The NFT market exploded in 2021, growing to around $22 billion and attracting an estimated 280,000 buyers and sellers and about 185,000 unique wallets. But as the market continues to grow, so as cybercrimes, specifically targeting NFT assets, whether it’s art, games, or collections.
In March 2022, a $600 million heist took place with the target being Sky Mavis, developers of the popular NFT-based game Axie Infinity. The intruders used hacked private keys to make withdrawals out of people’s digital wallets. While this has something to do with the developer’s security propositions, this can still be avoided if users were able to secure their wallets. We have posted an article showing tips on how you can secure your crypto/NFT wallets, click here to read the article.
Even as blockchain security continues to improve, scammers and hackers will still find ways, no matter how sophisticated it is, to lure and trap people who own crypto and NFTs. This proves that there will always be scams in any money-making market or opportunity — it might be hard to stop but it can certainly be avoided.
Types of NFT scams and how to avoid them
Both cryptocurrency and NFTs are relatively unregulated spaces. This means there is potential for criminals to exploit loopholes and carry out scams. That’s why there has been news coverage of NFT Ponzi schemes, OpenSea scams, NFT art finance scams, and more. Some of the best known NFT frauds include:
Imitation
Imitating or duplicating original NFTs is the most common type of NFT scams. Here, scammers copy the original work of an artist, tweak it a little bit, then publish it like it’s their own original work. These fake works are then listed for auctions in the scammers’ marketplace accounts, targeting naive NFT investors who would think these fakes are the original ones.
This issue has been the topmost concern of most NFT artists, but NFT platforms barely respond to such issues. Artists claim that marketplaces rarely perform any validating methods to avoid this copyright infringement. In addition, they do not use any sound methods to verify the authenticity of someone’s work. Ultimately, it will be up to the buyers to ensure that what they are paying for is the original and the imitation or fake.
How can this be avoided?
Fake NFTs require cautions from the buyers themselves. Consider searching the artists, creator or seller on other platforms before purchasing the NFT. It is also recommended to cross-check information of the artists, creator or seller with their social media accounts — most of them have social media accounts to promote their works.
Only buy from verified sellers or creators. Platforms like OpenSea show a ‘blue tick’ next to the seller or creator, indicating their legitimacy.
Rug pulls
A rug pull scam happens when promoters create a pre-hype around the NFT collection through multiple social media channels to gain people’s attention. Once people have invested enough in it, promoters stop hyping, leading to the value of the asset crashing — this means incurred losses to all who invested.
Another variation of this scam is when developers of an NFT remove the ability to sell the asset — by adding code that prevents users from doing so — leaving buyers with an unsaleable asset. The benefits of being anonymous in the blockchain space makes it easy for scammers to pull off such a feat.
How can this be avoided?
This is one of the most notorious NFT scams ever that is quite difficult to determine as any start-up NFT project can be a rug pull. Before gambling your hard-earned money on a project, make sure to check the developers and promoters’ social media profiles. Any person involved in the project must be engaging to their followers as high engagement and followers are good signs.
Take time in checking the project team’s history, what are their experiences, how did the idea of the project come about, and what is the goal. Additionally, check the official website and you should find a clear roadmap stating what people can expect for the project in the years to come.
Phishing scams
It is the type of NFT scam that requires more effort from the scammers themselves to successfully pull off. Phishing scams involve advertisements on local websites and phone calls that ask users for their private wallet keys or their 12-word security keyphrases to ensure its security as it has been compromised.
Last year, Metamask customers received an email stating that they provide their 12-word security keyphrase to verify their identity and continue using their services. The spam e-mail also mentioned that users who fail to verify would be restricted to using the application.
In another instance, some Metamask users experienced a phishing hack without them knowing how it exactly started. Majority of the victims stated they clicked a Google ad for Metamask. The next thing they know, their Metamask wallet was already empty and has a transaction history to the defrauder’s account.
How can this be avoided?
Number rule of thumb to avoid phishing scams is to not click links that are not associated with the NFT marketplace or wallet you have. Check the domain URL before clicking and make sure the path link does not contain any random characters.
If the link opened asks for your sensitive data or information, do not confirm until you reach and confirm with the customer support team or community. In most cases, exchanges and wallets do not ask for your security information. Furthermore, be wary of the ads you click on different websites.
