What are NFT Scams? Top 10 NFT Scams to Avoid

NFT scams involve fraudulent activities related to Non-Fungible Tokens, such as selling counterfeit or stolen digital assets, misrepresenting authenticity, or deceiving buyers into purchasing worthless tokens.

What does NFT stand for?

An NFT, or Non-Fungible Token, is a unique digital token signifying ownership or authenticity of specific blockchain content. NFT’s have emerged as a revolutionary asset class, transforming the way we perceive ownership and value in the virtual world. However, as with any burgeoning market, the NFT space has become a fertile ground for scams and fraudulent activities.

This article, “The 10 Most Common NFT Scams and Techniques to Avoid Them,” aims to equip you with the knowledge and tools to navigate this exciting yet complex domain safely. We delve into the most prevalent scams, backed by real-world data and statistics, and provide practical strategies to safeguard your digital assets.

Whether you’re an experienced crypto enthusiast or a newcomer intrigued by the world of NFTs, this guide is designed to help you stay one step ahead of the fraudsters.

What Are NFTs?

Non-fungible tokens, or NFTs, are a type of digital asset created using blockchain technology. Unlike Bitcoin or Ethereum, NFTs are unique and cannot be exchanged on a like-for-like basis. This uniqueness and scarcity are what give NFTs value.

NFTs have gained significant attention in recent years, particularly in the art world. In March 2021, an anonymous NFT creator of artwork by the digital artist Beeple sold at Christie’s for a staggering $69.3 million, making it one of the most expensive artworks ever sold. This event marked a significant milestone in the acceptance and value of NFTs.

The secondary market for NFTs has grown exponentially. According to data from NonFungible.com, the total value of NFT transactions quadrupled to $250 million in 2020. Then, in the first quarter of 2021 alone, NFT sales exceeded $2 billion. This rapid growth has been fueled by increasing interest from both individual collectors and institutional investors.

The NFT market is also characterized by high volatility. Data from Protos suggests that the NFT market witnessed a sharp decline in the second quarter of 2021, with sales dropping by almost 90% from their peak in May. Despite this volatility, many believe in the long-term potential of NFTs, particularly as a tool for digital rights management and as a new way for artists and creators to monetize their work.

How Do NFT Scams Work?

With this exciting innovation comes a darker side – scams. NFT scams are becoming increasingly common, and understanding how they work is the first step to protecting yourself.

Scammers employ a variety of tactics to deceive their victims. One common method is through the creation of fake NFTs. Scammers will copy the work of popular artists, mint these copies as NFTs, and then sell them on various platforms. To the untrained eye, fake NFTs look real, deceiving buyers into purchasing worthless copies.

Scammers impersonate artists, using fake sites and accounts to sell non-existent NFTs. They lure victims in with the promise of exclusive access or discounted prices, only to disappear once they’ve received payment.

Some scams are more subtle, relying on hype and speculation to inflate the value of an NFT. These “pump and dump” schemes involve a group of people artificially inflating the price of an NFT by buying up large quantities and promoting it heavily. Once the price has risen, they sell off their holdings, causing the price to crash and leaving other buyers with a worthless asset.

How do NFTs work?

NFTs digital assets, derive from blockchain technology, distinguishing them from other tokens. They have unique identification codes and metadata that distinguish them from each other.

Here’s a basic explanation of how they work:

1. Creation or Minting: The process of creating an NFT is called minting. This involves uploading a piece of content to an NFT auction market, which could be any digital file, like a GIF, JPG, MP3, etc. The data is then processed into a token on the blockchain.
2. Ownership and Provenance: Once the NFT is created, it can be bought, sold, or held just like any physical asset. The blockchain records every detail of the NFT, including who owns it and its transaction history. This provides proof of ownership and authenticity.
3. Smart Contracts: NFTs use smart contracts for features like resale royalties.
4. Interoperability: Built on Ethereum’s ERC-721, NFTs work with other Ethereum services.
5. Permanence: NFTs are stored on the blockchain, which means they exist as long as the blockchain exists. Even if the platform where the NFT was purchased goes out of business, the NFT will continue to exist.
6. Scarcity and Value: The value of an NFT is largely subjective and is determined by how much someone is willing to pay for it. The scarcity or uniqueness of an NFT can contribute to its value.

NFTs can represent ownership of a digital item, but buying an NFT does not necessarily mean you own the copyright or intellectual property rights to the content associated with the NFT.

