In the last 12 months, NFTs (Non-fungible tokens) have exploded into a multi-billion dollar industry. NFTs have disrupted the art market, and everybody seems excited about them. The multi-billion dollar industry is also an exciting place for scammers to try their hands in. Let's explore the different ways scammers try to steal your money and make it a bad experience for everyone.
However famous NFTs are right now, the technology is still in its infancy. Anyone can hire freelance artists to create a set of generative NFTs and then hype up their project with influencers. This hype makes it difficult to differentiate real creators from scammers, especially with so many anonymous creators and collectors. It's not only newbies but also long-time investors who fall for scams such as the Multimillion-Dollar NFT Collection Stolen From Gallery Owner Todd Kramer. With an influx of creators, collectors, and investors in the decentralized space, scammers have also infiltrated the NFT industry in hopes of making good money.
When investing in NFTs, you need digital crypto wallets like MetaMask to perform transactions on the blockchain. On the Ethereum blockchain, MetaMask is the most popular and trusted crypto wallet. However, thousands of MetaMask users have fallen victim to a targeted phishing scam that involved ads asking for users' 12-word security seed phrases. There are also numerous fake copies of legit NFT websites circulating through Discord, Telegram, and various public forums. Sometimes, when you google the name of a project, the phony site ranks higher than the original one. These sites act as forms that collect your wallet credentials when you enter them on the site. Once a scammer gets hold of your private information, they can drain your wallet of all assets.
The best way of avoiding phishing scams is by never sharing your seed phrases anywhere. The 12-word security seed phrases are only required to recover your wallet or create hardware backup for it. It would be best to refrain from entering sensitive information in any pop-up. Always try to visit the verified site for any crypto transactions and avoid using links, pop-ups, or emails sent to you. Please write down your seed phrase on paper and don't store it anywhere digitally.
Most things in the NFT community happen virtually, including sales and marketing. It is easy for consumers to get catfished with all the social media marketing around NFTs in Discord and Telegram. Many popular NFT communities also hire social media influencers and celebrities to promote them, making it hard to differentiate the real from fake. There are scammer-led groups for almost all the brands in the crypto space. Most of these scammers claim to be the "official" support or community of the targeted brand.
It is a well-known etiquette in the NFT community that no C-level staff will directly contact you unless you contact them first or make a prior agreement in a public forum. So if you ever receive any direct text from anyone claiming to be an official, celebrity, or NFT founder, you should never respond. It is just like when you were a kid, and your parents told you not to talk with strangers and accept anything they give. You can apply the same thing in the NFT space; when some stranger contacts you first, don't speak with them or click on any links.
You can imagine a pump and dump scheme as a person or group of people buying a lot of NFTs or currency and artificially raising demand. When the price successfully goes up, the schemers cash out their assets and leave other investors with a bunch of over-priced assets. Presently, pump and dump schemes have become a predominant problem in the NFT and crypto world. Some NFT projects are also not technically scams but have minimal liquidity. This is due to a few aggressive buyers (NFT Whales) buying up most of the NFTs in a project. When you have an entire collection controlled by merely 20 to 30 people, none of them have any pressure in selling their NFTs. If you want to get an NFT from that collection, you must pay an extremely high floor price.
Before investing in any NFT project, you should check its wallet history thoroughly. You can use tools like Etherscan to limit every incoming and outgoing transaction on the Ethereum blockchain. Make sure also to restrict the number of buyers and transactions of the particular project on the respective marketplace. To avoid these honeytraps, you should always invest in projects with more buyers and, therefore, more liquidity. You should also follow the project on Twitter and join their Discord community. To invest in a project with good liquidity and good future value, look for an active community of engaged investors who engage with the project and share information.
With the number of NFT projects being released daily, plagiarized NFTs have become very common. Recently, a Banksy-style artwork sold for about $1 million in cryptocurrency. It has become easy for anyone to turn any photo or image into an NFT using OpenSea's NFT minting software. But minting an artwork as an NFT doesn't mean you have intellectual property ownership. Scammers can steal an artist's painting and put it up for auction in a fake marketplace account. Even with a bit of carelessness, you can end up with a counterfeit NFT that has no value.
Counterfeit and plagiarized NFTs can easily be avoided if you are a bit careful. Before you buy an NFT, make sure you are purchasing an NFT from a verified account. Usually, a verified account will have a blue tick mark next to the profile picture on most marketplaces. It would help if you were careful of fake blue ticks; a verified account has a blue tick on the border of the profile picture and not inside it. You can also directly contact the artist on Twitter or other verified social media accounts. If you buy into an NFT project, you can join their official discord server and ask other community members to verify the account.
Bidding scams usually target NFT holders who have listed their NFTs for auction on the secondary market after purchase. These scams happen in two ways. The first one is changing the bidding currency, for example, bidding 5$ for an NFT that you have listed for 5 ETH. The second way is sending NFT holders fake emails claiming that they have received an offer for their NFT. This is similar to phishing scams, as when you click on the link in your email, it takes you to a fake website.
The best way to avoid bidding scams is to double-check the currency used to bid on your NFT and never click on any links you got via email. You should always visit the official site for checking bids and never accept an offer lower than what you want.
With the hype around NFTs in 2021, we see hundreds of new projects pop up here and there on various blockchains. Recently, Squid Game token was released based on the Netflix series Squid Game. However, when the price reached its peak, the owner liquidated all his assets and took off. This is the perfect example of a rug pull scam, where scammers abandon their malicious project after collecting the desired capital. Only the creators make money in such a scam, while the investors are left with meaningless junk.
To avoid rug pull scams in the crypto space, you must do your due diligence and research an asset instead of buying it immediately. This is essential for differentiating between promising investments and rug pull projects. Reading crypto news comes in handy to avoid the fear of missing out. Whenever you see a project with anonymous developers, missing a good whitepaper, or too much meaningless hype, you should stay far away from it.
While you can use blockchain technology for solving various problems, there are also numerous ways to exploit it. New scams are storming the NFT market every day, and it has become more important to stay educated and updated. Your NFT journey should start with a lot of self-education, but it is easy to get overwhelmed. That is where NiftyHype comes to your aid. NiftyHype is an all-in-one NFT guide website that can make your NFT journey much more fulfilling and rewarding. Be it NFTs related to Art, Music, Games, new releases, reviews, or guides, we have got you covered. The losses incurred in the NFT space are pretty real, so stay alert, make well-researched decisions and never invest anything that you can't afford to lose.
To become a pro-NFT trader, read 7 NFT Tools You Need to Trade Like a Pro.