Pump and dump scheme
A pump and dump scheme is when a group deliberately buys up NFTs to drive up demand artificially. Believing the NFTs to have value, unsuspecting buyers join the auction and start bidding. Once the bids increase, the perpetrators sell off the NFTs for a profit, leaving buyers with worthless assets.
The NFT market has a profound history of pump and dump scams. One of the first NFT collections, Cryptokitties, had also faced pump and dump allegations. In its early days, Cryptokitties gained enormous mainstream attention so much so that prices of some of the artworks rose to $155,000. After six months, investors were left in the dark following a ninety-five percent drop in prices.
How can this be avoided?
If you notice a sudden NFT price surge, cross-check the collection’s price history and its wallet records. Take note the total number of trades during the hype stage and transaction history. If fewer people are involved in buying and selling of NFTs, then you should see it as a ‘red flag’ for a pump and dump scheme.
Take time to check and analyze the discord, Twitter, and community discussions as well to know the opinion of others. Analyzing the price-hike environment can help you to identify the reason for the price pump. And again, stay away from a low-valued project, if you see a sudden hype.
Technical or customer support scams
Technical or customer support frauds are actually commonplace in every industry. In the case of NFT scams, fraudsters find their targets in social media and community groups through Discord, telegram, or Reddit.
Similar to phishing scams, fraudsters can also pose as a technical or customer support staff for NFT marketplaces, exchanges, and wallets, and reach out to their targets on the mentioned social media platforms. They usually target people who have questions about the platforms or have difficulty using and would need assistance.
They will reach out to users with fake identities created through legitimate-looking sites. Under the disguise of helping resolve the issue, the scammer then sends links to fake but official-looking websites — intending to gain personal information and access to cryptocurrency wallets. In some cases, they may ask you to share your screen to resolve the issue — in reality, they want to see and screenshot your cryptocurrency wallet’s credentials. Once you cooperate with them, all of the assets stored in your wallet will be stolen.
How can this be avoided?
Keep in mind that official technical and customer support of blockchain websites will never reach out to you through social media. If they do, they should never ask for any sensitive information from you.
Contact the official support team before responding to messages that ask for sensitive information as you might be in the scammers target list.
NFT giveaway or airdrop scams
With the popularity and lucrative business surrounding cryptocurrencies and NFTs, it is not surprising to see poser accounts of crypto/NFT influencers and collectors. Scams in NFT giveaways and airdrops usually happen when scammers offer “FREE” crypto or NFTs if you perform certain tasks. It’s usually in the form of liking, sharing and tagging your friends on a certain social media post, signing up to their website, and connecting your wallet so you can receive the ‘reward’.
Unfortunately, the credentials you enter will be stored on their system and they will now have full access to your wallet.
How can this be avoided?
This scheme is probably the easiest to determine and avoid. It’s simple! If you find the giveaway and website sketchy, do not click any of the links provided by the scammer and never give out any personal information. To clear your doubts, make sure to check their social media accounts.
Bidding scams
Bidding scams are common in the NFT space and usually happen in the secondary market to pump up the price. Upon listing NFTs for resale, bidders change the preferred currency to a low-value currency without telling you. This leads to significant losses for the sellers if they don’t double-check the currency paid by the buyers before proceeding with the sale.
How can this be avoided?
Like airdrop scams, bidding scams are also easy to spot on and avoid. It only requires thorough double-checking of the information provided by potential buyers and avoid accepting bits that are below the NFT’s value. Visit crypto conversion sites to know how much a potential buyer is offering you if in case he or she bids using a different currency from what you listed.
Investor scams
Because of the anonymity associated with dealing in cryptocurrency, investor scams can be common with NFTs. Scammers exploit anonymity by creating projects that appear to be viable investments, then disappearing with funds they have collected from prospects without a trace.
There have been a lot of investor scams that took place since the early days of crypto. You can read more about these scams in an article we posted here.
How can this be avoided?
The easiest way to avoid this scheme is by doing a thorough research of the project you’re dealing with. Make time to check the backgrounds of the founders and developers as well as their marketing efforts.
The safety of your assets start with you!
At the end of the day, users should be more responsible with their investments. With millions of users in the blockchain world, marketplaces, exchanges, and wallets cannot monitor everyone’s transactions one by one.
Do your research, don’t do anything that makes you uncomfortable, and if you find yourself in an uncomfortable situation, do not proceed and move on. Remember, you are in control of your assets. Don’t be fooled by these scammers.
