat to cryptocurrency investors and NFTs are no exception. Even as security measures improve in future, hackers will still find other sophisticated ways to lure and trap you in different NFT scams.
Over the last few years, NFTs have undergone a whole new paradigm shift and are now seen as mainstream investment options. However, fundamental awareness around its authenticity and technical facts remain to be a ‘tough nut to crack’ for many investors.
“Avoid curiosity, stay dumb and poor
Get too curious, stay dumb, poor, and even scammed!”
–Ritu L
Essentially, there are two types of NFT buyers in the market. The first one is aware of the legitimacy and the working mechanism of NFTs. In contrast, the second one is less proficient at NFTs but still considers them good investments.
Undoubtedly, the chances of falling for NFT scams is higher for the second one because scammers are more likely to target less experienced people in marketplaces.
There will always be scams in every money-making market. It cannot be nipped in the bud, but it can be avoided if investors are careful. So, every market participant must know the types of NFT scams and how to avoid them.
Multimillion-dollar auctions are becoming an everyday routine for NFT marketplaces. Investors are thus pouring their money into digital collectibles and looking forward to quickly becoming billionaires.
Sotheby’s, Christie’s, and OpenSea attract prospective buyers with their exclusive collections. Amidst the spectacular rise of NFTs, the marketplace spammers are always on their toes to planning and plotting a scheme to trap investors.
The following are the types of NFT scams that you must be aware of and also try to prevent:
Duplicating original NFTs is a typical type of NFT scams. Here, scammers copy the original work of an artist and then create NFTs.
These copied or stolen NFTs are listed for further auctions in the marketplace accounts of scammers. Such NFT scams are so well plotted that the buyer may think these are original works and would instantly buy one.
Eventually, it occurs to owners that they have been duped with worthless art pieces. At last, owners who buy such copies end up with worthless art pieces. Unfortunately, there is no going back from this point!!
For instance, Lois van Baarle, a Dutch digital and animation artist, found 132 artworks of her for sale on OpenSea. The artist tweeted that ‘none of those artworks are listed with her permission.’
Lois added that NFT platforms barely respond to such duplication issues and went on to reveal that she doesn’t mint her artworks as NFTs.
And mind you, Lois van Baarle is not the only artist who has been subjected to copyright infringement issues. In fact, several other digital artists worldwide have gone through similar cases of NFT scams
Another instance is that of DeviantArt, an online community for artists which has half a billion digital artworks. This community discovered more than 90,000 copies of their artworks on several NFT platforms. Artists of the DevianArt community are now scrolling the NFT marketplace to find out their paintings.
The second case of duplication is creating NFTs similar to a popular NFT collection. This replication confuses investors and most investors believe it is a new collection created by the original premium collection team. Buyers of such plagiarized NFTs turn out to be the major losers in this scam.
PHAYC #8277 Phunky Ape Yacht Club #8479
PHAYC and Phunky Ape Yacht Club are trying to flip or imitate original BAYC NFT apes. Buyers who are not thoroughly aware of the original BAYC may buy these versions from non-verified sellers.
To what extent can artists and marketplaces prohibit duplication?
OpenSea has already explained their side on such issues. An OpenSea spokesperson stated that selling plagiarised NFTs is against the platform’s policy. The OpenSea technical team continuously tries to delist such NFTs and ban the seller.
The NFT marketplace also informed its customers of its increased efforts to curb fraud and plagiarism. OpenSea recently introduced security features to hide suspicious NFT transfers. In January, the marketplace reversed the decision of ‘no limit on minting’ and set it to a ‘50 item and 5 collection’ limit for free minting to help the creators.
Artists say NFT marketplaces rarely perform any validating methods to avoid this copyright infringement. In addition, they do not use any sound methods to verify the original artist. Ultimately, it is up to the buyer to make sure they pay for the original artwork.
NFT scams occurring through duplicate artworks purely require precautionary measures from investors themselves. One can consider researching the seller on more than two platforms before purchasing an NFT from a particular collection. One must also cross-check the details of the seller’s account with their social media profiles.
Platforms like OpenSea show a ‘blue tick’ next to the seller, indicating the seller’s legitimacy. One must always try to buy NFTs from a verified seller.
Phishing scams are yet another type of NFT scam that involve advertisements on local websites and phone calls that ask users for their private wallet keys or their 12-word security keyphrases.
Usually, NFT buyers are required to sign-up for a wallet before purchasing NFTs. MetaMask is one such popular Ethereum wallet that is highly preferred by users to collect their NFTs.
Last year, Metamask customers were alerted to a phishing scam that asked for the 12-word security code of customers. Metamask later tweeted out that it is a big scam.
