By Shubhangi Shah
What if you could sell a JPEG image, a meme, or a GIF for tens of thousands of dollars? Welcome to the world of non-fungible tokens, better known as NFTs. For the uninitiated, NFTs are digital assets, which can be anything, from a piece of digital artwork, a JPG image, memes, or GIF to music, videos, and video game collectibles. These are traded in cryptocurrency. Hence, NFTs sound great on two fronts: For the creators, such as artists, it gives them an avenue to sell their artworks. For buyers, they can not only collect such assets that they are passionate about but can also sell them at a higher price, thus earning a profit.
Clean, isn’t it? Yes, NFTs can be a good tool for sellers, buyers, and NFT marketplaces to earn money. But doesn’t anything lucrative attracts its share of scammers and fraudsters? The same is the case with NFTs. Off lately, several NFT marketplaces have come under fire after customers were siphoned off their NFT and cryptocurrency collection. In fact, top NFT marketplace OpenSea was sued earlier this year over such an issue.
Yes, investing in NFTs can be risky but rewarding also, and some awareness can protect you from being defrauded.
Common NFT frauds
Although these can be of many kinds, some common NFT scams that you need to steer clear of include:
Counterfeit NFTs: As the name suggests, counterfeit NFTs aren’t original but duplicate or fake versions of the original one. Quite simply, an artist creates an artwork, and a scammer copies it and puts it up for sale on an NFT marketplace. As there is no clear way to tell duplicate from original, the buyer ends up shelling out more than its worth.
Phishing: Phishing isn’t something new in the digital space. This kind of scam basically involves fake emails, pop-ups, or messages on WhatsApp or Telegram taking you to a fake website. Once there, you are asked for the key to your private wallet. As soon as the scammer gets access to it, you can be easily siphoned off your NFT collectibles and crypto collection. According to Hitesh Malviya, a crypto expert, phishing is among the most common NFT scams. On if there is a way to differentiate an original piece from a duplicate one, he says, “currently, it is quite impossible to do so. But, in the near future, rules may come into place, and things might get better regularised, helping us to tell the difference.”
Wash trading: Wash trading is a fraudulent activity in which the asset’s worth is artificially inflated by the seller. To understand it, imagine you are an NFT seller whose digital asset is worth $100. But you are the buyer, too, and buy the same at $200, thus giving a false impression to a legitimate buyer that the NFT is actually worth $200, who then bids more for the same, thus bringing the seller a considerable profit, while the buyer ends up with an asset, whose worth is much less than what she paid.
Rug pull: Social media can play a big role in the NFT world, including in aiding scamsters. In what is called rug pull, the creators of a project generate enough buzz to drive up the prices of digital assets before pulling their support altogether, making the price of the asset crash to the ground. While the creators walk away with loads of digital money, the investors end up with nothing.
How to protect against scams?
Yes, NFT can be a risky game. But, with caution and care, you can fend off scams. “Do not click on any link in the name of NFTs,” says Malviya. “Always double-check. Just by looking closely at it, you can figure out, to some extent, if it’s a hoax,” he adds.
Always buy from legitimate marketplaces and avoid falling for freebies by dubious ones, Malviya advises. OpenSea, Nifty Gateway, Rarible, and Foundation are some markets you can consider. Do the same while enlisting your NFT.
Similarly, buy from verified sellers, most of whom have a blue tick beside their usernames.
Never share the key to your private wallet. Also, “remember the key or save it somewhere, as once you lose it, you end up losing your assets,” says Malviya. “Create strong passwords for your crypto wallets and NFT accounts,” he adds. You can also consider a burner wallet, which limits the number of funds you commit to a single wallet, thus minimising the risk.
Do not download any other app that claims to be an NFT marketplace.
Yes, as of now, there isn’t much regularisation of NFTs, which can make it difficult to rein in frauds. This is where digital education can play a role, Malviya says. “NFT marketplaces can take steps to educate their users, and some of them are doing that,” he adds.
Apart from all these, just remember one thing: if something is too good to be true, it’s better to double-check.