What Are NFT 3 NFT Scams And How To Avoid Them

On the blockchain, NFTs enable users to claim ownership of digital works and exchange them for cash. The unregulated NFT market appears to have drawn a large number of scammers, despite the fact that NFT technology is still developing.

What are NFTs?

Non-fungible tokens, or NFTs, are a kind of digital asset that establishes and verifies the ownership and legitimacy of a distinct digital asset. NFTs make it possible for those who produce or possess digital property to track who owns it and profit from it. An NFT is an authenticity certificate that is stored on the blockchain, an irreversible digital ledger.

Consider that you produced a piece of digital art. It can be replicated millions of times online as a digital asset with seemingly no repercussion. However, you can demonstrate that you are the owner of the original digital work by minting an NFT of your artwork. Like the Mona Lisa, the creation is non-fungible, which means it has special qualities that make it irreplaceable. There has been and always will be just one original. This prevents anyone from stealing your work or passing it off as their own.

How do NFT scams work?

NFT scams operate in a few different ways. The login information for a cryptocurrency wallet may be stolen or compromised by scammers. In doing so, they would be able to access the digital safe containing the NFT. Additionally, scammers may deceive victims into thinking they have successfully acquired a genuine NFT when, in reality, they have purchased a fake.

Scammers frequently employ social engineering techniques, such as phishing attempts, to get access to cryptocurrency user accounts and steal NFTs because it is hard to alter data on the blockchain.

The greatest approach to safeguard your NFTs—and your money—is to understand their strategies.

You should exercise caution while purchasing NFTs even if you are aware of the methods used by scammers, particularly if you are doing it as an investment. Nowadays, NFTs aren’t as common as they once were. With certain transaction volumes 90% lower than their high, the market has crashed. A lot of NFTs that were once worth a lot of money are now worthless.

3 types of NFT scams

1. Fake NFT websites

In an attempt to fool customers into divulging their account information, NFT scammers mimic well-known NFT websites and markets. If you don’t pay attention to the nuances, these fraudulent, pharming websites can appear to be identical to the actual thing. Because of this, it could be challenging to distinguish between a genuine page and a fake.

Such social engineering schemes frequently target your passwords and personal data. Scammers may be able to access your account on the legitimate website, along with any NFTs or money you have saved there, once they get your personal information. Alternatively, they may attempt to sell you fraudulent NFTs through their phony website.

How to stay away from fraudulent NFT websites: Before entering into your account or making any transactions, make sure you are using the correct URL for the NFT marketplace page.

2. Pump-and-dump schemes

NFT scammers use pump-and-dump techniques to artificially drive up the price of an NFT. They accomplish this, for instance, by using celebrity endorsements or social media to generate buzz about an NFT or NFT collection. In order to boost the value of the NFTs, a group of scammers will also place large bids.

The insiders will cash out all at once when an NFT collection attracts notice and the selling price peaks, which will cause the price to fall. The NFTs will be worthless assets for the investors who paid a premium for them.

How to steer clear of NFT pump-and-dump scams: Before purchasing, look over an NFT’s transaction history. The buyers on the list of genuine NFTs will be varied. A pump-and-dump risk is typically indicated if you observe that a small number of buyers are selling and reselling.

3. Rug-pull scams (Investor scams)

In essence, rug-pull scams, also known as investor scams, are fraudulent NFT operations in which the NFTs never reach the market. New NFT ventures are marketed by scammers to entice investors. They generate demand by providing customers who pre-order particular NFTs with enticing benefits. The developers then take the money and vanish before the NFTs are delivered.

This occurred in 2021 when Evil Ape, the NFT developer, amassed about $3 million in investments before going missing and never to be seen again. In 2022, investors that purchased Frosties NFTs experienced it once more. Before abruptly disappearing, the developer sold $1.3 million worth of digital assets and made lofty claims. No one received their NFTs or their money back, despite the fact that the offenders were apprehended and charged in this NFT case.

Preventing a rug-pull NFT scam: Check for accountability and openness within the NFT development team. It’s a bad omen if the team is anonymous. Additionally, make sure the developers are hitting their goals by looking for a development roadmap.