It all transpired when a MetaMask e-mail scam had asked wallet owners to verify crypto wallets to comply with updated regulations. Additionally, the spam e-mails mentioned that users’ accounts would be restricted in case the required action is incomplete.
In such an occurrence, if customers verify accounts using the spam link, hackers ultimately steal their valuable assets. Many, among the one million user community of MetaMask had reported the loss of their money.
An E-mail scam is not the only case. Recently, Metamask customers faced a phishing hack via Google ads. The victims found their MetaMask wallets empty because the assets had been stolen and transferred to the defrauder’s account.
Furthermore, Metamask cautioned Apple users against possible phishing attacks targeting iCloud.
MetaMask is not the only victim of the Phishing scam. In May, 29 Moonbirds NFTs valued at about 750 ETH, approximately $1.5M were lost in a phishing scam.
One must check the domain URL before opening. Users should make sure to not verify or perform any activity associated with the wallet through external links.
Whenever an activity asks for any of your sensitive data or security, one must confirm with the customer support team or community.
In case of MetaMask wallets, fulfill verifications and other activities associated with the wallet through the official domain ‘MetaMask.io URL’ and do not click on sponsored ads or other unofficial links.
In a typical rug pull scam, promoters try to create a pre-hype around the NFT collection through social media channels. Later, developers suddenly abscond with the money once people have invested enough in it. The underlying anonymity of the decentralization space makes it easy to pull off such NFT Scams.
Thus, rug-pulls happen after ‘hyping and promotion’ boosts both the price as well as the recognition of the tokens. And as soon as enough NFTs have been sold, the advocates abruptly stop backing the NFT. Consequently, the market price of NFT gradually declines and falls to zero.
In another rug pull variant, the developer modifies the underlying code and prevents holders from reselling the NFT. In this scenario, the creators may get enough money from the initial sales, but it is the investor who is on the losing end.
Recently, Jake Paul shilled “The Animoon” project turned out to be a rug pull of $6.3 million.
Early this year, in an instance where 8888 NFTs under the Frosties Project fooled investors, Federal prosecutors had charged two men for the NFT scam of $1.1 Million.
So, how does one know they have been ‘rug-pulled’? Notably, this is one dangerous category of NFT scams and is quite difficult to identify because of how subtly it is carried out!
Before diving in any NFT investment gamble, investors must check out the social media profiles of developers. They should also note the engagement over followers count (as high engagement and followers are good signs).
These steps must then be followed by identifying the project team’s past collections and how it performed so far.
Users must also watch out for red flags like conflicting information and an unresponsive team. Additionally, check out the official website in detail. A clear roadmap on the website is an added advantage.
Also Read: Rug Pull Scam: Absconding With the Investors Money
Bidding scams are a common type of NFT scams and mostly occur in the secondary market to fuel the price up. Upon listing NFTs for resale, bidders change the preferred currency to a low-value currency.
Altering the coin turns out to be the sore point for NFT collection as the change in currency value leads to potential losses for investors.
Assuredly, bidding scams are not just easy to spot but also to escape. For that, you must always double-check the currency listed and refrain from accepting bids that are less than your limits.
Pump and dump scams are common in every trading marketplace and that includes the NFT space too. Fraud refers to artificially driving the demand up for NFTs. Once the pump increases the price of the NFTs, tricksters dump their whole assets at a good profit.
Usually, this happens when a person or group buys many NFTs from the same collections. They bid for a price rise and sell off at a price hike. The fraud leaves other investors who bought the NFT by considering the rising demand, in the red!
There’s something called ‘Wash Trading Technique’ that is a part of this fraud. It happens when the same person buys and later sells an asset, thus pumping up the price further.
The NFT market has a profound history of pump and dump scams. One of the first NFT collections, Cryptokitties, had also faced pump and dump allegations.
In its initial days, Cryptokitties gained enormous mainstream attention so much so that prices of some of the artworks rose to $155,000. After six months, investors were left in the dark following a ninety-five percent drop in prices.
If we were to see a recent illustration of this type of NFT scam, then we can’t miss out the Mojang controversy! A week ago, Mojang Studios declared a ban over NFTs in its popular and decade-old game “Minecraft” citing pump and dump as one of the reasons behind the call.
When you come across such sudden NFT price surges, check out the price history of the collection. Not just this, but one has to be aware of the wallet records of the same. Luckily, NFT marketplaces like OpenSea have this facility for checking wallet records.
Note the total number of trades during the hype stage and transaction history. If fewer people are involved in buying and selling of NFTs, it’s a straight up a ‘Red Flag’.
Meanwhile, analyze the discord, Twitter, and community discussions to know the opinion of others. Scanning the price-hike environment can help you to identify the reason for the price pump. And again, stay away from a low-valued project, if you see a sudden hype!
