- Interested in investing in NFT, know the strategies used by scammers in this market and thus avoid being a victim of these thieves.
The market for non-fungible tokens (NFTs) has seen significant growth accompanied by hype around exorbitant profits. Usually, any market that appears to offer relevant gains should be viewed with caution.
The products that are enshrined within the Web3, or the Decentralized Internet, such as NFTs or cryptocurrencies, are still not properly regulated, which opens the door for scams to be generated.
In fact, at the start of 2022, global NFT sales surpassed US$4 billion and simultaneously, Google searches for “NFT Scams” reached an all-time high during the second week of January.
Why are there so many scams in this market?
With its impressive growth, the NFT market attracted unwanted characters such as scammers and hackers taking advantage of some elements such as misinformation, lack of regulation, growth and exaggeration in the market and the Fear of Missing Out (FOMO) to do their thing.
It is essential to emphasize that This environment for scams is not just happening in the NFT industry. For example, during the most bullish periods for Bitcoin and other altcoins, a wide variety of scams were also spawned. According to CNBCIn 2021, scammers managed to steal $14 billion worth of cryptocurrencies, especially thanks to the rise of decentralized finance (DeFi).
Thus, if you are thinking of venturing into the NFT market, it is essential that you know what the most common scams are and how you can spot them.
Most frequent NFT scams, how to avoid them?
Certainly, NFTs are high-risk assets. However, it is possible to reduce the chances of falling for a scam, but to do so, it is necessary to know the most frequent strategies, take them into account and thoroughly investigate the project.
Next, we will tell you about some of the most frequent strategies used by scammers to deceive investors.
Rug Pull
The term ‘Rug Pull’ it is particularly well known within the crypto community. CIt consists of a scam strategy where project developers, whether cryptocurrency or NFT, build expectations and a strong investor base to eventually disappear with tens of millions of US dollars or more.
Basically, the team behind the project pumps out the token(s) using marketing strategies before disappearing with the funds, leaving investors with a worthless asset.
Creating new tokens on Ethereum or another blockchain is actually quite easy. Even easier is to create a collection of non-fungible tokens without even auditing the code.
Behind an NFT there is a smart contract that, in a simplified way, are complex lines of code that establish conditionals, so the more complex the code, the vulnerabilities, errors or flaws can go unnoticed. It is for this reason that code audits are essential from a security perspective.
Without an audit, malicious developers can easily introduce intentional “mistakes”, creating “back doors” to steal user funds.
It is essential to keep in mind thate a ‘Rug Pull’ is a type of Exit Scam, or Exit Scam.
Specifically in the NFT industry, a ‘Rug Pull’ happens when a team lays out a preliminary set of basic NFTs that are part of the beginning of a larger project that will unfold over time. This larger project may be a video game, merchandise, or in-person events, but ultimately ends up running away with the money.
In 2021, according to chain analysismore than 2.8 billion US dollars in cryptocurrencies were stolen using this type of scam.
red flags:
- If the only thing the developers of an NFT promise is to unlock additional benefits in the future, it may be a ‘Rug Pull’.
- Many of the Rug Pulls that have been seen promised to finance a Blockchain video game through the sale of NFTs.
- Potential NFT collections don’t usually grow suddenly, and neither does the community.
- Open up the proposals or plans of the developers. Does the project road map really make sense? Is it too ambitious? For example, if they claim to have already developed a Blockchain game, be careful! These kinds of goals take time.
How to prevent a Rug Pull?
Once we know what we are looking for, it is essential to prevent it in the following way.
- Conduct a thorough investigation of the project. From who are the people in charge to what will be the added value of the NFT collection. Check out the team’s social media accounts, check out their LinkedIn, and check out their previous jobs.
- Check out the community. A good project should have a strong community on Discord and other social networks long before the collection is minted. Be sure to check that the community is built by real people and not bots. Also, check the level of interest in the community. Scammers can buy followers, but they can’t fake interest.
- Are the promises of the project achievable? Check the roadmap, or road map, and search for the project on some NFT calendar platform like Rarity.Tools.
