Scams have always been closely associated with technology and innovation, and the most prominent sectors, such as cryptocurrency and other web3 applications, have been a magnet for fraudulent operations due to the abundant liquidity and money that circulates in the space. Even now, after the NFT boom and rise to mainstream, the growing industry is still threatened by scams aimed at inexperienced or unlucky traders looking to establish themselves in the community.
According to data curated by TheGuardian, more than $100 million in NFTs have been stolen since July 2021, with an average loss of $300,000 per scam, indicating that there is an active scam problem that could jeopardize the future of NFT if left unchecked. Alex Stamos, former Chief Security Officer at Yahoo and Facebook and Stanford professor, went as far as stating at a Collision event that “Most NFTs are scam. If you're buying an NFT, there's a good chance you're getting ripped out.”
Reports of these scams have resulted in an unprecedented loss of funds and have continued to tarnish the industry's image, allowing skeptics to label the entire industry a scam and deterring potential investors who could expand the concept's adoption.
Common NFT Scams You should be Aware of
Here are some of the top and most common scams that you should know about:
Rug Pull Scams
Rug pull scams in NFT work in the same way that cryptocurrency rug pulls do: create enough hype, collect funds from investors and sponsors, sell NFTs for a certain amount of money, and exit into the wind. Rug pull is a type of scam perpetrated by project developers who use influencers and social media campaigns to create hype and trends around the project in order to attract interest and increase visibility. Once the project has gained enough recognition and value, the developers sell a percentage of the collection's NFTs and abruptly disappear, leaving the project without trust, structure, or utility, leading to the project's eventual price decline and collapse.
Rug pulls are more feasible in NFT due to its decentralized nature and the fact that people frequently invest based on hype rather than thoroughly researching projects before investing. The fall of the Frosties project earlier this year is a perfect example of an NFT rug pull, as developers shut down their website and social media after investors had funded over $1.3 million. Another recent event was the Animoon project, which featured Jake Paul as an influencer but turned out to be a rug pull that cost investors more than $6 million.
This type of scam involves gaining access to wallets by using sensitive wallet information obtained through manipulative advertisements or emails. Scammers commit this act in a variety of ways, including sending out fake links on social media, advertisements on websites, fraudulent emails impersonating wallet companies, and unsolicited calls to obtain users' private keys or log-in details, which can be used to access accounts and swipe assets.
Scammers pay attention to developers and announcements from wallet providers and marketplaces and use that information to commit fraud. In February, OpenSea users were victims of a phishing attack that cost them nearly $1.7 million in NFTs as a result of links sent to their emails by scammers using a copycat email that imitated the company email.
Plagiarized and Copycat Scams
Plagiarism and copycat collections have become common in the NFT community. Marketplaces are littered with NFTs that are merely imitations of already existing art or ideas, as well as projects that are exact replicas of existing collections with only minor changes. The unique nature of digital art does not preclude people from simply changing a characteristic or flatly uploading the work of another person to a marketplace to be sold and traded without recourse. Existing collections with high performance are also targets for plagiarism. Many accounts of the same project on OpenSea have listed NFTs, and this is a common practice on other marketplaces as well.
Successful projects such as Bored Apes Yacht Club, World of Women, CyberPunks, and Clone X all have copycat projects that were created to imitate their art style and capitalize on their hype and success. Okay Bears, a Solana native NFT collection, had a successful debut, which was followed by the creation of knock-offs such as Not Okay Bears, Bears Not Okay, Okay Bulls, and other related projects. The Not Okay Bears, in particular, received some attention for their copycat collection, but it was delisted from OpenSea in May after being deemed illegitimate.
Bidding scams prey on the greed and carelessness of the investor who lists an NFT on a marketplace. To entice the NFT, a bid is placed on an item that is reasonably above the listed value or a lay bid is placed. Before the bid is accepted and the transfer is completed, the scammer changes the currency option to another crypto (e.g., ETH to SOL), which is significantly lower than the expected value. This dubious act will leave the prior owner at a loss when the transfer of ownership is completed.
NFT giveaways and Airdrop Scams
Given how much people enjoy receiving free stuff, this is one trap that will almost certainly attract investors. Token airdrops abound in the crypto and NFT space. There will also be free NFTs and cryptocurrency giveaways. Some of these social media giveaways are used to steal people's assets. Scammers publicize giveaways or airdrops and attach links to websites that require users to complete tasks and link their wallets in order to receive rewards. This method can be used to store users' wallet information and gain access to their accounts in order to steal their assets.
Technical and Customer Support Scams
Support scams are becoming increasingly popular on social media, and can be found in comment sections, channels, and direct messages on Twitter, Discord servers, and Reddit. Fraudsters approach NFT investors posing as support staff for a marketplace or project and offer to help with a problem they encountered while trading NFTs. They then request sensitive information that can be used to defraud investors of their hard-earned funds and NFT assets.
Tips on How to Avoid NFT Scams
These scams are common and harmful, but they are not unavoidable. There are some precautions you can take to avoid falling victim to NFT scams.
Research projects thoroughly by reading whitepapers and thoroughly vetting project members via verified websites such as LinkedIn to ensure their integrity and confirm previous experiences.
Only click vetted links from official websites, verified accounts, and verified sources, and be cautious of platforms to which you must connect your wallet.
To reduce risks, keep multiple wallets and spread your assets. Wallets can also be used to mint, trade, and store NFTs.
Enable two-factor authentication, biometric signatures, and other secure options for additional security.
Use marketplaces with a lower history of security breaches, technical issues, and hacks.
Read Also: Top NFT Blockchains: A Layman's Guide
The NFT market remains largely unsafe and uninsured, with no recourse for missing NFTs and little justice for those who have their NFTs sold for less than the value they listed it for. As a result, investors must continue to exercise extreme caution when interacting within the ecosystem and trading NFTs.
Storing your cryptocurrencies in online wallets, exchanges and software wallets exposes you to risks of being hacked. Consider storing them in a hardware wallet today