The world is now abuzz with news about nonfungible token (NFT) scams and how they have been causing the technology’s users grief. Are NFT users indeed at risk? Can they do something about the problem? This post seeks to dig deeper and offer some solutions, if possible.
What Are NFT Scams?
Before we talk about NFT scams, we need to understand what an NFT is first.
Wikipedia defines an NFT as “a unit of data stored on a digital ledger that we know as a blockchain, which certifies that a digital asset is unique and, therefore, not interchangeable.” It can represent several items, including photos, videos, audio, and other digital files. But you should note that owning an NFT for someone else’s work (like a painting) doesn’t make you its owner or copyright holder.
NFTs function the same way cryptocurrencies do. They show some form of ownership. But unlike cryptocurrency tokens, they can’t be exchanged. Hence they’re said to be “non-fungible.” Also, unlike Bitcoins and other cryptocurrencies, NFTs don’t have the same value. An NFT for a famous artist’s painting, for example, costs more than one for a book. If you want to learn more about NFTs, you can check this guide we published a while ago.
Here’s a video showing how NFTs work:
NFT scams occur when the non-rightful owners of digital art, for instance, sell them to users for NFTs. The buyers find out later on, of course, that they have been conned into paying for something that their copyright holders are contesting.
NFT Scams Examples
Various NFT scams have made the news to date, most of which had to do with insider trading, selling fake art, and posing fake profiles. Here are some examples.
OpenSea Insider Trading
The most recent NFT insider trading incident happened to what we consider today’s largest NFT marketplace, Open Sea. A senior employee used privileged information to buy NFTs that were displayed on its platform.
Fake Banksy NFT Case
A collector was scammed into paying US$300,000 worth of Ethereum coins for a Banksy NFT, which turned out to be fake. The artist said he had no involvement whatsoever with NFTs. While the buyer got his money back from the scammer who went by “Pranksy,” the incident showed just how much collectors could lose to NFT scammers.
Impostor Poses as Milos Rajkovic on NFT Platform
Serbian artist Milos Rajkovic, also known as “Sholim,” found out on social media that his animated digital portraits were being sold as NFTs on OpenSea. Rajkovic said he knows about NFTs but has no involvement with them. He said the person selling 122 of his works for a total of around US$50,000 is an impostor.
How Widespread Are NFT Scams Now?
The three incidents above prove that, much like NFTs, scams related to them are also soaring. Judging by the amounts lost to the featured scams alone, NFT users stand to lose millions to scammers.
And since the NFT market is seeing explosive growth, raking up sales amounting to US$1.2 billion in July 2021 alone, we expect to see even more scams targeting collectors.
What Can Users Do to Avoid Becoming the Victims of NFT Scams?
Given the risks that NFT scams pose, people who may be interested in investing in digital artworks and the like are wondering if they can do so without suffering from unwanted consequences. We cited some ways to avoid becoming a victim of NFT scams below.
Vet NFT Platforms as Best You Could
Over the past few months, and given the increasing popularity of stores like OpenSea, Rarible, and Audius, collectors should exert due diligence when registering and buying from websites. Most fake NFT stores look very much like those they’re replicating.
If you’re serious about buying digital artworks, make sure you’re on the correct website. Check their domains to see if they match those of the legitimate platforms. The top 3 stores, for example, can be accessed at:
- OpenSea (opensea.io)
- Nifty Gateway (niftygateway.com)
- Rarible (rarible.com)
Take time out to check the address on your browser.
Vet the Sellers
As evidenced by documented NFT scams, it’s easy to create a fake profile even on legitimate NFT stores. You can avoid being conned by impostors by doing good old Internet research. Artists typically have public social media accounts or would make the news if they start selling their works on NFT platforms. Look for as much information before making a purchase. Does your favorite artist even sell NFTs?
For now, there’s no foolproof way to avoid getting looped into NFT scams. But in-depth research and very close scrutiny of stores, wares, and sellers may help.