Well, what seems like an act of ‘Robinhood-styled’ giving away can have some underlying motives. Airdrop scams refer to instances where scammers post free NFT giveaways on social media. After heading to the link, scammers ask users to agree to “terms and conditions”. Additionally, they ask users to share the message or tweet with others.
Upon clicking on such a link, the user is then prompted to connect their MetaMask wallet credentials to claim the prize. The credentials you enter will be stored on their system. Spammers will gain access to your MetaMask library and can easily steal your assets.
For instance, Fractal, a startup NFT marketplace, faced an airdrop attack last year. The Discord server of Fractal was hacked, and 373 users lost money worth $150,000.
Discord channel members got an offer message to mint celebrity NFTs. A fraudulent link was posted to lure users. When Fractal members went ahead and minted through the affected URL, they lost their SOLANA tokens.
In a similar instance, hackers targeted a number of popular crypto YouTubers via a fraudulent video promoting a fake crypto giveaway.
Also Read: Hacker Hijacks 30 Crypto YouTubers to Broadcast Giveaway Scam
It is easy to bypass NFT airdrop or giveaway scams. How ??
Well, if you are not sure about the website’s legitimacy, DO NOT CLICK. Visit the websites or social media associated with the hidden links to clear up any confusion.
Technical or customer support frauds are actually quite a casual sight in every industry. Fraudsters find NFT holders’ contact details through Discord, telegram, or Reddit to carry out this kind of NFT scam.
They will reach out to users with fake identities created through legitimate looking sites. Scamster posing as technical staff of the marketplaces try persuading the users with schemes. Sometimes, these fraudsters also pretend to resolve issues and ask for sensitive information from consumers.
The charlatans will ask for your digital collectible’s credentials and sensitive data if you are convinced. Once you provide the information, assets will be stolen from the NFT owners.
Note that the official team may not reach out to the community members via social media. Thus, do not provide any sensitive information through social media. Contact the official team before responding to messages that ask for sensitive customer information as an NFT scam might be waiting for you too!
Highly skilled NFT swindlers create replicas of original marketplaces to carry out this sort of NFT scam. The designs will be similar to the original websites. The similitude is directed to confuse owners about the legitimate page.
This kind of NFT fraud falls under the title ‘social engineering scams’. If they are not carefully looked at, owners lose their money by buying NFTs from such scam websites.
Enough research about the legitimacy of the official URL of the website should be done before doing any website activity. Check the domain. Never use links, pop-up messages, or email letters to enter the website.
Celebrities and influencers can have a big impact on the popularity of an NFT project. Hence, NFT developers approach influencers to promote their projects. The public may fall for such NFT scams before even identifying the fake endorsements.
In some instances, scammers try to create phony promises in the name of charity. In June, a Brazilian teenager got scammed by a fake NFT influencer named Mineeervas for 0.14 ETH.
Mineeervas was accused of selling the victim an alpha pass for 0.14 ETH for a project allegedly driven by Murat Pak and promoted by Punkie. Eventually, the buyer identified the scam and realized the pass was for a fake project.
Do good research about the project. Verify the influencer’s social media handles to see if they are associated with the project. There will be official promotions from influencers if there is an association.
Social media, especially Twitter has become a great channel for carrying out this NFT scam. And well, algorithms have their own part to play therein. As you start involving in NFT conversations, twitter starts recommending more of that content to you.
Thus, fraudsters create a ‘Stealth Drop’ NFT, which ultimately appeals to unsuspecting users who think of it as a ‘good deal’. The NFT, as goes the tactic, is depicted with promises of ‘quick riches’ but in all actuality becomes the bait for pulling innocent users into an NFT scam.
One way to spot a Stealth Drop project is to check if their Discord channel is a closed one and is open only via invitations. Usually, the fraudsters will only invite prospects who are easy prey for NFT scams.
Conclusion
The NFT market prospered and grew to a great extent since last year. The beginning of this year posed tremendous challenges to security for NFT marketplaces.
In India and the US NFT market, theft and crimes hit an all-time high in January 2022. Hence, experts in the NFT market warned investors and owners to be cautious.
Paradoxically speaking, besides all the earning opportunities, NFTs are also rife with risks! Scams and frauds are a part and parcel of opportunities, so scammers continue playing tricks in NFT marketplaces.
Thus, one must take time to research projects. Use two-factor authentication and strong passwords. Be careful of any action performed on official websites. Before taking any action, verify every piece of information twice.
Regardless, no one wants to miss out on profit opportunities even at the risk of being scammed. As investors, one must keep greed at bay and emphasize cautiousness. People can avoid falling victim to scams to a large extent by paying close attention.
We can’t help stressing more on what the poet Horace had to say on Greed- He who is Greedy is always in want..!! So stay curious and hungry but alert.
© Protocols And Tokens Pvt. Ltd.
