Non-fungible token (NFT) markets need to commit to combating fraudulent NFTs, but brands are much more responsible for protecting investors, according to an industry executive.
Brands that issue NFTs should take the first step to protect themselves and potential investors from fraud, BrandShield CEO Yoav Keren said in an interview with Cointelegraph on Oct. 12.
According to Keren, it is easier for a brand to recognize NFTs that have not been launched by the company itself than by markets such as OpenSea or Rarible. NFT marketplaces tend to have less information about which brands create NFTs, when they launch them and other details, the executive said.
While markets should not be complacent about the reality of NFT fraud, it remains an obligation for brands to keep their audience publicly and transparently updated on any NFT offerings, Keren hinted, stating:
“Brands need to understand the legal implications of misusing their image, and take steps to protect their customers across all platforms, websites and markets.”
The CEO went on to say that counterfeits and copyright infringements have emerged as the two most common forms of NFT fraud so far.
Counterfeit NFT fraud involves unauthorized replicas being sold despite the existence and sale of an original NFT collection by its creator or authorized party. Copyright and trademark infringements refer to fraudsters taking the likeness or image of a brand to create and sell NFTs without prior authorization.
Both types of NFT fraud occur in some of the largest NFT markets, such as OpenSea, Rarible and Nifty Gateway, Keren pointed out.
“We ran a scan on OpenSea and found 41,500 sales of suspicious NFTs using unauthorized images or look-alikes associated with prominent celebrities who have promoted NFTs or cryptocurrencies,” Keren said. In these cases, the scammers used copyright or trademark infringements to defraud consumers, she added.
One of the ways to eliminate NFT fraud is for platforms to encourage more reporting of fake ads when a platform user discovers something suspicious. “The ideal would be for brands and markets to collaborate in the search for solutions”, Keren said, adding that attacking a problem from multiple angles is the fastest way to an effective solution.
Despite encouraging brands and markets to go to great lengths to protect investors in NFTs, BrandShield’s CEO stressed that it remains important for consumers to do their own research when investing in NFTs. It is important not only to double check the NFT marketplace domain website, but also to opt only for verified NFT sellers and avoid suspicious shortened links.
“Work to verify an NFT before you buy, because by the time markets catch on to these abuses, it’s often too late,” Keren added.
The rise of NFTs and the metaverse has created yet another way for scammers to trick investors into falling for scams and fakes. According to data from cryptocurrency risk management firm Elliptic, NFT investors were victims of NFT-related scams and thefts of more than $100 million in a period between July 2021 and July 2022.
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