NFTs are the hottest new thing in crypto, and scammers know this too. Watch out for these common NFT scams, and learn what you can do to protect yourself from falling victim to such schemes.
Where there’s money to be made, you can be sure scammers won’t be far behind.
And with Non-Fungible Tokens (NFTs) changing hands for thousands of dollars (even millions) a pop, are we surprised that scammers are targeting this space? Of course not!
To be fair, many of the scams that are being perpetuated in NFTs are simply variations on the same schemes we’ve been seeing for some time now. There’s the ever-popular rug pull, phishing and fake websites, and even the old favourite — selling counterfeit goods.
Wait, aren’t NFTs supposed to be verified on the blockchain, and therefore 100% counterfeit-proof? Well, not really, as we’ll see in a moment.
Here, then, are some of the most common NFT scams that have surfaced in recent years, along with tips on how to spot and avoid them.
But first, what are NFTs and how do they work?
Before we delve into the nefarious schemes plaguing the sector, it might be helpful to discuss what NFTs actually are. Understanding their characteristics, and how they work, can help us to see how certain scams are carried out.
An NFT or Non-Fungible Token is a digital asset that is unique and therefore non-interchangeable. This is in contrast to, say, a S$2 note — one note is the same as, and interchangeable with, another S$2 note. Hence, we say S$2 notes are fungible units or tokens of fiat money.
Now, an NFT gets its non-fungibility from being recorded on a blockchain, which is a transparent, permanent and distributed digital ledger which is validated and updated in real time by several independent network participants, called validators.
Because of how blockchains work, the data or transactions recorded on them are open and verifiable, trustworthy and immutable, which are immensely useful when trying to prove ownership and/or rights of an asset.
By minting an NFT on a blockchain, you create a permanent record proving your ownership (and associated rights, such as royalties) of the underlying asset. Additionally, any and all transactions involving the NFT, such as transfer of ownership, transaction price and transaction history, are also recorded.
This is one of the main reasons why NFTs have exploded in popularity among collectors and speculators dealing in digital art and other such assets.
They allow collectors (okay, speculators), a fast, convenient and transparent way to trade assets (NFTs can be minted for anything, not just ugly jpegs that look like they were drawn by three-year-olds), while tracking and displaying their value and ownership.
Given this seemingly bulletproof system, how can there be any scams? But as you’ll soon see, NFT scams are not only common, they are surprisingly varied.
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1. Counterfeit NFT Scam
You know how you’ve been right-clicking and saving jpegs of the works of your favourite DeviantArt creators?
Okay, now imagine minting NFTs out of the images stored in your computer, and then listing these NFTs for sale. Other fans buy the NFTs from you, thinking they were minted by the original artist and creator of those images.
Congratulations — you’ve just pulled off a counterfeit NFT scam.
Yep, it’s as simple (and stupid) as that. Scammers are ripping images and artwork from sites like DeviantArt, or personal blogs, online portfolios and social media channels of popular, talented artists, and selling NFTs of those images.
This is done without the permission of the original creators, and needless to say, they don’t get a single cent of the proceeds.
And buyers aren’t spared from harm too. Imagine finding out that the NFT collection you paid S$20,000 for is actually not recognised by the creator (who still holds the copyright and other exclusive intellectual property rights, mind you) — how much do you think your ‘investment’ will be worth now?
How to spot or avoid this scam
Be sure to verify the authenticity of the NFT you are interested in, before even putting in your bid. There are several ways to do so, ranging from employing technical tools and services, to simply checking official social media channels for announcements verifying the sale of such NFTs.
On a related note, don’t be hasty and FOMO into sketchy NFT drops simply because your friend told you to. Spend some time researching and getting to know the artist or creator whose works you are planning to invest in, and only make your purchase once you’re confident you’re dealing with the real thing.
2. NFT rug pull
A rug pull, or an exit scam, is by no means unique to NFTs.
In such a scheme, a creator, group or organisation simply takes the funds deposited by their investors and disappears. This happens quickly and without warning — just like having the rug pulled out from under your feet.
NFT rug pulls occur when the creator or artist suddenly abandons the project, leaving investors and collectors high and dry.
This can occur at any stage, but notably after the pre-sale, where early-bird investors pay a preferential rate for the promise of receiving their NFTs earlier than others. But of course, the NFTs are never delivered.
Other NFT rug pulls are performed partway through the project. In such cases, early investors would have already received, say three NFTs out of a promised collection of 10.
