Let’s dissect five of the most prevalent NFT frauds now that we are aware of how they operate.
Rug-Pull Fraud
When creators advertise an NFT and then withdraw after collecting substantial sums of money from investors, this fraud is known as a rug-pull. While they wait for investor money to flood in, these dishonest developers frequently utilize social media to cultivate trust and hype around their NFT. Once they have enough money, they stop the entire enterprise and disappear with it.
A pair of 20-year-olds named Ethan Nguyen and Andre Llacuna ran the Frosties NFT rug-pull, which is a textbook example of an NFT rug-pull scam. They advertised their NFT by making a number of promises, including special mint passes, freebies, and first access to a metaverse game. However, after receiving over $1.3 million in investment, they decided to deactivate their website and social media accounts.
2. Phishing scams
Typically, phishing is how hackers gain access to your NFT account information. They frequently use email or well-known social media sites and forums like Twitter and Discord to distribute fraudulent URLs for this purpose. Once you click the link and enter your information, hackers can access your account and compromise it using keylogging or spyware.
It is hardly unexpected that NFT phishing schemes are increasing. For instance, in a phishing attempt in February 2022 that was directed at OpenSea, the most well-known NFT platform, con artists made off with roughly $1.7 million worth of NFTs. OpenSea had requested that customers update their contact information, but con artists replicated the trading platform’s email and emailed links to phony websites to NFT owners.
3. Auction Fraud
When you try to sell your NFT on the secondary market, bid frauds frequently occur. Scammers make the highest offer when you put your NFT up for sale; thus, it makes sense that you would want to sell it to them. But these con artists have the ability to modify the coin being used for the bid without your knowledge.
Imagine if a scammer offers 20 ether to buy your NFT artwork. You should anticipate receiving about $9,000. (per the going rate at the time of writing). However, a cunning con artist may substitute 50 Dogecoin, which is only worth $5, for the cryptocurrency.
Always verify the type of cryptocurrency being used to pay you, and be sure not to take anything less than the agreed-upon bidding offer to avoid such fraud.
4. Pump-and-Dump Plans
Using deception and the dissemination of false information, con artists artificially increase the price of an NFT in a pump-and-dump scheme. Investors are left with worthless assets once they “dump” the NFT once the price increases and vanishes without a trace.
Typically, scammers create a frenzy around an NFT through social media and celebrity endorsements. They frequently spend large sums of money on the NFT, driving up the price and making it hard for investors to ignore.
5. NFTs with plagiarism
NFTs are fundamentally about producing distinctive digital tokens. On a lot of NFT platforms, plagiarism unfortunately proliferates. Over 80% of NFTs created with the use of OpenSea’s minting tool were false, according to a recent analysis. So there’s a good risk you may be purchasing a fake version of a legitimate artist’s creation.
Consequently, as soon as it is discovered that your NFT is a fake, its value will plummet. This is why you should check an NFT before buying it.
Less frequent NFT frauds
You might lose your NFTs by falling victim to other, less well-known scams that are just as harmful. Let’s look at a couple of them.
1. NFT Prizes (Airdrop Scams)
NFT giveaway scams, also known as airdrop scams, happen when con artists demand that you sign up on their website and promote an NFT in return for a free NFT. When you’re finished, they’ll email you a link that asks for your wallet information in order to award you the prize. These NFT con artists copy the information from your account and utilize it to access your NFT collection.
2. Investment fraud
When con artists establish legal NFT enterprises and promote them as profitable investments, investor scams happen. The projects, however, are completely useless. Once the scammers have amassed sufficient investor dollars, they vanish into thin air.
The Evil Ape investment hoax is one illustration. The unnamed NFT developer vanished with 798 ETH, totaling more over $2.7 million, and was never seen or heard from again. Do extensive research on the NFT developer to make sure they are reliable in order to avoid such frauds.
3. False customer service claims.
In this type of phishing scam, scammers assume the identity of customer service representatives for an NFT marketplace. They’ll normally get in touch with you via social media platforms like Twitter, Telegram, or Discord if they have a problem with your account. Then, pretending to be of assistance, they will email you a link to phony NFT markets that ask for your private wallet keys.
As a general guideline, only reply to inquiries for customer assistance coming from your authorized NFT marketplace. If you’re unsure, get in touch with your NFT marketplace’s official customer service channels.
Security Advice: How to Prevent NFT Fraud
Following are some helpful suggestions to assist you outwit even the most crafty con artists now that you are aware of the most typical scams in the NFT industry.
Avoid clicking on shady links. You can wind up providing a scammer access to your account information.
Never divulge your seed phrase or password. Additionally, to provide an additional degree of security, activate two-factor authentication on your account.
Before making an NFT investment, do some research. Before making a purchase, always confirm the identity and reputation of the NFT seller.
To encrypt and anonymize your NFT traffic, use a virtual private network (VPN).