Common NFT Scams to Look Out For & Ways to Avoid the Fake Ones

The initials NFT stand for Non-Fungible Token. These are usually unique digital artwork attached to the blockchain and paid for with cryptocurrency. The blockchain is the digital record of all cryptocurrency transactions. Cryptocurrencies are alternatives to nation-based funds; they exist primarily on the blockchain, a peer-to-peer database of traceable transactions.

If this sounds confusing, be careful. Even those familiar with crypto and NFTs have had money stolen in NFT scams. And yet NFTs accounted for $17.6 billion in transactions in a recent year.

To buy and sell cryptocurrency or NFTs, you must have a digital wallet. These are online accounts linked to the blockchain that contain cryptocurrency. You can buy into cryptocurrencies by opening a digital wallet and exchanging some of your traditional currency for hundreds of types of digital tokens.

NFTs can be original artwork or special versions of artistic expressions. Some of the first NFTs, created by well-known people, sold for millions of dollars due in part to the medium's novelty. But others were stung by NFT scams that sought to make money off people who were less familiar with how blockchain and digital wallets work.

Are NFTs a scam? Not always, but because they're new and mostly unregulated, and NFT marketplace development on the rise there are more opportunities for scams than traditional art collecting.

Common NFT Scams

• Phishing scams. Keep your guard when an unknown source emails to pass along a great deal on an NFT. Phishing emails offer excellent deals or discounts on NFTs. Unfortunately, they are typically looking to steal your sensitive personal data or steal money from you. Never click on a link provided by an unknown person or unfamiliar business. Additionally, the link can launch malware onto your computer or smartphone, allowing illicit access to your personal information.
• Spoofed websites. Like knockoff sneakers that aren't really a designer brand, these appear to be actual NFT showrooms but are fakes. Make sure to carefully read the website address, then compare what you read to others that you see online. Also check the NFT itself to ensure it is not a copy of a famous one for sale elsewhere. If you think you've done business with the NFT seller before, check your email records to confirm that the addresses match exactly.
• Links to fake giveaways or "airdrops" could allow scammers to send and install keyloggers that permeate your system and steal information like your password. Similarly, any request that offers a free NFT deposit into a crypto wallet you own could allow the scammer to have access to your assets.
• Rug pull. In this scheme, you are offered an exclusive NFT at a significant discount. Still, when you pay for it, you may find it's a reproducible token, not a unique artwork.
• These are copies of real artwork. You always need to confirm the authenticity of the seller’s account through a channel like Discord or other similar platforms, plus run some type of reverse-image search to ensure uniqueness. You could also Invest into the blockchain identity of a specific NFT to verify its owner. Your goal should always be to buy directly from the artist when possible.
• Pump & dump schemes or fake auctions. Sellers try to put up different online identities for multiple items so they can inflate the prices, then remove them just before the auction ends. That leaves buyers to pay far more than anything they were bidding on was worth. They also sometimes have fake bidders that flip between different types of crypto just before the auction ends. One example is flipping out a high-value crypto for a lower one that is simply not worth the same amount of money.
• Dating scams. The Federal Trade Commission, or the FTC, consistently warns consumers to remain skeptical of investment endorsements by sports or Hollywood celebrities who claim they can multiply all your savings. Also, scammers sometimes use online dating sites to connect with victims, then convince the victim to put money into crypto or buy NFTs that they are promoting to scam people.

How to Avoid NFT Scams

Owning an NFT is cool, and it may be a good investment at some point in the future – but nobody can guarantee that. Before purchasing, consider the artwork and the process that got you to buy the NFT. Was it a stranger or a trusted source? Always verify the source of the artwork due to the potential of a copied NFT.

Buying a fake NFT might not be the worst thing that can happen. It's crucial to protect your login credentials for your digital wallet. If you give access to anyone so that they can send you an NFT "gift" or to "verify" your transaction, they may clean out your account and disappear with all of your cryptocurrency. Similarly, clicking on a fake link to a secret NFT invitation may allow the scammers to copy your log-in information for your crypto wallet or even your real bank account.

Monitor your email security against hackers, including by changing passwords regularly. If a hacker gains access to your email, they may gain access to your crypto wallet by changing the password and having the verification sent via email. The ability to reset a password through email is a good reason to use multi-factor verification on all of your accounts.

Experts suggest putting NFTs in "cold storage," away from your digital wallet. This helps to keep your asset away from hackers. In addition, use dynamic QR codes to verify NFT sources and securely transact. Protect login credentials, avoid sharing with others, and beware of fake links. Safeguard email security and consider "cold storage" for NFT protection against hackers.

Conclusion

It's impossible to say whether buying an NFT might be a good investment that will appreciate in value over time. For instance, Twitter founder Jack Dorsey made an NFT of the first tweet he sent and sold it for $2.8 million. A year later, the NFT of the tweet was put up for sale again, but the highest bids were under $300.

OpenSea, an NFT marketplace considered legitimate and which does about $3 billion in NFT transactions per month, hosted both the real Bored Ape Yacht Club images and sales of counterfeits. A lawsuit filed in Los Angeles accuses a scammer of making over $5 million on the counterfeit images.

If you decide to invest in NFTs, test the waters first with a small purchase, taking precautions to ensure the authenticity of the seller and the product itself. Losing a small amount of money is a valuable lesson but losing everything is a tragedy.