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People and businesses are using non-fungible tokens to make money, trade collectibles, and promote their businesses. However, scams also attempt to defraud individuals and businesses of their money.
People are making money and exchanging non-fungible tokens, which are digital assets. But there are also numerous schemes to defraud individuals and businesses out of money.
In March of 2022, threat actors stole over $600 million from Sky Mavis, the creators of the popular NFT-based video game Axie Infinity. Using compromised private keys, the threat actors withdrew funds from several digital wallets.
In addition to individuals trading and creating NFTs in marketplaces, businesses use NFTs for the following purposes:
Use Cases of NFTs
- Real estate transactions;
- Domain name ownership;
- Customer promotions and loyalty programs;
- Identification and documentation;
- Supply chain and logistics;
- Art, sports, or luxury brand memorabilia; and
- Real estate transactions.
It is possible to conduct NFT transactions securely and avoid falling victim to various scams.
What are NFTs and Why Are Some Worth Millions?
In economics, a fungible asset is something with easily interchangeable units, such as money. A £10 note can be exchanged for two £5 notes and the value will remain the same. However, if something is non-fungible, this is impossible, as it has unique properties and cannot be substituted for another substance. It could be a house or a one-of-a-kind painting, such as the Mona Lisa. You can take a photograph or purchase a print of the painting, but there will only ever be one original.
NFTs are “one-of-a-kind” digital assets that can be purchased and sold like any other form of property but have no physical form of their own. Digital tokens can be viewed as ownership certificates for digital or physical assets.
Each NFT is one-of-a-kind and cannot be replicated or replaced. Here are some examples of NFT types:
Types of NFTs
- Collectible items/Trading cards
- Event tickets
- Music and media
- Gaming Assets
- Big Sports Moments
- Virtual Fashion
- Real-world assets
- Domain names
NFTs can fetch millions of dollars upon sale. For instance, the digital artist Beeple sold a work of NFT art for over $69 million. Other NFT collections, including Bored Ape Yacht Club and CryptoPunks, also sell for hundreds of thousands of dollars.
Known Types of NFT Scamming
NFT scams either directly defraud victims of their funds or obtain their digital wallet or cryptocurrency wallet credentials. After a scam, it is difficult to recover lost funds or stolen digital wallet credentials.
Here are some of the most prevalent types of NFT scams to be aware of.
Scammers entice victims by promoting a bogus NFT project or collection and promising them financial gain. Scammers promote this asset on social media, but once it has been acquired, all promotion and unfulfilled promises disappear. This causes a significant decline in value. Additionally, the con artists remove the ability to sell this NFT.
Although phishing is an old scam, it remains popular. Typically, phishing involves fake advertisements, emails, and pop-ups that direct victims to a fraudulent website. In order to gain access to users’ digital wallets, the fake website then requests private wallet keys. Once fraudsters obtain this private information, they can empty the digital wallet of any NFT collections or cryptocurrencies.
Swindlers promote NFT giveaways via social media. Typically, the promotions offer a free NFT for spreading the word or registering on their websites. When it is time to collect the prize, the scammers request cryptocurrency wallet information in order to send the NFT, but instead, they gain access to the account and steal any funds or NFTs in the wallet.
Cybercriminals create social media profiles to persuade individuals to purchase fraudulent NFTs. They utilize social media to make their fraudulent websites appear authentic.
When someone attempts to resell their NFT, a bidding scam has occurred. After obtaining the highest bid, the con artist, who is the highest bidder, exchanges the cryptocurrency for one with a lower value. Although it may appear to have the highest value, some cryptocurrencies are actually worth less than others.
People remain anonymous when selling or purchasing NFTs, which makes it easier to perpetrate investment scams. With an investment scam, fraudsters create a seemingly lucrative investment opportunity. Following the collection of funds, they vanish without a trace.
Recent investor fraud perpetrated by the developer of Evil Ape resulted in the theft of nearly $3 million. Evil Ape appeared as part of the valid Evolved Apes project but disappeared after collecting funds.
Pump and Dump
A pump-and-dump scheme occurs when a group purchases a large quantity of cryptocurrency or another currency to drive up its price. After the price rises — or is inflated — the group sells — or dumps — the asset to cash in on the gains, while the rest of the market suffers.
Scammers may steal or duplicate artwork and then publish it on legitimate websites, such as OpenSea. Because it was stolen, copied, or counterfeit, the NFT is worthless. The individual has already purchased the item before realizing it is counterfeit.
8 Important Tips to Avoid NFT Scams
The majority of NFT scams attempt to steal cryptocurrency wallet information or induce victims to purchase counterfeit NFTs. Here are some strategies for avoiding these cons:
- Keep Your Secret keys private. Never reveal the contents of your cryptocurrency wallet to anyone. These keys should be kept confidential, as should any recovery codes. No one requires knowledge of these passcodes.
- Investigate the NFT seller. Check for the blue check verification mark on the seller’s NFT marketplace account before making a purchase. Additionally, investigate the seller’s social media accounts, peruse their other listings, and look for online reviews.
- Review the NFT transaction history. Be wary of NFTs with one-day transactions.
- Do not click on suspicious links or attachments. Even if the link appears to lead to a legitimate website, it may be fraudulent. Always visit the site directly without clicking on any links.
- Check NFT prices. Before purchasing an NFT, compare prices on trading platforms such as Axie Marketplace, Mintable, and OpenSea. If the price appears significantly lower or higher than those on these reputable trading websites, it is likely a scam.
- Observe the bids. Prior to accepting a bid, be sure to verify the currency. Do not accept anything below expectations.
- Create robust passwords. Create robust passwords for NFT accounts and digital currency wallets. Two-factor authentication is another method of protecting NFTs. The use of facial recognition or fingerprints makes identity theft more challenging.
- Use trustworthy NFT markets like OpenSea, Rarible, Mintable, Foundation, MakersPlace, and Axie Marketplace.
How to Protect My NFTs
After acquiring an NFT, it is best to move it to cold storage or hardware, such as Trezor or Ledger, and away from the marketplace account, which is vulnerable to hacking. All sensitive data is stored on the device itself, making it more difficult (almost impossible) for threat actors to access.
A hot wallet, such as MetaMask, is another popular way to store NFTs. However, these wallets’ access information is stored online, making them easier to locate than those on a cold storage device.
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