- Question everything, and everyone!
NFT pump-and-dumps
The pump-and-dumps they are a strategy used in a wide variety of markets. It consists of when a group buys an NFT collection, artificially increasing the demand. Basically, they buy their own NFTs with fake names and accounts to increase the minimum price of the collection and, once they succeed, they sell and knock down the price.
Likewise, another way in which they manage to artificially increase demand is by hiring influential people to talk about the project without revealing that they are part of it or that they have been paid to do so. In fact, this strategy can also be applied in the event of a ‘Rug Pull’.
How to avoid it?
- Check the history and records of the project wallet. Etherscan allows you to see all the transactions that have been made on the Ethereum Blockchain
- Check out the project’s Twitter and join the server. Interact! Meet the team behind the project and other users.
- Verify that the NFT collection offers a utility
phishing
Phishing is a strategy that consists of tricking users to deliver passwords or private information to users. Phishing can occur through an email with a malicious link, a phone call from a person claiming to be from a reputable company requesting information, and in other ways.
How to prevent it?
- Keep information private! Check the web pages you access, the emails you receive and never give personal information. No one should ask you for your wallet seed phrase or ask for your 2FA code.
- Always be suspicious of everything!
NFT plagiarism
Yes, it is also possible to plagiarize a non-fungible token. Various artists have seen their work downloaded, copied and minted on other blockchains to be sold as originals.
The reality is that minting a work of art on an NFT market does not mean that you will own the intellectual property rights. Even so, art theft and plagiarism are still latent problems in this market.
It is essential to make sure that the NFT you are purchasing is from the original collection and is not plagiarism because if so, your asset will be worthless.
How to prevent it?
- Look for the blue check mark next to the artist’s profile picture in the NFT marketplace. This is a sign that it is verified.
- Do some research on what are the most popular NFT collections. Make sure you are not buying a copy of these collections.
- Find the artist through his Twitter or website.
- Ask the artist directly if the artwork is theirs.
fake influencers
Don’t trust an NFT project solely because a celebrity apparently supports it.
Marketing is essential to any NFT project. Depending on this, the community behind the collection will be created and consolidated. However, criminals can take marketing to another level by claiming that a celebrity supports the project without being true.
And, before the celebrity knows it, many have probably already lost their money.
How to prevent it?
- The fact that a celebrity supports a project should not be seen as the project’s greatest achievement.
- You should never get carried away by what others think. Not even because he has directly seen the celebrity supporting the project.
- Do your research! This will always be the best tool to avoid scams. Does the project live up to its promises?
Auction scams
This type of scam is common in the secondary market. Imagine a case where a person has bought an NFT and is looking to resell it, so they go to a secondary market like OpenSea and put their NFT up for sale, but to do so, they need to select a token they want to trade with.
Now, bidders are looking to change the cryptocurrency to be used after listing their sales. And, as you may know, there are cryptocurrencies with different market values. So 5 USDT is not the same as 5 BTC.
Double check the currency with which the transaction will be made and the amount! Don’t accept lower offers than you expect.
final tips
Currently, there is a wide range of strategies employed by criminals to defraud investors in the NFT industry. However, there are some general tips to avoid being scammed:
- Beware of private messages on Discord. They are one of the most common scams. Through this platform, criminals can gain admin-level access on a server and post a fake link; It is usually accompanied by a message with promises that are too good to be true. Others also write directly through the private chat looking to show you some other NFT project. Please ignore these messages!
- Keep your private keys very well. Never give the private keys of your wallet to anyone.
- Do not store high-value assets in hot wallets. Preferably use a cold wallet.
- Avoid poor platforms. If you notice that a project website is unattractive and non-functional, run away!
- Picks verified creators. Take the time to thoroughly research who the people behind an NFT collection are. If a project is run by anonymous people, it could be a huge red flag.
- Avoid projects that appear out of nowhere. Look for projects with a verifiable track record.
- Avoid accessing strange links with numbers or special characters.
- Do not invest on emotion or what others say. If an NFT project offers exaggerated profits, be careful. Overly ambitious projects can turn out to be a scam.