Beware of NFT Scams: Rewarding, But Very Risky

By Shubhangi Shah

What if you could sell a JPEG image, a meme, or a GIF for tens of thousands of dollars? Welcome to the world of non-fungible tokens, better known as NFTs. For the uninitiated, NFTs are digital assets, and can be anything from a piece of digital artwork, a JPG image, memes, or GIF to collectibles for music, videos, and video games. These are traded in cryptocurrency. That’s why NFTs sound great on two fronts: for the creators, like artists, it gives them an opportunity to sell their artwork. For buyers, they can not only collect assets that they are passionate about, but also sell them at a higher price, making a profit.

Clean, isn’t it? Yes, NFTs can be a great tool for sellers, buyers and NFT marketplaces to make money. But does nothing lucrative attract its share of scammers and fraudsters? The same goes for NFTs. Recently, several NFT marketplaces have come under fire after customers were siphoned off their NFT and cryptocurrency collections. In fact, the top NFT marketplace OpenSea was sued earlier this year over such an issue.

Yes, investing in NFTs can be risky, but also rewarding, and some awareness can protect you from being scammed.

Common NFT Fraud

While these can be of many types, some common NFT scams to avoid are:

Counterfeit NFTs: As the name suggests, counterfeit NFTs are not original, but duplicate or counterfeit versions of the original. Quite simply, an artist creates a work of art and a scammer copies it and puts it up for sale on an NFT marketplace. Because there is no clear way to distinguish duplicate from original, the buyer ends up shelling out more than its value.

Phishing: Phishing is not something new in the digital space. This type of scam basically includes fake emails, pop-ups or messages on WhatsApp or Telegram that take you to a fake website. Once there, you will be asked for the key to your private wallet. Once the scammer gains access to it, you can be easily siphoned off your NFT collectibles and crypto collection. According to Hitesh Malviya, a crypto expert, phishing is one of the most common NFT scams. If there’s a way to distinguish an original piece from a duplicate, he says, “Right now it’s pretty much impossible to do that. But in the near future, maybe rules will come and it might get better regularized so that we can tell the difference.”

Wash trading: Wash trading is a fraudulent activity where the value of the asset is artificially inflated by the seller. To understand it, imagine that you are an NFT seller whose digital assets are worth $100. But you are also the buyer and buy the same thing for $200, giving a legit buyer the wrong impression that the NFT is actually worth $200, who then bids more for the same, giving the seller a significant profit, while the buyer ends up with an asset whose value is much less than what it paid for.

Back pull: Social media can play a huge role in the NFT world, including helping scammers. In what’s called carpet pull, the creators of a project generate enough buzz to drive up digital asset prices before withdrawing support altogether, sending the asset price crashing to the ground. While the creators walk away with a lot of digital money, the investors end up with nothing.

How to protect against scams?

Yes, NFT can be a risky game. But with caution and care, you can avoid scams. “Don’t click a link in the name of NFTs,” says Malviya. “Always double check. Just by looking closely at it, you can find out to some extent if it’s a hoax,” he adds.

Always buy from legit marketplaces and avoid falling for free offers from questionable ones, advises Malviya. OpenSea, Nifty Gateway, Rarible, and Foundation are some markets to consider. Do the same while turning on your NFT.

Similarly, buy from verified sellers, most of whom have a blue check mark next to their username.

Never share the key of your private wallet. “Also, remember the key or keep it somewhere because once you lose it, you will eventually lose your belongings,” says Malviya. “Create strong passwords for your crypto wallets and NFT accounts,” he adds. You may also want to consider a burner wallet, which limits the amount of funds you commit to a single wallet, minimizing risk.

Do not download any other app that claims to be an NFT marketplace.

Yes, as of now there is not much regularization of NFTs which can make it difficult to keep fraud in check. Digital education can play a role here, says Malviya. “NFT marketplaces can take steps to educate their users, and some of them do,” he adds.

Aside from all of these, remember one thing: if something seems too good to be true, it’s better to double-check.

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