NFT Scammers Are Just As Creative As The Artists Themselves
A quick Google search for NFT scams results in a seemingly never-ending list of stories describing numerous weird and wonderful ways in which people have been cheated out of thousands of dollars.
The world of non-fungible tokens has created a lot of excitement over the past few years, exploding to become a multi-billion crypto industry segment. Tokens from some of the most popular NFT collections, like the Bored Ape Yacht Club and Cool Cats, have swapped hands for hundreds of thousands of dollars in some cases. And while NFT prices have fallen amid the harsh crypto winter that was 2022, the industry itself remains one that’s full of innovation, with dozens of new tokens emerging that offer unique utility and benefits for holders.
Sadly though, the buzz around NFTs has also gotten the attention of all kinds of ingenious scammers attracted by the obscene amounts of money being thrown around the space. As such, a number of creative NFT scams have emerged, transforming the nascent sector into a potential minefield for new and experienced crypto users alike.
What follows are a few of the most creative scams NFT buyers need to watch out for.
In order to purchase an NFT, it’s necessary to sign up to a marketplace using a wallet that’s compatible with Ethereum, the blockchain that hosts the vast majority of NFTs. One of the most popular wallets is MetaMask, and while it’s certainly a tool that comes highly recommended, it isn’t immune to scams.
In one case in November 2021, thousands of MetaMask users were targeted by a phishing scam that involved phony search engine ads for new NFTs. The ads would ask users to enter their private wallet key or 12-word seed phrase as part of the process to buy the NFTs. Of course, asking for a private key is a big red flag as this information should never be passed to anyone under any circumstances. Unfortunately, numerous people failed to get the message and gave away their keys, with the scammers reportedly stealing more than $500,000 worth of crypto as a result.
NFT phishing attacks have occurred through other avenues too, including on public forums and messaging channels like Telegram and Discord, with links to what appear to be a genuine MetaMask wallet. As always, they ask users to enter their private keys, and quickly empty the wallets of anyone who does so.
To avoid falling victim to such scams, it’s important to remember the true purpose of your wallet’s seed phrase. It’s only ever used to create a hardware backup of a wallet, or to recover a wallet on a new device. This information should never be entered into any MetaMask pop-up. Instead, users should always open up a new tab and go directly to the verified website before making any MetaMask transaction.
Pump And Dumps
Pump-and-dump schemes are a common scam used to promote new cryptocurrencies and they have found a niche in the NFT market too. They refer to a scam that sees a group of buyers (often one person) coordinate in a clever way, snapping up NFTs from a specific collection in order to artificially drive up the price. In this way, others think that the collection must be extremely valuable, and with the prices constantly rising, are deceived into thinking it’s a prime investment. Buyers are tricked into paying a very high price, only to find themselves left with a worthless asset.
These kinds of scams can, fortunately, be identified by checking to see how much liquidity and different buyers there are. This is where the transparency of blockchain proves its worth. On an NFT marketplace like OpenSea, it’s easy to view the transaction history and the number of wallets that own a specific NFT collection. It’s also possible to use EtherScan to see all incoming and outgoing transactions on the Ethereum blockchain. If an NFT collection is only being bought and sold by a limited number of wallets, that’s a huge red flag that suggests it may be one that’s better to avoid.
Another way to check on the legitimacy of an NFT project is through Twitter and Discord. If the project has a good number of followers, plus an active community where people are discussing the project and sharing information, then that’s a good sign it’s a genuine project with real utility and/or artistic value.
It’s important to remember that just because a piece of art has been minted as an NFT, that token does not necessarily signify intellectual property ownership of the image in question. Because NFT minting platforms offer user-friendly software that enables anyone to create an NFT collection, it’s all too easy for scammers to take someone else’s image and transform that into an NFT, even if they don’t have the rights to it.
Because of this, there have been hundreds of instances reported where bad actors have stolen art created by someone else, then opened fake OpenSea accounts to sell that artwork, claiming it’s genuine. Such an NFT will likely become valueless once people realize it’s a fraud. For anyone who actually buys such as NFT, there’s no recourse to get their money back.
If you don’t want to end up holding a counterfeit NFT, it’s necessary to do your own research. The first thing is to check that the NFT was created by a verified account. On OpenSea, look to see if there’s a blue checkmark next to the artist’s profile pic. If there isn’t one, you can attempt to find the artist through their social media channels and ask them if this is their profile.
The good news is that the NFT community is actively working to counter the problem of counterfeit NFTs. The Wakweli project, so-named after the Swahili word for “truthful”, is working to increase the level of trust in the space with its decentralized Proof of Democracy protocol that enables artists to verify their NFTs and issue a certificate of authenticity that’s visually represented by a Wakweli tick mark on any blockchain explorer. The way it works is quite simple.
