Watch out! The NFT scammers are out to get you!
From art pieces like EVERYDAYS: THE FIRST 5000 DAYS by Mike Winkelmann to cryptopunks and memes like Side-eyeing Chloe, the popularity of Non-Fungible Tokens (NFT) has been on the uptick. They have also been blowing up in value in 2021. NFT sale volumes have surged eightfold, reaching US$10.7 billion in the third quarter of 2021.
The rising popularity of NFTs has also seen the entry of bad seeds into the market. Such was the case of the Evolved Apes NFTs, a collection of 10,000 playable characters in a fighting game. However, a week after launching the NFTs, the creator ran away with the funds. The anonymous developer who goes by Evil Ape vanished off the internet with 798 Ether (equivalent to US$2.7 million) earned from the sale of the NFTs without delivering on the promise of a fighting game. Let’s look at some common NFT scams to prevent yourself from falling for tricksters and con-artists.
Replica or fake NFT stores
As of March 2021, there has been a 300% increase in dubious domain registrations of NFT stores with names like “rarible”, “opensea” and “audius”. These stores look exactly the same as the original NFT marketplaces (i.e. Rarible, OpenSea and Audius), with a similar website design and even the same NFTs up for grabs.
Besides copies of legitimate NFT stores, there are other fake NFT stores that sell NFTs that don’t even exist. Art enthusiasts charmed by these fake NFTs purchase them, only to find out that they have made a terrible mistake.
To avoid getting scammed by fake stores, make sure to take note of how you are directed to the website. If an illegitimate URL is shared by someone, make sure you report it to prevent others from falling prey to it.
Another major problem plaguing the NFT world is artist impersonation. One such case was that of the anonymous NFT collector called Pranksy who spent US$3 million (in Ethereum) on an NFT which they believed was the original artwork by Banksy. Lucky for Pranksy, the original seller refunded the Ethereum they had paid for the purchase after the scam garnered media attention.
Artist impersonation scams are expected to see an increase, with domains like banksynft[.]com and banksynfts[.]com getting registered recently. You need to be careful about what you buy. Make sure to always check that the seller you are buying from and the NFT itself are verified to ensure the safety of your purchase.
Another common scam that has emerged recently is fake bidding on the OpenSea marketplace. Scammers approach NFT sellers on the marketplace and place bids on the NFTs with USDC (USD stablecoin). Yet, they trick sellers into believing that they are bidding in WETH (wrapped Ethereum) by using the WETH logo as their profile photos.
The concern here is that WETH has a much higher value (about US$3,785 as of writing this article) than USDC (US$1). If a seller rushes to make a sale, they can end up falling for the WETH logo scam and end up losing a lot of money.
The best way to avoid this scam is to take your time when going through bids and report such bidders if you come across them.
Typos and malware
Often when we search for things on the internet, we are in such a rush that we end up typing the wrong thing. Hackers and scammers exploit these mistakes to attack your device. Such an attack is called typosquatting.
Mistyping is only one way that you can end up falling prey to a typosquatting scam. Another way you could be attacked is by clicking on URLs that appear to be a genuine website but have one letter out of place (like rarbile.com instead of rarible.com). Some of these fake websites are meant to direct you to download malware, and others steal your personal information by offering you fake gift cards and money.
To protect yourself from these attacks, you need to carefully look at URLs to make sure that you are actually clicking onto the official website.
Insider trading is also a major problem that concerns NFT traders and collectors. In the context of NFTs, insider trading refers to the purchase of the NFTs before they are put on sale to the general public. In September this year, the NFT marketplace OpenSea admitted that their Head of Product Nate Chastain was involved in an insider trading scam.
While other scams on this list can be avoided to a certain extent with caution, the same is not true for insider trading. There are no legal precedents that would make such activity illegal. NFT marketplaces need to have stricter rules in place to curb insider trading. After admitting to the scam, OpenSea has banned employees from buying and selling NFTs that are being promoted by the company.
As NFTs grow in popularity, it is important that we, as buyers and sellers, continue to do our research and keep an eye open for scams. It’s important to remember that if it seems too good to be true, it usually is.
Header image courtesy of Freepik