Top 10 NFT Scams to Avoid

NFTs have revolutionized the way we perceive and interact with art, but with this innovation comes a new breed of scams. From phishing attacks to rug pulls, the landscape is riddled with traps for the unwary. In fact, more than $100 million worth of NFTs were stolen in the year leading up to July 2022, with criminals making off with an average of $300,000 per scam.

Here are the 10 most common NFT scams, arming you with the knowledge you need to navigate this exciting, yet perilous terrain:

1. Minting Scams: Scammers create fake websites or social media accounts pretending to be well-known artists or projects. They then announce the minting of new NFTs, tricking people into sending them cryptocurrency.
2. Fake Listings: Scammers list NFTs that look identical to popular ones, but are actually worthless copies. Always verify the contract address of the NFT before purchasing.
3. Social Media Scams: Scammers impersonate influencers or project owners on social media and trick people into sending them money or revealing private keys.
4. Phishing Attacks: Scammers send emails or messages that appear to be from a trusted source, such as an NFT marketplace, to steal login credentials.
5. Rug Pulls: The creators of an NFT project hype up their work, sell many NFTs, and then disappear with the money, leaving the buyers with worthless tokens.
6. Ponzi Schemes: Scammers create NFT projects with the promise of high returns for early investors, paid for by the funds from later investors.
7. Airdrop Scams: Scammers promise free NFTs in return for a small gas fee, but the NFTs are never sent.
8. Fraudulent Investment Opportunities: Scammers promise high returns from investing in their NFT projects, but the projects are non-existent or worthless.
9. Malware: Scammers trick people into downloading malicious software that steals their wallet information.
10. Pump and Dump Schemes: Organized groups artificially inflate the price of an NFT by buying in large volumes, then sell off their holdings once the price peaks, causing the value to plummet.

The NFT market is still in its infancy, and as it matures, we can expect to see more robust security measures and regulations put in place to protect buyers and sellers

How to stay away from Phishing Scams?

The FBI’s Internet Crime Complaint Center reported that phishing was the top cybercrime in 2020, and the trend has continued to rise in subsequent years. The Anti-Phishing Working Group (APWG) noted a staggering 220.8% increase in phishing websites in 2020 compared to the previous year.

The financial implications of these scams are significant. In 2019 alone, the FBI reported that losses from phishing attacks amounted to $54 million. This figure only represents the direct financial loss and does not take into account unreported cases or the indirect costs associated with these scams. These indirect costs can include the expenses involved in responding to the attack and the potential damage to the victim’s reputation.

In the context of NFTs, phishing scams can take the form of fake marketplace websites, social media accounts or emails impersonating popular NFT platforms. Scammers can trick NFT buyers into providing sensitive information, such as their crypto wallet, passwords or private keys, leading to substantial losses.

Email remains the most common method for these attacks. The APWG reported that over 96% of all phishing attacks occur via email. However, it’s important to note that phishing scams are not limited to email. Cybercriminals are constantly evolving their tactics and are now using more sophisticated methods.

One such method is spear phishing, where the attacker targets specific individuals or companies. In these cases, the phishing emails are often disguised as messages from a trusted source, making it even more challenging for the recipient to identify the phishing scam.

How to identify a Rug Pull NFT Scam?

A “Rug Pull” scam is a fraudulent practice in the cryptocurrency and NFT (Non-Fungible Token) space. It typically involves the developers or promoters of a project abruptly removing their support or disappearing with investors’ funds, causing the value of the cryptocurrency or NFT to plummet, hence the term “rug or rug pull scams”.

Here are some ways you can identify and avoid a rug pull scam:

1. Research the Project and Team: Before investing in any NFT project, take the time to thoroughly research the project and its team. Look for transparency and professionalism. The team should have a strong online presence and a track record of successful projects. If the team members are anonymous or have a history of involvement in failed projects, it could be a red flag.
2. Check the Contract Code: If you have the technical know-how, or know someone who does, check the contract code of the NFT project. Look for any functions that allow the owner to withdraw funds or alter the contract after it has been deployed. These could be signs of a potential rug pull.
3. Look at the Tokenomics: Be wary of projects that allocate a large percentage of tokens to the team or have a high pre-mine. These could be signs that the team is planning to sell off their tokens once the price increases, leading to a rug pull.
4. Beware of Hype and Pressure: Scammers often create a sense of urgency and hype around their project to encourage people to invest quickly without doing proper research. Be wary of projects that promise high returns in a short period of time or pressure you to invest immediately.
5. Use a Reputable Exchange: Stick to well-known and reputable exchanges when buying and selling NFTs. These platforms often have measures in place to prevent rug pulls, such as requiring projects to lock up their liquidity for a certain period of time.

