This is what awaits you in this article
NFT has developed into a megatrend in a short time and dominates the entire crypto area along with cryptocurrencies and other applications of blockchain technology. The NFT hype not only brings the chance of high returns with it, but also holds some dangers and a great potential for fraud. The NFT trading platform OpenSea has announced that around 80 per cent NFT generated via OpenSea’s free embossing tool would vouch for fraud. In this article, we will introduce you to known scams and dangers and explain how you can protect yourself from them.
What exactly do you acquire when you buy an NFT?
For example, when you purchase an NFT through OpenSea, you receive a digital certificate that contains certain ownership or use rights and therefore proves that you are the rightful owner. The only thing stored on the blockchain is that you own the purchased NFT. On the NFT trading platform, this information is used to link to the relevant file (such as an image) and is displayed on your account. The NFT trading site should thus be understood as an interface that shows you the file behind your NFT by accessing the information in your wallet. This situation can be explained graphically as follows:
You buy a property (NFT) and your name is listed in the property register (blockchain). The purchase of the property and the entry in the land register do not change the location of the property, as the land register only proves your legal ownership and refers to the corresponding plot.
In summary, an NFT is initially nothing more than proof of ownership stored on the blockchain. Often this property comes with certain rights. For example, the owners of a Bored Ape Yacht Club NFT have the right to attend exclusive parties.
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NFT scam carpet pulls – when the provider suddenly disappears
A blanket is a scam that is not only unique to NFT but also to cryptocurrencies. Right from the start, the developers of a project aim to create as much hype as possible about their project and withdraw from the project at the top of the hype curve. This works, for example, by massively advertising the created NFT collection. It is often claimed that various celebrities are behind the project. In addition, a community is built through social media, creating the look of a promising investment. Once the entire collection is sold, the developers no longer work on the project, promises are not kept or the developers’ accounts are deleted. In short, the developers are going away with the funds raised and what the investors are left with is a worthless NFT.
One of the most famous carpet features was the NFT project called Evolved Apes, with which the developers stole nearly three million US dollars.
For example, you can recognize a rug feature if the NFT project is similar to well-known projects, or the developers are less well-known, and the entire collection is the very first project. In addition, the project plan (the so-called roadmap) is often designed in a very short time and provides no information about specific goals for the entire project. It is important that you do not let your emotions, which are driven by the massive marketing and emergence of a unique opportunity, guide you and that you practice a rational approach.
Artificially generated demand and large loss of value (pump and dump)
Pump and dumps are not a special feature of the crypto space, but are also known from the classic securities field. In the pumping phase, the demand for an NFT increases with the intention of artificially generated demand or false information from the fraudsters. In the further process, NFT is sold in the dump phase by precisely these scammers at the artificially generated high price. By selling it right away, the price of NFT is going down rapidly. The ignorant investors have almost no opportunity to act fast enough and end up owning an NFT that has almost no value.
Do not be fooled by overly optimistic information and let go of your fear of missing something. Before investing in a rising NFT, look at the history of transactions on each trading venue. If you see abnormalities in the form of increased transactions or transactions from the same users over and over again, it may indicate a pump and dump.
It happens regularly that known NFT collections are counterfeit. In this case, scammers replicate a known NFT and sell it. As a result, after a purchase, you would be in possession of a worthless counterfeit that any market participant would immediately recognize.
To avoid this, do not invest in the blind and spend your time on your research. In addition, most genuine NFT sellers are verified by a blue tick behind their username. In addition, you can trace the origin of the transaction history of NFT at the respective trading venue and thus identify fraud relatively quickly.
False customer support
As there are also many issues and difficulties associated with NFT, scammers take advantage of the lack of experience and existing uncertainties. Many NFT projects, both secure and fraudulent, organize themselves through social media or various chat applications such as Discord. This results in two sources of danger:
- As soon as you raise a question about an NFT project on these media, it is possible that what appears to be customer service will write to you and will help you. Behind this customer service, however, is a scammer who asks for access data to your wallet, for example, in order to take a closer look at your request.
- However, it is also possible that the entire chat room is not managed by the NFT developers and is therefore completely organized and advertised by scammers. All links and presumed instructions and frequently asked questions may therefore be aimed at fraud and have the purpose of accessing your wallet.
The official chat rooms and accounts on social media are usually linked on the NFT project’s official website. Therefore, do not participate in groups or networks that are not directly from the development team, but that have been promoted on social media. In addition, you never reveal the access data to your wallet.
Fake NFT trading venues
In addition to fake customer support, there is also a risk of gaining access to a fake NFT trading platform. This is often done through phishing emails that entice you with offers or a suspected security check or verification of a transaction. Likewise, offers and ad banners on social media are not uncommon. When you click on the displayed link or ad, you will be taken to the fake NFT marketplace. If you link to your wallet there or even give away your credentials, the scammers will have access to your wallet.
For all emails, confirm the sender and whether it is from a known NFT trading platform. If you clicked on a link or ad, you should also look at the URL.
Provides lures with free NFT
In social networks or in chat groups, attention is often drawn to free NFT. The scammers entice you with a free NFT and ask you to go to the scammers’ website and link your wallet to it so that the free NFT can be transferred to you. However, since the website is fraudulent and you, for example, approve a link to the MetaMask wallet, the whole process can be read by the scammer. Once the scammers have access to your wallet, all your assets in the wallet are no longer safe.
Therefore, always be aware of who is behind free NFT offers. Secure giveaways and airdrops are usually supported by people or companies that can be clearly identified.
Risk of ownership of a non-existent file
Since your NFT is merely the certificate of ownership of a file, your NFT may no longer be displayed. There are several reasons for this:
- It is also possible that your NFT was stolen as part of a scam and therefore is no longer in your wallet. The reasons for this lie in the scams already described.
- There is also a risk that even if you have an NFT and therefore ownership of a file, that file can no longer be found. This is because only the proof of ownership with little information and not the file itself is stored on the blockchain. As a result, access to this file could no longer be possible, for example due to a broken link. Reasons for this are, for example, that the hard drive or server on the website in question is blocked or taken completely off the network. However, the extent and likelihood of this risk will only become apparent in the coming years.
Again, it is important that you investigate who is behind the whole project. If the project team is serious and the companies and individuals involved can be identified, the risk described is reduced.
Speculative NFTs are also prone to fraud
Finally, the investment in NFT, which should basically be classified as speculative, is not free of fraudsters and criminal energy, like other asset classes. Therefore, the following applies: Never disclose your wallet’s access and login data and sign up only on the official websites. Unlike online banking, the criminals at NFT have it a little easier, as many users just know the subject and are inexperienced. In addition, the security mechanisms are far from on a par with online banking. This is why many scams work.
Only buy an NFT if you have informed yourself about the project and at least know the development team or company behind or have identified them. When making an investment in NFT, be aware that the value of NFT is hyped by supply and demand. Therefore, there is a high risk that NFT can have almost no value when the project is abandoned or when the hype ends.