Keen attention and interest have been drawn to NFTs since they became popular in the early months of 2021 after several high-profile sales and art auctions were made. But with the growth also comes an increasing number of scams.
NFTs make it possible for people to make money from trading digital assets such as unique digital artwork, digital collectibles, a domain name, and even an essay. These scammers aim to dupe people and businesses of their money and their collections.
According to this article on Gamingonphone – a mobile gaming website, about $625 million was stolen by hackers from the Axie Infinity gamers blockchain in March 2022. Now that is a lot of money if you ask me. The perpetrators used private keys to make withdrawals of 173,600 Ethereum and 25.5M USDC from people’s wallets. This has been described as the second largest crypto heist.
Another example of an NFT scam was the Frosties scam that led to the theft of over $1.2 million in January 2022. Fortunately, in March it was reported that the perpetrators have been arrested.
NFTs have a variety of use apart from trading and creating them on marketplaces. businesses use NFTs for:
- Real estate transactions
- identification and documentation
- domain name ownership
- loyalty programs
- representing ownership of assets
With the growing level of scams in the NFT space, it is paramount to be aware of the different types of these deceits and also the ways to avoid them. For those who are not familiar with the concept of NFTs, I will give a brief definition of what it is below.
What is an NFT in simple terms?
NFT is an acronym that stands for Non-Fungible Token. Simply put, an NFT is a digital asset on a blockchain that links ownership to either a physical or a digital item such as artwork, music, a real estate contract, etc. All the transactions record ownership by appearing in a digital ledger.
The value of an NFT comes from its uniqueness and as such cannot be replaced or recreated. Think of it as a digital auction where people go to buy a rare piece of art or items (kinda like you see them in movies).
NFTs are so expensive, lots of which are sold for millions of dollars. Here is the list of the most expensive NFTs.
Top 10 most expensive NFTs in 2022
- The Merge – $91.8 million
- The First 5000 Days – $69.3 million
- Clock – $52.7 million
- Human One – $28.9 million
- CryptoPunk #5822 – $23.7 million
- Alien CryptoPunk – $11.75 million
- TPunk #3442 – $10.5 million
- CryptoPunk #4156 – $10.26 million
- CryptoPunk #5577 – $7.7 million
- CryptoPunk #3100 – $7.6 million
In 2021, NFT sales reached a whopping $17.7 billion. According to earthweb, 3,200 NFTs are sold per day.
Sorry for diverting a little from the main topic guys. Let me now share with you 6 different types of NFT scams you should know.
Common types of NFT scams you should be aware of
I stated previously that the aim of an NFT scam is either to dupe you of your money directly or get the credentials to your digital wallet and here are 5 different ways in which these are done.
Phishing is luring people through adverts or links shared on social media and other platforms to fake NFT websites or the marketplace. Most of these websites are clones or replicas of an original and authentic platform. The level of resemblance is so impressive that you might not notice.
These websites then ask users to enter their private wallet keys to gain access to their digital wallets. This method might be old, but trust me it is still very popular. Once you provide them with this information, they can access your wallet and make away with whatever amount of NFT collection you have.
Social media impersonation
Scammers create fake social media accounts to lure or convince people to buy some fake NFTs. They often add these social media links to their websites to make them look legit.
This is also one of the most common forms of scams, not only in NFTs but also in cryptocurrencies as a whole. Anonymity makes it easier for scammers to conduct investing scams since NFT buying and selling are done anonymously.
They create an interesting project for people to invest in, and then without a trace, they disappear with people’s money. A recent example of this investment scam is the Evil ape project where they made away with over $3 million in investments.
Pump and dump
A scammer or group of scammers buys an NFT or a cryptocurrency in a very large amount which makes the demand increase thereby pumping the price. After the price has pumped, they sell off their stakes or dump the asset to cash in on profits leaving other investors at loss.
This one involves scammers using social media outlets to promote an asset for the giveaway. In the promotion, they offer NFT in return for people spreading the word about the project and signing up on their websites.
There have been some notable airdrop scams in the NFT space and also in other cryptocurrencies. After signing up, they prompt you to link your wallet credentials to their websites for you to collect your prize. If you already guessed what they will do with your credentials when they have them, then you guessed right.
Rug pull scam
The Frosties scam mentioned earlier is an example of a rug pull scam. These scammers promote a fake NFT project and pull lots of buyers with the promise that they will make money. The promotion stops after several people buy, and none of the promises are fulfilled. Also, the scammers remove the ability for people to sell these NFTs after they are gone.
8 ways to avoid NFT scams
If you have read this article to this point, I am quite certain that you are already familiar with the concept of NFTs and the various types of scams associated with them. I will now give you some tips on how to avoid these scams and further protect your assets.
- Always research the NFT seller: This is where you should show your “FBI skills.” You should properly look up the seller, check their NFT marketplace accounts to avoid common scams, and also check their social media. Look for any online reviews and also any previous listings from the seller. Also, check if they have the blue tick verification badge on their NFT marketplace account.
- Do not click on suspicious links: Since most of these scams start with directing people to a website or marketplace, it usually comes with a link. Always trust your guts, if it doesn’t seem right, don’t click on it. Always directly visit the site instead of clicking on the link even if it looks to go to a real site.
- Keep your keys private: Your private keys are the security of your crypto wallets. Never share your wallet information with anyone even if they promise you all the NFTs in the world. Also, you should keep your recovery codes private as well.
- Review the transaction history of the NFT: Be mindful of NFTs with one-day transaction history. They are usually suspicious.
- Use well-known NFT marketplaces: There are well-known and reputable marketplaces where you can buy and sell NFTs such as OpenSea, Rarible, Mintable, Foundation, MakersPlace, and Axie Marketplace. Never believe an offer that is too good to be true. Stick to what you know.
- Create strong passwords: Your NFT wallets deserve very strong and non-guessable passwords. Always make sure to use two-factor authentication for your wallets so you can be alert and aware when there is a suspicious login attempt on your wallet.
- Cross-check the NFT price: When you see an NFT and want to buy it, always do some research and check the prices across other platforms to make sure that it is the same. If the prices are way lower or higher than the general market price, stay away from it because it is most likely a scam.
- Watch the bids: Before you accept a bid, make sure to double-check the currency. If they are lower than expected, don’t accept it.
I hope you found value in this content.