Plagiarized & Counterfeit NFTs

Plagiarized NFTs are essentially digital copies of original artworks that are minted as NFTs without the consent of the original artist. This is akin to someone taking a photograph of a famous painting, and then selling prints of that photograph as if they were the original artist. Counterfeit NFTs, on the other hand, are duplicates of existing NFTs. They mimic original NFTs and sell on familiar platforms, making it hard for buyers to identify authenticity. They are designed to look identical to the original NFTs and are often sold on the same platforms, making it difficult for buyers to distinguish between the real and the fake.

The issue of plagiarism and counterfeiting in the NFT space has been getting exponentially worse. It not only undermines the value of the original NFTs, but it also infringes on the rights of the original artists. Moreover, it can lead to financial losses for unsuspecting buyers who may end up purchasing counterfeit NFTs at a high price, thinking they are getting the real deal.

If you wish to report an NFT scam, click here.

How to Protect Yourself from NFT Scams

It’s crucial to do some extra research before purchasing an NFT. This involves taking the time to delve into the background of the artist and the artwork. Check out the artist’s portfolio, examine their social media profiles, and look for a consistent body of work. If an NFT art doesn’t match the artist’s usual style, it may be a red flag.

Every NFT links to a blockchain smart contract. This contract is a crucial piece of the puzzle. Verify the smart contract to ensure the NFT’s authenticity from its claimed creator. This step is a vital part of the verification process and can help you avoid counterfeit NFTs.

Make sure to use trusted platforms. Stick to well-known and reputable NFT marketplaces. These platforms often verify NFT authenticity, offering added security for buyers.

Always be wary of deals that seem too good to be true. If someone sells an empty NFT account at an unusually low price, it might be a scam. Scammers often use low prices to lure in unsuspecting buyers.

Pump and Dump Scheme NFT Scam

Pump and dump schemes have become a significant concern in the Non-Fungible Token (NFT) market. These schemes involve artificially inflating the price of an NFT, often through coordinated buying and promotional efforts, only to sell off the asset at its peak, causing the price to plummet and leaving other investors at a loss. Chainalysis reported a rise in NFT schemes, especially in 2022 and 2023.

The data reveals a pattern in these schemes. Typically, the organizers of a pump and dump scheme will target lesser-known NFT projects. They buy up the NFTs at a low price, then use social media platforms and other promotional methods to create hype around the project. This leads to a rapid increase in the price as more investors buy in. The organizers then sell their NFTs at the inflated price, causing a sudden drop in value. This pattern recurs across various NFT scams and projects.

Statistically, these schemes have had a significant impact on the NFT market. For instance, in a single quarter of 2023, pump and dump schemes were responsible for a 10% fluctuation in the overall NFT market value. This volatility can deter potential investors and harm the reputation of the NFT market. Furthermore, the victims of these schemes often suffer significant financial losses, with some losing up to 90% of their investment.

To combat these schemes, it’s crucial for investors to be aware of the signs of a potential pump and dump. These can include sudden price increases, aggressive promotional campaigns, and a lack of transparency about the project’s creators or backers. Additionally, investors should be wary of fake NFT projects, that promise quick and high returns.

Giveaway NFT Scams & NFT Airdrop Scams

Airdrop scams, have become a prevalent issue in the digital asset space. Scammers promise free NFTs or cryptocurrencies to trick people into giving personal information or funds. The promise of a free valuable NFT, given their market prices, can be tempting. However, these giveaways often turn out to be nothing more than elaborate scams.

Airdrop scams often start with an announcement on social media or a direct message to potential victims, promising free NFTs as part of a giveaway or airdrop.

The scammers may impersonate legitimate NFT projects or creators, using similar names, logos, and branding to appear authentic. They then ask the victims to provide personal information, such as their stolen digital wallet credentials or address, or to pay a fee or gas cost to receive the free fake NFT account.

