Nobody predicted that NFTs would become a multi-billion dollar digital asset class in just two years. Not only did the NFT market surpass $40 billion, but it is decoupling from the world of Bitcoin and altcoins. We have seen this from December to January 2022.
While Bitcoin dropped by 26%, the market has seen its highest traffic yet. Investors thought the record volume obtained in August at $3.2 billion was a fluke.
Yet, January overshadowed it by 60%, rising to $5.1 billion. This shows that non fungible tokens are the best way for people to start using crypto, shortening the time for a new market to take off.
After all, headlines of astronomic NFT sales make the adoption free of charge. Digital arts are visual and blockchain assets, thus they reflect how people think.
This is bad news because it means that scammers will commit more fraud, which is a constant in the crypto space. Here are some strategies you should use to avoid them.
Background Check If Its An NFT Scam
For some reason, most small investors don’t look into the background of the assets they might want to invest in.
When employers do background checks on potential employees, they are looking out for their bottom line. The same should apply to crypto/NFT investors, no matter the sum of money involved.
If you want to do a background check on a project, you need to put yourself in the shoes of legit developers. They tend to produce the following trail behind them:
- An available website with a roadmap and a whitepaper. It’s a plus if the website is well-made, but it’s even more important if the roadmap and whitepaper don’t have any spelling or grammar mistakes.
- The next trail to look out for is social media engagement. Does the NFT project have a sizable following? Do the team members interact with other investors, or are they dead silent across media channels?
- Are the developers unknown? You can’t do a background check on an internet ghost! With that said, some developers prefer to use pseudonyms. Yet, even under them, they have years of online presence under their belt. So, this is an important distinction to make.
- Do developers make promises that no project has yet made, let alone delivered? Specifically, for high returns via staking in a short time span? Think about why they would do something that other, better-known, and more experienced teams would not. If it sounds like a bait, it most likely is.
As an example of an NFT scam, an unknown “developer” made Evolved Apes to try to copy the success of Bored Apes Yacht Club.
Taking the bait, investors put 798 ETH into the project, hoping that the Ape theme would bring them high profits again when they sold it.
However, once the $2.7 funding was raised, there was no already trace of the project. No Evolved Apes NFTs as rewards in competitions, as promised.
This type of NFT scam is a Rug Pull, quite common during the 2017 ICO (Initial Coin Offering) craze. As with most rug pulls, they first start as Ponzi schemes, relying on marketing and social media buzz.
Because of this, it’s best to stay away from anonymous projects, since even other parts could be made up.
Authenticate the NFT Website and Spot Fake Giveaways
Whether you are interacting with customer support or an marketplace, double-check if you are visiting the authentic one. Scammers like to overlay their interface over real content.
For instance, Vitalik Buterin, the co-founder of Ethereum, often pops up on YouTube as if he is live-streaming with some host. Almost always, these are past recordings of his previous appearances, with a scammy message bait.
If you were to check ethdrop22.com with Who.Is, you would see registrar info that doesn’t align with either Coinbase or Buterin. Furthermore, if the registration date is recent, you can safely bet it is an NFT scam.
Of course, these types of scams rely on greed as well. It is silly to think that Coinbase would engage in such giveaways.
An NFT scam that offers a giveaway can often be encountered on Twitter, Discord or Telegram, informing unsuspecting users they have won an NFT.
If they take the bait, they will be redirected to a scammer’s website (always check the URL displayed before clicking) to receive the fake non-fungible token by giving out their wallet’s seed phrase.
And with the wallet’s seed phrase, the door to crypto funds is busted wide open. Suffice to say, one should avoid clicking on random links, especially if they inform you of having won a reward.
That is, unless you have previously entered a giveaway from a reputable source. Speaking of which, social media impersonation is also a big problem.
Are You Interacting With a Legit Profile?
A fake Elon Musk profile promoting a scammy giveaway: Twitter
Whether it is Twitter or Telegram, it is very easy to create a fake social media profile by just copying the profile’s avatar/logo and background. It then only takes a single letter to be misplaced, without many people noticing.
Fortunately, there are easy steps to check if the profile is real:
- Recently, Twitter Blue subscription integrated NFTs into profile pictures. They are not only represented as soft hexagons, but upon clicking them, they lead to a smart contract address that holds the asset.
- If the number of followers is suspiciously low.
- If the profile creation date is recent.
- If there is no blue checkmark.
Likewise, if you conduct a Google search for the official social media account, the first results should be the real deal.
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Not all marketplaces are created equal. Some require strict curation and verification to even join the site. However, the largest ones, OpenSea or Rarible, allow anyone to mint NFTs. This often creates a situation in which people steal artworks and mint them under their account.
A more elaborate impersonation ploy is to create an NFT scam marketplace. There are not that many marketplaces across blockchains, but you can always use DappRadar.com to launch legitimate NFT stores, and then bookmark them.
Scammers often count on lots of traffic to make money and rely on people’s lack of common sense to compensate for their greed.
Hacks of Legitimate Platforms
So far, all of the NFT scams on this list are about making people think they are real. But a real account could be broken into and used for bad things. This is what happened to CityDAO because a Discord account was hacked.
CityDAO is an experiment in managing land ownership as a decentralized, autonomous organization. It makes it possible for tokens to control real land. The first 40 acres were bought in Wyoming. These land parcels are represented as NFTs, owned either or by individuals.
After the Discord admin’s account was compromised, the attacker issued an NFT drop worth 29.67 ETH, or $95,000 at the time. Because other CityDAO members thought it was a legitimate land parcel drop, they fell for it.
A similar incident happened to Justin Kan’s Fractal NFT platform on December 21. That time, the hacker pocketed $150k.
These are obviously the most effective NFT scams because users know that the platforms they use are not fake. With that trust wall secured, it is then easy for hackers to slip under it and take control.
Because of this, people should check their social media accounts for official warnings before making investments, just to be sure.
Don’t Be Discouraged by Scammers
Criminals look for the people who are the easiest to trick. This includes people new to crypto/NFT, older people who aren’t used to fakery on social media, and people whose greed gets the best of them.
If you take these tips and use them every time you use cryptocurrency online, even hackers won’t be able to beat you.
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