You can protect yourself from NFT scams: Do not open files from people you do not know

NFT stands for "non-fungible token." Fungibility actually means being interchangeable with something else; for example, bitcoin is fungible because it can be exchanged for another bitcoin, and at the end of this transaction, you still have an asset of the same value. NFTs, on the other hand, are non-fungible because they are unique and cannot be directly exchanged for another NFT. Anything digital can be an NFT: photos, videos, audio files, etc. NFTs have created a lot of excitement due to their potential to use technology to sell and collect digital artworks.

NFTs are essentially digital assets; this is exactly where the "token" part of the non-fungible token expression comes into play. When you buy an NFT linked to a digital asset, you do not become the owner of the asset in question. You cannot reproduce this asset or use it for commercial purposes. Instead, you have a record of a purchase on the blockchain that you can hold or sell to someone else.

HOW DO NFTS WORK?

NFTs are placed on a blockchain, which acts as a ledger that keeps a record of transactions stored across multiple computer systems, and directs users to a web link, such as an image file. NFTs are usually held on the Ethereum blockchain, but other blockchains also support NFTs.

Almost anything can be an NFT: Jack Dorsey, the founder of Twitter, sold his famous first Tweet posted on the platform as an NFT for more than 2.9 million US dollars.

NFTs are the digital equivalents of collectible assets. The buyer receives a digital file rather than purchasing the artwork for display purposes. Since only one person can own an NFT at a time, this gives them exclusive ownership rights. The unique data associated with each NFT allows for the verification of ownership. It is also possible for NFT owners or creators to store specific information within NFTs; for example, the signatures of the people who wrote articles can be added to the metadata of an NFT.

To collect NFTs, you need both cryptocurrencies and a digital wallet where you can store your NFTs. You also need cryptocurrency to buy and sell NFTs. There are NFT marketplaces where you can browse NFTs; examples of the most well-known of these markets include OpenSea, Rarible, and Foundation. While most people argue that NFTs are a way to support digital artists, many also claim that there is a resource cost to blockchain transactions. If you are interested in NFTs, it is very important that you are aware of the related risks, including NFT scams and fraud.

TYPES OF NFT SCAMS

Both cryptocurrencies and NFTs are concepts that are not heavily regulated by law. This means that criminals have the potential to exploit loopholes and engage in fraudulent activities. For this reason, there have been numerous news reports about crimes in this field, such as NFT Ponzi schemes, OpenSea scams, and NFT art financial scams. Some of the most well-known NFT scams are as follows:

IMPERSONATION

The purpose of third-party marketplaces like OpenSea is to facilitate NFT transactions and provide security for each sale. However, criminals can create fake marketplaces with similar URLs to deceive users. The visual component of NFTs is a combination of an easily copyable image and some plain text information; meaning these websites can look quite similar to legitimate marketplaces.

RUG PULLS

A rug pull scam is a trap based on the scammers intentionally creating hype on social media to drive up the price of an asset and get people excited. After the scammers take the investors' money, they stop supporting the asset, which causes the value of the asset to plummet suddenly and investors to suffer significant financial losses. Another form of this scam is when NFT developers add code to remove the ability to sell the token, leaving buyers with an asset that cannot be sold later.

PUMP AND DUMP SCHEMES

Pump and dump schemes involve a group intentionally buying NFTs to artificially increase demand. Unsuspecting individuals, believing that the NFTs are valuable, participate in the auction and start bidding. When the bids increase, the scammers sell the NFTs for a profit, and the buyers are left with worthless assets.

PHISHING SCAMS

Before buying an NFT, you need to have a crypto wallet. NFT phishing scams are usually carried out through fake advertisements on Discord, Telegram, and other public forums that ask for the wallet passwords and 12-word recovery phrases of the people they target. Scammers may also send fake warning emails mimicking MetaMask, telling you that your wallet will be suspended due to security issues and asking you to click a link in the email to verify your account. The goal of NFT phishing scams is to steal your personal information and empty your digital wallet.

CUSTOMER SUPPORT SCAMS

Similar to phishing scams, hackers pose as technical support or customer service personnel for blockchain marketplaces and contact unsuspecting individuals on Telegram or Discord. The scammers, who pretend to be trying to solve problems, send links that lead to fake websites that look official in order to steal personal information and gain access to cryptocurrency wallets. These scammers may also ask you to share your screen to solve the problem; in reality, they want to see your cryptocurrency wallet credentials and take a screenshot of this information.

BIDDING SCAMS

Bidding scams occur when investors want to resell the NFTs they have purchased on a secondary market. After you list your NFT for sale, the bidders may change your preferred currency to a lower-value cryptocurrency without telling you. This can cause sellers to suffer financial losses if they do not double-check the currency before accepting the sale transaction.

FAKE NFTS

Scammers can pass off an artist's work as their own and list a fake version of the work on an NFT marketplace. Unsuspecting individuals may purchase a fake NFT that has no value.

