Exercising caution

Hype for NFTs has peaked and troughed then peaked again since they captured the (crypto) public’s attention. Billions of dollars have poured into the NFT market and various takes have considered them the hottest new collectible hobby, a powerful investment tool, the future of art and protection for artists, the future of ownership, and even the future of the internet.

But is it all upside?

This article highlights risks and potential traps for the unwary, the unlucky, and even the most crypto-savvy NFT maximalist.

SCAMS!

The internet is a scammer’s wonderland. From the early days of e-commerce we have relied on trust between buyers and sellers, which can all too often be illusory. This is, among other reasons, why the giant e-commerce houses such as Amazon have become what they are, by ensuring that buyers are purchasing what they want and that it gets to them. But even with the best Web2 systems and buyer protection schemes in place, scams and rip-offs still occur.

The blockchain technology that NFTs are based on, through its validation mechanisms explored earlier, promises a ‘safer’ world in which a scammer’s life is made harder. In some settings, however, that promise has yet to be realised.

Below are a few examples of scams that have popped up in the NFT world.

Fake stores and marketplaces

Clever scammers can create web pages and sites that are very sophisticated replicas of popular, legitimate NFT platforms like OpenSea. Fake marketplaces and stores can look and work like the real thing and can be very hard to spot.

So how can you pick a fake?

1. Research the NFT you’re interested in. If an NFT you’re interested in normally trades for thousands of dollars, be very wary if it’s priced significantly below it’s worth.
2. Check the unique properties of the NFT you’re interested in. Fake NFTs won’t have any properties listed, while real NFTs will.
3. Check the contract address of your chosen NFT. You want to be sure that the minting address matches the official site of the original creator. A fake will show an incorrect minting address.
4. Make sure it’s coming from a verified seller. In a similar way to Instagram, Twitter, Amazon and eBay, official stores and markets will have a blue tick or similar indication next to them to show that they are legitimate. If you’re looking to buy an NFT, especially an expensive one, check that your seller is verified before you commit.

Social media impersonators

Just like fake marketplaces and stores, scammers can copy Twitter, Discord and other social media profiles by using images of popular creators and sellers and their artwork. As with the scams listed earlier, check for a verification tick (if the platform has this).

We also suggest doing a few Google searches for accounts with similar names. If one has very few followers and another has many it’s more likely that the one with more followers is the legitimate one. And as before, check the price and other details of the NFT. If the price is too good to be true or another detail doesn’t add up, you could be looking at a fake.

Fake Customer Support

Scammers can also replicate NFT customer support pages to ‘con’ unsuspecting NFT owners into divulging personal or financial information. The scammer might fake a problem via email or DM and ask for money or personal information to ‘fix’ the problem.

This scam is believed to be common on Discord, where many NFT and crypto communities operate. As with the other scams we’ve discussed, you can check on this by searching for similar named sites, checking the number of followers, and tracing back to the original creator.

Being ‘Rugged’

‘Rug-Pulls’ are a scam on investors, where a project is floated to the market when the project ‘developer’ has no intention of ever delivering what is promised. They are actually marketing schemes to suck in investor funds with the intention of making off with those funds when they have enough.

In one example, the anonymous developer of an emerging NFT project called ‘Evolved Apes’ made off with 798 ether (at the time valued at US$2.7 million), after investors poured copious amounts of money into the project. The investors involved ‘had the rug pulled out from under them’.

In the crypto world where many investors are hungry to get their slice of the next big thing, and unscrupulous project promoters have ways of ensuring their anonymity, rug-pulls are not unheard of. As with any other investment, do your research and due diligence before committing.

Giveaway Scams

Similar to the fake customer support scam, a fake NFT account will message users on Discord or Twitter telling them they’ve ‘won’ an NFT. The user is directed to a fake website that asks you to connect to their wallet and enter their seed phrase in order to receive their ‘gift’. Armed with your seed phrase and your wallet address, the scammer can get in and drain your wallet.

Unlike internet banking where you can change your password and/or alert your bank, there is likely nothing you can do to stop this happening. Again, be vigilant, if a deal looks too good to be true. If it appears dodgy in any way, just don’t click on the link. Many of us have been educated to not click on links in suspect emails and the same applies to suspect social media messages.

As much as we would like to think that the blockchain and crypto world is ‘different’, scammers are everywhere, and cyber-criminals are coming up with even more sophisticated forms of trickery to part you from your valuables. By being vigilant and alert to the latest scams, doing your research, and maintaining good ‘internet hygiene’ you can minimise your risk and maximise your utility and enjoyment in the world of NFTs.