How to stay safe from NFT scams

The NFT market went through the roof in 2021, when it grew to around $22 billion and attracted around 280,000 buyers and sellers, along with around 185,000 unique wallets. But as the market has grown, so has the scope of cybercrime, with eye-catching reports of NFT scams, NFT art scams, and NFT gaming. Read on to learn more about NFTs and how to avoid NFT scams.

What is an NFT?

NFT is an acronym for "non-fungible token". In essence, fungible means exchangeable, for example, bitcoins are fungible, since you can exchange one bitcoin for another and, after the operation, you still have something with the same value. An NFT is non-fungible because it is unique and cannot be directly replaced by another NFT. NFTs can be any digital item: photos, videos, audio files, and more. They have generated a lot of excitement because of their potential to use technology in the sale and collection of digital art.

At their core, NFTs are a type of digital asset, and this is where the "token" part comes into play. When you buy an NFT attached to a digital asset, you do not acquire ownership of the asset itself. You may not reproduce or use it commercially. Instead, you take ownership of a record of purchase on the blockchain, which you can keep or sell again to someone else.

How do NFTs work?

NFTs are layered on top of a blockchain (a record of transactions stored on multiple computer systems) and point to a web link, such as an image file. In general, NFTs use the Ethereum blockchain, although other blockchains support them as well.

NFTs are created from digital objects that represent both tangible and intangible items. For example:

Art

gifs and memes

Videos

collectibles

virtual avatars

Music

This is not a complete list. NFTs can be almost anything: In a notorious transaction, Jack Dorsey, the founder of Twitter, sold his first tweet as an NFT for more than $2,900,000 .

NFTs are the digital equivalent of collectibles. Instead of getting a piece of art to display, the buyer receives a digital file. This gives them sole ownership rights, because NFTs can only have one owner at a time. The unique data associated with each NFT allows verification of ownership. It is also possible that the owners or creators store specific information within them, for example, articles may include their signature within the NFT metadata.

To collect NFTs, you need a virtual wallet that can store both cryptocurrency and NFTs. You also need cryptocurrency to make your NFT purchases. There are NFT marketplaces where you can search for NFTs for sale: some of the best known are OpenSea, Rarible, and Foundation. Many people say that NFTs are a way to support digital artists, while others argue that there is a resource cost involved in any transaction on a blockchain. If you are interested in NFTs it is essential to be aware of the risks involved, including NFT scams and fraud.

Types of NFT scams

Both cryptocurrencies and NFTs are relatively unregulated spaces. This means that there is a chance for criminals to exploit legal loopholes and carry out scams. That is why we have seen extensive media coverage on NFT Ponzi Scams, OpenSea Scams, NFT Art Financial Scams and others. The following are some of the more popular NFT scams:

Identity fraud

Third-party marketplaces like OpenSea exist to facilitate NFT transactions and provide security behind every sale. But criminals can set up imitation marketplaces with similar URLs to trick users. The visible component is a virtual component, which can be easily copied, along with information in a text file, which means that these websites can be very similar to legitimate marketplaces.

Rug pulls

A rug pull is a scam in which organizers deliberately promote an asset via social media to drive the price up. Once they have investor money, they stop backing it, resulting in loss of asset value and investor funds. A variation on this scheme occurs when NFT developers remove the ability to sell the token by adding code that prevents this, leaving buyers with an asset that cannot be sold.

Strategies to inflate and sell

Pump and dump schemes occur when a group deliberately buys an NFT to artificially increase demand. Believing that the NFT has value, unsuspecting buyers join the auction and bid. Once the supply increases, the scammers make a profit by selling the NFTs, while the buyers are left with worthless assets.

Phishing scams

Before buying an NFT, you need to sign up for a virtual wallet. NFT phishing scams often use fake advertisements to trick victims (for example, on Discord, Telegram, and other public forums) asking them to share their private wallet key, along with their passphrase. 12 words. Or, scammers can impersonate MetaMask and send fake alert emails, advising that your wallet is suspended due to security issues, and asking victims to click a link in the email. to verify your account. NFT phishing scams are designed to get your personal information and empty your digital wallet.

Customer Support Scams

Similar to phishing scams , hackers pose as blockchain marketplace customer support staff and contact victims via Telegram or Discord. Under the pretense of wanting to solve a problem, scammers send links to fake but official-looking websites to try to obtain personal information and access to cryptocurrency wallets. They may also ask you to share your screen to solve the problem, when in reality they want to see and take a screenshot of your cryptocurrency wallet credentials.

Offer scams

Deal scams occur when investors seek to resell NFTs they purchased on a secondary market. Bidders can exchange your preferred currency for lower value cryptocurrencies without notifying you, once the sale of your NFT is complete. This can result in potential losses for the seller if they don't double check the coin before agreeing to a sale.