This keeps collectors hooked, and ready to lure in more paying victims as the scammer eggs them on with promises of even more exclusive collectibles.
But when the rug pull occurs, the remaining NFTs are never delivered. Even worse, because the value of the NFTs are often tied to the project and/or community, abandonment causes the value of the NFTs to plummet.
Just for the sake of covering all angles, we’ll say this: Through some stroke of luck, NFTs from abandoned projects may attain cult status on some unknowable future date (like how some trading cards with printing errors do, or toys with manufacturing defects).
But judging by the sheer amount of NFT projects flooding the crypto space right now, the chances of such a thing happening is practically zero.
How to spot or avoid this scam
Recognise that right now, 99% of NFTs have no purpose other than as a means of wild speculation. So, once again, don’t give in to FOMO, and only invest what you can afford to lose.
Besides, if you’re really desperate, there’s nothing stopping you from right-clicking on the image you want, storing it for your personal wallpaper or something.
3. NFT phishing scam
Phishing scams are everywhere, so don’t be surprised to find them in the NFT space too.
The most recent occurrence of an NFT phishing scam — which caused losses of US$1.7 million — is also the one of the most brazen. It targeted users of OpenSea, the world’s biggest NFT marketplace that has achieved billions of dollars in transactions.
Like other phishing scams, this one involved a mix of trickey and social engineering.
In order to get rid of a widely known bug, OpenSea announced a plan to migrate to a new smart contract. Users would have to sign a new transaction to authorise their wallets to interact with this upgraded smart contract.
Taking advantage of this imminent event, the scammer sent out phishing emails to OpenSea users, directing them to a fake website which captured their wallet authorisations.
After waiting till sufficient signatures had been collected (a patience-draining 28 days, by the way), the scammer emptied the affected wallets, making away with the NFTs stored therein.
The finesse with which this scam was carried reached such a high degree that reportedly, some victims still have trouble believing they had been phished.
How to spot or avoid this scam
As with all online transactions and communications, be sure to check the authenticity of any email you receive. Instead of clicking on embedded links, manually type in the address of the website you’re trying to visit directly in your browser.
Another additional step to keep yourself safe from such situations is to verify any events or news via official channels. This can be as simple as dropping a query on the platform’s Twitter or Telegram channel, and seeing what other community members say.
4. Other NFT-related scams (fake support, fake giveaways, etc.)
The three NFT scams we highlighted above are far from the only ones you need to watch out for. Other types of scams — ones you may have heard of involving other online platforms — can, and are, easily applied to target NFT enthusiasts.
Some of these include:
- Fake NFT support scams: Scammers impersonate official support staff or moderators and attempt to direct you to harmful websites. As a general rule, block and report anyone who PMs you on open platforms, such as Reddit, Twitter or Telegram. Genuine support staff or community moderators will reply to your queries on the main chat or discussion thread, and only interact with customer support staff over official channels, such as in-app chat.
- Fake NFT giveaway/airdrop scams: Crooks advertise a giveaway to airdrop exclusive NFTs into your wallet — all you have to do is to connect to this particular website. However, connecting your wallet triggers malware that drains your digital assets, takes over your account, steals your personal information, and other such horrifying events. Hence, never connect your wallet to suspicious websites, and always revoke connections to websites once you leave them.
- Fake NFT offer scams: When you have an NFT listed for sale, you can opt to receive an email notification whenever someone makes a bid. Fraudsters can spoof such emails, hoping you’ll click on malicious embedded links in your excitement. To avoid falling victim, be sure to check the sender’s details carefully, and eschew clicking on links in favour of manually typing in the website address in a fresh browser tab.
Remember: Because NFTs are relatively new yet immensely popular, this only increases the segment’s attractiveness to crooks and fraudsters.
Also, developments in NFTs (and crypto, for that matter) move at lightning speed, and law enforcement has yet to fully catch up. This means that falling victim to a scam may leave you with little or even no recourse. (Although, to be fair, things are improving.)
Hence, as a final tip to stay safe while aping in on the NFT craze, be sure to only
gamble invest what you can afford to lose, and never a dollar more!
For a steadier and safer way to grow your money, consider investing with robo-advisors instead.
Read these next:
Non-Fungible Tokens (NFT): What They Are And How People Are Making Money Off Them
Digital Artists, Listen Up: Here’s How To Create, Buy, And Sell NFTs
6 Alternative Investments To Diversify Your Portfolio
Guide to Play-To-Earn Crypto
How to Buy Virtual Land in the Metaverse
By Alevin Chan
An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.