Skeptics call them a fad, while believers swear by them; no matter what your perception about non-fungible tokens, it appears like they're here to stay. With more and more people making a lot of money off them, it's no surprise that scammers eventually find themselves lurking in the NFT ecosystem as well. Now, how to avoid common NFT scams?
Like all investments related to cryptocurrency, there's always a risk of something going wrong. But as much as you're afraid of it becoming just another bubble waiting to explode, the real threat is that of being scammed.
An Ecosystem for Scams
Scammers follow where the money is, and currently, the money is in NFTs. With millions of dollars thrown into some digital assets, the propensity to make "easy money" is too good to pass up. Unfortunately, the way NFTs work makes them inherently vulnerable to deceit and rip-offs.
For one thing, it's a new market. This type of digital asset is a novelty to many people, and few experienced traders in the space can serve as good references for newcomers. While some platforms offer their escrow services to help alleviate that problem, it's still not enough.
For example, two of the most popular NFT platforms - OpenSea and Rarible have a lax verification process when adding a digital asset to the blockchain. This could potentially become a weak point or open door for would-be scammers to infiltrate an otherwise secure blockchain technology.
It's also an emerging technology that people expect to be "magical" but have difficulty understanding how it works beyond the initial description of being "more valuable than regular cryptocurrencies." This makes it a prime target for scammers who know they can get away with anything so long as there's no way to prove it.
With both the newness of NFTs and the lack of experience of everyone involved, it's no wonder that this type of trading comes with a ton of risk. Nonetheless, it doesn't mean you should completely avoid it. With enough knowledge and caution, you'll be fine getting your feet wet, especially if you know the common NFT scams and how to avoid them.
1 - Impersonating an Artist or Brand
This scam is by far the most widespread, where anyone can easily steal artwork from a digital artist and then mint it into an NFT for their benefit. These scammers don't seek permission, acting in bad faith to make money off others.
Digital artwork is a scammer's favourite NFT - it's easy to imitate and quite saleable. That's why the first thing you should do is to confirm with the artist that they created the asset you were looking at; check their social media accounts and see if there's any mention about creating an NFT or giving out their private keys.
More often than not, they won't have public accounts that show their previous NFTs or explain how they minted them into existence. To avoid falling for an impersonator, look for the signs of possible fraud in their artwork, i.e., no mention of creators, random numbers on visual elements, and poor quality.
2 - Fake Exchanges
Many NFT scams use fake exchanges to convince users into sending their funds, and you must know what to look out for. While not all NFT platforms and marketplaces are scams, several fake websites are trying to imitate real deals by replicating their interfaces.
This makes them difficult to spot because they look almost the same as the cloned sites, with the only details that might give them away are cryptic subject lines or missing public images of their owners.
Most NFT websites are still young, so it's not surprising if you haven't heard of some of them before. If you're unsure about an exchange, do your research before sending anything of value, including money. Being cautious goes a long way in investing in NFTs.
3 - Fake Storefronts
This scam works by copying and using the same keywords in the original store's URL. The interface looks legitimate enough for unsuspecting buyers that they're tricked into purchasing a counterfeit NFT. What's even worse is that several people have fallen victim to giving up their private keys. The only way to avoid this scam is by looking at the URL and knowing what's amiss. Be sure to report a fake storefront when you come across one.
4 - Fraud
Since most NFTs are traded using private keys, it is not unusual for people to fall victim to having their accounts hijacked. This is done by simply stealing someone's credentials and logging into their account to make changes. What follows next is usually the removal of all digital assets, making them impossible to recover without help from the original account owner. Needless to say, you should always keep your passwords in a safe place where nobody can find them. Of course, never give your private keys away.
5 - Phishing Scam/Malware
Hackers stealing personal information to snip funds or commit crimes is no longer new. For NFTs, this usually consists of sending links that redirect to a fake website, which is designed to steal user details and private keys. The best way to avoid this scam is just by being aware of what you're doing on the internet. Avoid clicking suspicious links or downloading files from untrusted sources.
Massive Loophole
This practice is so evident that it is becoming more of a norm in the NFT ecosystem. Anything can be minted into an NFT, even if the individual selling it isn't the creator of the item. And because of the blockchain's decentralized system, it's even easier to mint a digital asset with no existing regulations. That, in itself, is a major loophole. It's easy for scammers to find a way to trick people because there are no rules to follow, and the system allows it.
But as NFTs become more mainstream, we expect a much clearer set of regulations on how they should be created and sold. Once that happens, NFT scams will become more difficult to commit.
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