NFT GIVEAWAYS OR NFT FREEBIE SCAMS

Scammers can pose as real NFT trading platforms on social media to distribute NFTs through giveaways. They usually tell you that you will win a free NFT if you forward the messages they send you to others and register through their websites. After registering, you are asked to connect your wallet credentials to receive your "prize." Once they obtain your credentials, they can access your account and steal what is in your wallet.

INVESTOR SCAMS

Due to the anonymity of names in cryptocurrency trading, investor scams can be commonly seen with NFTs. Scammers take advantage of this anonymity by creating projects that look like reasonable investments and then disappearing without a trace along with the money they collected from potential customers.

EXAMPLES OF NFT SCAMS

2021: Evolved Apes

An example of an NFT rug pull scam occurred in October 2021. The "Evolved Apes" collection, consisting of 10,000 NFTs, was launched. Buyers were supposed to receive a unique ape consisting of components that could fight against other apes in a fighting game where rewards were distributed as cryptocurrency, but which was never released. The purpose of the initial NFT offering was to raise funds for the game. However, the developer, known as "Evil Ape," disappeared after raising 798 Ether (an amount equal to approximately 2.7 million US dollars at the exchange rate at the time), leaving investors with nothing but a jpeg file as proof of their investments.

2021: Fractal

Fractal is a marketplace for NFTs used in gaming. In 2021, scammers created and promoted a fake NFT giveaway, causing users to lose sums greater than 150,000 US dollars in cryptocurrency. The buyers were hoping to get a limited-edition NFT. Instead, they were shocked to learn that a link sent through the project's official Discord channel was a setup created to steal cryptocurrency. Users who clicked on this link and connected their crypto wallets in the hope of getting an NFT found out instead that their crypto assets had been transferred to the scammer's account.

2022: Frosties

The Frosties NFT scam is an example of a rug pull scam that led to a theft worth at least 1.2 million US dollars. The creators of an NFT collection called Frosties vanished with the money they received from investors. They disabled all channels through which they communicated with members, leaving behind a disappointed community that had reached approximately 40,000 members and had been promised various rewards.

HOW CAN YOU PROTECT YOURSELF FROM NFT SCAMS?

Do your research

Check the information about the transaction before accepting any deal. Is the marketplace you are using reliable and well-known? Can you view the buyer's or seller's transaction history? Read reviews to see if there are any previously written complaints about their transactions and check the relevance level of the content creators. If you are investing in a project, check the project developers to see if they are real.

Do not open files from people you do not know

Hackers create viruses that directly target cryptocurrency wallets. Avoid clicking on links in unsolicited emails, as they may lead you to fake currency conversion sites. Never click on links or attachments from unknown sources.

Be careful with giveaways

Although they are common in the NFT space, giveaways or "freebies" can often carry security risks. Every NFT is tied to a contract that determines what can be done with it; this means that hackers can add permissions to NFTs to access your wallet, sell your assets, and much more. Never buy NFTs from people you do not know and trust.

Never share your crypto wallet's private key or security password with anyone

Keep your private key and security password safe. If this information falls into someone else's hands, that person can access your wallet and remove the NFTs or cryptocurrencies in your wallet in a way that cannot be traced. Use strong passwords for your cryptocurrency wallet and other NFT accounts. If possible, use two-factor authentication for all your NFT accounts.

Verify the creator of the project

Before sending your money, find the contact information of the NFT creator you want to trade with and verify them. Find out if the project creators are honest and transparent about who they are. If you cannot find clear information about the entities behind a project, be very careful; this could be a red flag.

Conduct your transactions on official sites

Always go to verified websites for cryptocurrency transactions and never enter your wallet's important information in links or pop-ups. Do not believe so-called offers that could lead you to suspicious blockchain networks.

Do not visit untrustworthy sites

It is very easy to make a typo, but sometimes misspelling one or two letters of a URL can take you to the wrong site. In the NFT world, scam sites can be extremely dangerous. Always double-check the URL to make sure you are visiting the correct site, and if you are not comfortable, do not perform any transactions. Remember: If it sounds too good to be true, it probably is.

Double-check the price of the NFT project

Before buying an NFT, check its price on OpenSea or other official trading platforms. If the price of the NFT appears lower than what is listed on the legitimate trading site, be careful; you may be facing a scam.

Use a burner wallet

Burner wallets allow you to limit the amount of money you want to use for a specific purchase, including the cryptocurrency to be used for transaction fees. This feature reduces your exposure to risk in the event of a scam.

Check for verification badges

Most legitimate NFT sellers have a blue verification badge next to their usernames on OpenSea and other NFT marketplaces, and the assets in their collections are clearly listed. Check if the artist you are buying from has a verified account and is a legitimate artist. Research the artist on social media channels or their own website. You may want to ask the artist directly if the artwork you want to buy belongs to them and if you have the correct user profile.