As a new technology, NFT communities come with their own fraud risks.
Scams have been around for a long time. Even some ancient Egyptian tax collectors would skim grain off the tops of taxes for themselves. If there’s wealth to be drawn, someone is cooking up a juicy scam. The digital space is no different. Now, the internet has its own sordid history with frauds, cons, and charlatans. But with the rise of new technologies like blockchain and NFTs (non-fungible tokens), scammers are taking on new shapes. Or rather, they’re playing old roles on a new stage.
We’ve written about what NFTs are, but we felt it important to speak in-depth about NFT scams. And yes, there are NFT scams. So let’s look at 5 types of NFT scams as well as smart tricks to keep you from getting played.
The Wyshbox Blog
- Are there NFT scams?
- 5 types of NFT scams
- How can I avoid NFT scams?
Are there NFT scams?
If you haven’t read up on our breakdown of NFTs, head over there first to get caught up. But why all the discussion? Well, NFT sales topped $4billion at the beginning of 2022. So even if you don’t want to get involved, they’re something that’s grabbing a lot of attention. And where there’s attention, there are scammers.
Like other collectible markets, you’re bound to find bad actors. There are a number of collectible scams that people have fallen into over the years. NFTs are just digital collectibles, after all. So next, let’s look at what kind of NFT scams you should be looking out for.
5 types of NFT scams
Today we’re looking at 5 types of NFT scams - pump-and-dump schemes, plagiarized NFTs, fake websites, social media impersonation, and investor scams.
1. Pump-and-dump schemes
A “pump and dump” is a type of stock fraud where false or misleading statements are used to inflate stock prices. These inflated stocks are then sold to the general public at values higher than their actual worth. NFT pump-and-dump scams operate in a similar way. Investors artificially drive up the price of an NFT they want. Once their item gets enough attention, they sell to the highest bidder and cash out.
A great example of an NFT pump-and-dump was Squid Coin. Named after the hit TV show, Squid Game, Squid Coin’s creators inflated the value of their currency. However, the creators abandoned the project, cashing out $3.3million of investor money. This drained the value of the currency, creating a crash while investors were left holding the bag.
2. Plagiarism and counterfeits
NFTs are created through a process called “minting.” This means turning a digital file into a collectible on the blockchain. This is done to establish ownership. However, ownership is only verified of the NFT itself, not the original artwork. As a result, there are instances of artists having their work taken from platforms and minted into NFTs without their consent. These are then sold, often without the artist knowing. The artists also don’t see any of the money from these sales. One artist saw their artwork minted into approx. 86,000 NFTs without their permission.
If that weren’t enough of a problem, many NFT marketplaces are also rampant with counterfeit NFTs. How can there be fakes? Unfortunately, because NFTs are digital, it’s hard for buyers to confirm they’ll even receive an NFT after they transfer money. One platform recorded as many as 90,000 fake NFTs in only three months! These numbers suggest a sort of “gold rush” mentality that traps the unexpecting.
3. Fake NFT websites
Currently, there isn’t a central or official website for NFTs. A creator can choose where to sell their work. There’s a list of verified NFT seller websites to choose from. But there are also fake NFT websites. How are they fake? For starters, they don’t have any real actual NFTs on them. Instead, the website will be a phishing site that records the information you put in. NFT scammers are looking for your passwords, access to your wallet, and other highly sensitive information. Once they have what they need, they swipe your stuff.
4. Social media impersonation
Much like fake NFT websites, scammers will hide behind artificial social media accounts to swindle you out of your crypto. Social media scammers will approach you on a platform. They’re trying to see how gullible or desperate you are. They’ll offer you fake NFTs but take your real money. Or they’ll pretend to be another NFT seller and use their credibility to fool you. One NFT collector got scammed when someone pretended to be a marketplace customer support lead. Instead, the collector found out he had been targeted by a team of people.
5. Investor scams
Similar to pump and dump schemes, NFT investor scams involve receiving money for a project that’ll never happen. Because of online anonymity, it can be difficult to determine that someone is who they say they are.
An example of an investor scam was the Evolved Ape project. Launched in 2021, Evolved Ape was hyped as a fighting game with 10,000 unique NFT characters. However, a week after the project launch, the anonymous developer, EvilApe, disappeared. The official Twitter and website also vanished, along with $2.7million of investor money intended for project use.
How can I avoid NFT scams?
NFT scams are rampant right now. This is in part due to high-profile sales and a relative lack of knowledge for the unaware. Research is the best way to protect yourself if you want to get into the NFT scene.
Always verify the seller of a piece and check the transaction history. Multiple transactions in a single day might be evidence of an NFT pump-and-dump scam. Or if you’re unsure if a website is legit, verify its URL before buying. Always take a step back if you’re unsure of a sale or an interaction. And read up on the signs of fraud. Many sites and users have documented NFT scams that have happened or are happening. We’ve talked about 5 NFT scams, but there are many others. Educate yourself before you get in too deep. The best way to make smart purchases is to be, well, smart.