Counterfeit NFTs

Scammers can plagiarize an artist's work and post the fake version on an NFT marketplace. Buyers who do not know this can buy a counterfeit NFT that is worthless.

NFT Giveaway Scams or NFT Giveaways

Scammers can pose as genuine NFT trading platforms on social media to promote NFT giveaways. They usually offer a free NFT if you spread the word and sign up on the website. Once you register, you are asked to associate your wallet credentials in order to receive the "reward". Once they have the credentials, they can access your account and steal from you.

investor scams

Due to the anonymity associated with cryptocurrency trading, investor scams are common with NFTs. Scammers take advantage of anonymity by creating projects that appear to be viable investments, then disappearing with the funds they have collected from investors, without a trace.

Examples of NFT Scams

2021: Evolved Apes

An example of NFT rug pull happened in October 2021. A collection of 10,000 "Evolved Apes'' were released on the market. Buyers were supposed to receive a unique copy of each "Ape," made up of items that could take on each other in a vaporwave fighting game, with the prizes being cryptocurrency rewards. NFT's initial offer was to get funding for the game. However, once the developer, known as "Evil Ape", raised 798 Ether (equivalent to around $2,700,000, at the time) he disappeared, leaving investors with nothing more than a worthless .jpeg file.

2021: Fractal

Fractal is a marketplace for NFT game items. In 2021, a group of scammers created and spread a fraudulent NFT giveaway that resulted in users losing over $150,000 worth of cryptocurrency . Buyers expected to receive a limited edition NFT. Instead, they received an unpleasant surprise, discovering that the link sent through the project's official Discord channel was a scam aimed at stealing cryptocurrency. Users who followed the link and associated their cryptocurrency wallets in the hope of receiving an NFT found that their funds had been transferred to the scammer's account.

2022: Frosties

The Frosties NFT scam was an example of a rug pull scam, which led to the theft of at least $1,200,000. The creators of a collection of NFTs, under the Frosties name, absconded with the investor funds. They shut down all channels of communication with members, stunning a community that had grown to nearly 40,000 members and was expecting various awards.

How to avoid NFT scams

investigate

Check the details of all transactions before accepting the conditions. Is the market you are going to use trustworthy and recognized? Can you see the transaction history of the buyer or seller? Read reviews and look at the creators' engagement level to see if they've had transaction-related complaints in the past. If you invest in a project, check that the developers are genuine.

Don't open files from sellers you don't know well

Hackers have created viruses that specifically target cryptocurrency wallets. Avoid clicking on links in unsolicited emails, as they can also lead to fraudulent exchange sites. Never click on links or attachments from unknown sources.

Be careful with giveaways

Although common in the world of NFTs, sweepstakes or "giveaways" can carry security risks. Each NFT is bound by a contract that determines what can be done with it; This means that hackers can attach authorizations to access your wallet, sell your shares, and more. Never accept an NFT from someone you don't know or trust.

Never share the private key or passphrase (seed phrase) of your cryptocurrency wallet with anyone

Keep your private key and seed phrase secure. If someone has that data, they will be able to access your wallet and delete any NFT or cryptocurrency without leaving any traces. Use strong passwords for the cryptocurrency wallet and other NFT accounts. Use two-factor authentication for all NFT accounts, whenever possible.

Check the project creator

Before transferring money, find and verify the contact information of the creator of the NFT you wish to purchase. Check that the project creators are honest and transparent about who they are. If you can't find clear information about the entities behind a project, this is a red flag.

Only trade with official sites

Always go directly to verified cryptocurrency trading websites and avoid using links or pop ups to enter key wallet information. Resist the lure of so-called bargains, which could lead to questionable blockchain networks.

Avoid visiting untrustworthy sites

It's easy to make spelling mistakes, but sometimes misspelling a URL can end up in the wrong place. In the world of NFTs, scam sites can be very dangerous. Always check the URL to make sure you're on the right site, and avoid doing anything you're not comfortable with. Remember that if it sounds too good to be true, it probably is.

Check the price of the NFT project

Before making any NFT purchase, check the price on an official trading platform, such as OpenSea or others. If the price is lower than on the legitimate trading site, be careful, it could be a scam.

Use burner wallets (disposable wallets)

A burner wallet allows you to limit the number of funds you want to allocate to a given purchase, including cryptocurrencies for transaction fees. This reduces your risk exposure in the event of a scam.

check check marks

Most legitimate NFT sellers have a blue tick next to their usernames on OpenSea or other NFT marketplaces, and the collection properties are clearly listed. Check that the artist you are purchasing from has a verified account and is the legitimate artist. Find the artist on social media channels or through their website. You may want to ask them directly if the art piece you wish to purchase is theirs, and if you have the correct user profile.

Conclusion

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