The data on these scams is alarming.The search interest for “NFT scams” hit an all-time high in the first week of January 2023, indicating a significant increase in the prevalence and awareness of these scams.

The report also highlighted that not only unknown or obscure projects fall victim to these scams. Scammers have impersonated even high-profile NFT porjects, showing their sophistication and audacity.

How Can you Avoid NFT Scams Taking Place through Duplicate Artworks?

Duplicate Artwork Scams involve scammers copying original art to create fake NFTs. Scammers often list these copied or stolen counterfeit NFTs for auction on various marketplaces under their own accounts.

According to a report by OpenSea, one of the largest NFT marketplaces, selling plagiarized NFTs is against the platform’s policy. Despite this, the platform has had to deal with numerous instances of such scams. Scammers skillfully deceive buyers into believing these NFT trades are original works. Buyers might quickly purchase one, only to late realize they’ve bought worthless art pieces.

The statistics on these scams are concerning. For example, Dutch digital and animation artist, Lois van Baarle, found 132 of her artworks on the NFT platform OpenSea that she never authorized for listing. Similarly, DeviantArt, an online community for artists with half a billion digital artworks, discovered more than 90,000 copies of their artworks on several NFT platforms.

7 Steps to Avoid NFT Scams

1. Use a Secure Wallet: Ensure you’re using a secure and reputable digital wallet to store your NFTs. People in the crypto community widely use and trust wallets like MetaMask and Trust Wallet.
2. Double-Check URLs: Always double-check the URL of the marketplace you’re using. Scammers often create websites that look almost identical to popular NFT marketplaces to trick people into buying fake NFTs or giving away their information.
3. Beware of Unsolicited Offers: Be wary of unsolicited offers or messages about NFTs, especially if they’re asking for your personal information or private keys. Legitimate platforms and sellers will never ask for these details.
4. Avoid Rush Decisions: Scammers often create a sense of urgency to pressure you into making a purchase. Take your time to research and think about the purchase before making a decision.
5. Use Escrow Services for High-Value Transactions: If you’re dealing with high-value NFTs, consider using an escrow service to ensure the security of the transaction. This can protect both the buyer and the seller.
6. Research the Project and Team: Before buying an NFT, research the project and the team behind it. Look for transparency, a strong online presence, and positive community feedback.
7. Check the NFT’s History: Use the blockchain to check the NFT’s history. This can show you past transactions, including the original creation of the NFT, which can help verify its authenticity.

Potential buyers should beware of deals that seem too good to be true; they often signal scams.

Challenges & Risks of NFT

Like any burgeoning industry, it is not without its share of challenges. As we delve into the current state of NFT projects, it’s crucial to remember that this is a rapidly evolving landscape, and the issues we discuss today may well be the stepping stones to more robust solutions tomorrow.

Challenge #1: Lack of Regulation & Oversight

Lack of NFT regulation has increased scams and fraud, as noted earlier. However, it’s not just the scams that are a cause for concern. Lack of regulation causes speculation, inflated prices, and market volatility. For instance, the NFT market is worth an estimated $11.3 billion, and between 2020 and 2021, it increased by over 20 times. The most expensive NFT sold for over $90 million, and half of the top 10 largest NFT sales were for CryptoPunks.

Challenge #2: Environmental Impact of NFTs

Another issue is the environmental impact of NFTs. The creation and trading of NFTs require a significant amount of computational power, which in turn leads to high energy consumption. This has led to criticism from environmentalists and has sparked a debate about the sustainability of the NFT market.

The NFT market also exhibits a high level of inequality. Few high-profile artists earn most profits, many smaller artists struggle financially. This has led to concerns about the inclusivity and fairness of the NFT market.

Challenge #3: Copyright & Intellectual Property Rights

Finally, there’s the issue of copyright and intellectual property rights. In the current state of the NFT market, it’s possible for someone to mint an NFT of a piece of artwork or content that they do not own the rights to. This has led to numerous instances of plagiarism and copyright infringement, causing distress for artists and content creators.

Despite these challenges, it’s important to remember that the NFT market is still in its infancy. As the market matures, we can expect to see solutions to these issues emerge. For instance, more robust regulation could help to curb scams and fraudulent activities, while technological advancements could help to reduce the environmental impact of NFT creation and trading. Furthermore, new business models and platforms could help to promote a more equitable distribution of profits in the NFT market.

Categorised in: Scams

This post was written by Adrian Yang