To request an authentication certificate, the requester is required to stake WAKU tokens, which will then be verified by an independent party who stakes a similar amount. The value of the certificate is then doubled and generates yield for the certifier. However, challengers are then able to check the certificate and report if any NFT is counterfeit, and earn a reward if they can prove it is fake. In that case, the WAKU staked by the requestor and certifier is given to the challenger, incentivizing everyone to tell the truth.
One of the unique aspects of the NFT market is that most new collections are marketed through social media. NFT communities commonly hire social media personalities and influencers to promote their tokens, and this encourages scammers to either create fake celebrity accounts, or dupe real celebs into promoting their pump-and-dump schemes.
Many of these scams are quite obvious, as they involve the fake celeb sending a direct message to users informing them of the opportunity to acquire a new NFT. The fact is that if the person is a genuine celebrity or social media influencer, they won’t usually send a direct message without an invitation first, as this is the commonly known etiquette in the NFT world. So any DM from a seemling well known personality is a huge red flag, all the more so if they’re asking you to reveal any secrets.
These are a common occurrence in the secondary NFT market. People who purchase a newly minted NFT will often attempt to resell it to the highest bidder in an attempt to cash in on their asset. The result is that the NFT can become subject to a bidding war among various buyers. However, some scammers have successfully duped sellers by switching the cryptocurrency they use to make their offer, for example they might bid 5 ETH at first (around $6,000) only to switch to Ethereum Classic, bidding 6 ETC instead. That’s around just $100 at today’s prices.
These bidding scams have happened all too often. Back in May 2022, one unlucky NFT holder accidentally sold an extremely valuable BAYC token for 200 USDC ($200) instead of the 200 ETH (around $400,000) they were hoping for.
The only way to avoid falling for this kind of scam is to be sure to carefully check the cryptocurrency being offered, and ensure its USD equivalent is the same as what you’re asking for.
Fake NFT Marketplaces
Some particularly ingenious scammers have been known to replicate entire NFT marketplaces such as OpenSea in order to trick users into entering confidential information and link their wallets to it. These fake NFT marketplaces are incredibly realistic and almost a mirror image of the genuine marketplace, making them difficult to spot even for experienced NFT owners. As a result of these social engineering scams, some people have spent thousands of dollars purchasing what they believe to be cheap, but actually worthless NFTs.
The only way to be sure that the marketplace you’re visiting is real is to carefully verify the URL before you go entering any personal details. Better yet, type the URL into the browser address bar manually, rather than clicking on any links (especially if that link comes from a direct message or email).
NFT Fraud Is A Big Threat To The Crypto Industry
The prevalence of scammers in the NFT market is a big threat to the industry at a time when the wider crypto market is coming under intense pressure. Amid the sustained bear market conditions that have plagued crypto over the past year, there has been a notable decline in investor’s appetite for risky assets, and that includes both cryptocurrencies and NFTs.
Throw in the very high risk of becoming a victim of fraud, and it’s easy to see why more people are choosing to steer clear of NFTs. This increased wariness has resulted in NFT prices steadily declining over the past year, and it could have negative consequences for what is still a virgin industry if something isn’t done to prevent fraud.
Fraud might not cause the NFT sector to collapse, but it’s definitely one of the major factors depressing the market and we will be unlikely to see a recovery until it becomes less of an issue.
Thankfully, the community is working hard to fix NFT fraud. The Wakweli protocol has big plans to integrate itself with multiple popular NFT marketplaces and decentralized exchanges, with the aim being to become the standard decentralized certification authority that proves the authenticity of any tokenized asset.
There are plenty of other helpful initiatives too. For instance, the DeviantArt website, which hosts a community of more than 500,000 artists, has come across numerous instances where its member’s artworks have been stolen and minted as counterfeit NFTs. In response, DeviantArt published an advanced image recognition tool last year that’s able to scan popular public blockchains like Ethereum and Solana, as well as third-party NFT marketplaces, in order to identify fake NFTs. Since its launch in August 2021, DeviantArt’s tool has spotted more than 50,000 counterfeit NFTs.
NFT buyers can also turn to the community for advice. One of the most useful portals for seeking help is the crypto-focused educational platform Surge, which offers multiple Discord channels and forums where users can ask questions and seek general advice. Another good community is the Curious Addy’s Trading Club, which is especially welcoming to newcomers and has created a useful NFT scam quiz to help users learn to spot fake NFTs and potential scams.
It can be frightening to think about all of the creative tricks NFT scammers have come up with to dupe unsuspecting buyers. They’re almost as creative as the NFT artists themselves, and are constantly coming up with new techniques that allow them to deceive even the most experienced of NFT enthusiasts. Thankfully, the NFT community is springing into action to try and counter these fraudsters, and with any luck, the number of NFT scams will start to decline.