NFTs have made a significant impact on the digital world, creating income streams for both creators and collectors alike. Anything promising monetary gain will likely draw the attention of scammers. If you are interested in venturing into the world of NFTs, you must learn how to identify and avoid NFT scams to keep your investment safe.
The hype of NFT projects makes it difficult to trust anyone in the NFT space therefore healthy research and awareness are highly suggested.
The Rise of NFTs
Although NFTs have been around since 2014, the NFT market grew almost ten times within two years and had its biggest breakthrough in 2021 by reaching a global sales volume of $10.7 billion.
For the longest time, only a small niche of groups even knew what NFTs were but by the end of ’21 businesses and individuals around the world began taking note of their magnitude of profit and so did scammers.
NFTs are typically minted using blockchain technology and can be traded on the secondary market in exchange for cryptocurrency.
Once Beeple’s The First 500o Days sold for $69 million at Christie’s, the digital assets went from unknown to well known in a matter of moments.
How to identify an NFT scam?
Until proven otherwise, assume that any unknown NFT project is a scam!
As money flows heavily through this space, the opportunity for fraud flows with it. Being able to properly identify an NFT scam early will save you time, energy, and most importantly money.
Certain marketplaces will back a project and verify an artist so the community knows they have participated in legitimate transactions. For instance, on Rarible, they are noted with a yellow checkmark and a blue one on OpenSea.
If the selling price appears radically too low for the NFT project, more than likely it is fraudulent. Unfamiliar discord activity or emails requesting your wallet address should also be on a heightened alert.
Scammers tend to get pretty sophisticated so research is always suggested as well as multiple methods of verification.
Most Common NFT Scams
Scams, also known in the NFT space as rug pulls, have become just as popular as the digital asset itself. There are multiple ways scammers use to dupe collectors keeping the community on high alert.
The more expansive your Discord server becomes, the more fake invites you will begin to receive. Getting discord DMs can be difficult to discern. Never click on links regardless of how legit they look. Disregard DMs asking for money, or “announcements” from NFT projects. Always check the group first. If you receive an odd message from someone you know, make sure it is them by checking their handle carefully.
Fake Social Media Personas
Influencers and brands are strong candidates for impersonation. Fake profiles on a site will replicate the original one verbatim at times and in most cases, there will be slight differentials such as a letter flip in the bio or name.
At some point, these fake accounts will message you looking for help or advice. This NFT scam will target anyone but is mostly for newcomers in the space to watch out for. Once you are well-versed within the community, you will be able to spot fake profiles and behavior easier.
Fake Marketplaces & Brand Impersonators
Fake marketplaces is a classic NFT scam that has been around forever and doesn’t seem to be going anywhere anytime soon. It can take place through Discord, emails, Twitter, and any form of NFT and crypto communication.
It is not uncommon to receive suspicious-looking emails from big companies. With a few minor changes to the links, these emails will look very similar to the real thing. Take the time to go over the links and email several times before clicking anything that asks for your personal information, such as a seed phrase or password. And never, ever enter your seed phrase outside of your initial wallet!
It is best practice to buy from verified artists or artists on any site who are well known and have been in the community for a while. One of the most common NFT impersonation scams is when someone tries to release popular NFTs quickly and cheaply before their profile gets removed.
Pump & Dump
The pump and dump are notorious for both crypto and NFTs. This is when a large amount of NFTs are purchased to manipulate the market to participate by driving up demand. Once the value has gone up, scammers dump their assets and take the profit leaving everyone else with worthless NFTs and huge losses.
To spot a pump and dump, you can check the transaction history. An authentic project will have a diverse range of buyers and not just a few who are simply selling and reselling.
False bids are when NFTs have been listed for sale and people bid on them in USD so instead of selling for ETH, you end up selling it for USD which is a huge gap in profit.
Another infamous bidding scam is people listing then right away delisting and relisting with moving the decimal to the right.
If you are an artist or creator and get a message requesting you to take action or sign up somewhere before they will purchase your NFT collection, proceed with caution. New artists might find this appealing, but it is in fact scammer activity and should be avoided at all cost.
Other typical approaches are buyers stating they have a certain amount of ETH to spend and requesting a link for your Project. This request will usually be accompanied by a photoshopped screenshot of their MetaMask wallet containing a ridiculous amount of ETH.
Airdrops & Giveaways
“Free” airdrop messages will most often pop up in Discord from a fake account. In some cases, verified accounts are hacked and rebranded to appear real. There will be slight mistakes in names but you usually have to look closely to tell the difference.
Ways to Verify NFT Ownership
The open-source nature of the blockchain makes it easier for scammers to claim ownership of content. Therefore, there is a risk of counterfeit assets being left behind for collectors so it is important to verify the ownership of any NFT you plan to purchase.
Metadata and Transaction History
Smart contracts manage NFTs and store the unique ID and metadata that can help identify the creator and owner of the digital asset. You can also check transaction history to verify any claims of previous ownership.
In the smart contract, there is a section marked with details in which you can read and verify the metadata. IF the NFT complies with the current standard, you should find the following data:
- The NFT’s Token ID
- Contract address of the collection
- The blockchain that it’s hosted by
- The NFT’s metadata status – is centralized or “frozen”
- The NFT’s encoding standard such as ERC-721
Using the token ID, you can search the blockchain and marketplace archives to discover its owner address. You may also want to check any new transactions for suspicious activity.
An NFT’s status should be either “centralized” or “editable”. The creator can’t change the underlying content of a centralized NFT. However, the creator can change the storage link for an editable NFT.
A frozen NFT indicates that it was flagged for suspicious activity and cannot be sold or transferred.
Keep in mind, this information will only give you the owner’s blockchain address. It will not reveal personal information or other credentials unless the marketplace makes it public.
A marketplace database can be used to check whether the ETH token ID and contract address point to the rightful owner of the content.
Several verification tools will process the search for you as long as you use a service that is compatible with NFT’s coding standard.
Most verification services will work with most legitimate NFTs, making them easy to use even if you have never written code before. Additionally, they are among the quickest and easiest ways to verify ownership since non-standardized NFTs will present red flags through them.
Most NFTs will come with a digital certificate that verifies their authenticity. Similar to traditional certificates of authenticity you may receive with collectibles, digital certificates serve as proof of authenticity. They list the name of the manufacturer and owner, production date, and programming info, along with the NFT’s status, serial number, and token ID. It should also have the owner’s digital signature.
You can easily verify ownership with a digital certificate by using a blockchain explorer. An existing digital certificate is a good sign that the NFT is legitimate and not counterfeit because the certificate itself is just as unique.
However, not all legitimate projects in the NFT space come with digital certificates, and not all certificates are authentic. The data itself can be fake or become corrupted so, you should never use the certificate as your primary verification for ownership. Instead, use it alongside other methods.
Social Media Profiles & Platforms
If you know the original owner and artist, you can have them verify the authenticity. Follow their social media to check for any announcements or releases.
The creator should have posted which NFT marketplace you can find their work. Most creators work within a single marketplace and blockchain. This information will allow you to narrow your search.
However, because metadata does not contain personal information, you will have to conduct some research to find the owner’s name. You can use the verification services to find this information, but you may receive better results with a reverse image search. This will reveal all the variations of the image that exist as well as the age of the image itself.
Can You Sell the NFT Using its ID?
Verification isn’t just for buyers. Owners and sellers must know if they own the digital asset before they can sell, trade, or transfer it. Unlike buyers, owners can simply check their marketplace profile to know if they own an NFT or not. Their profile will show them if they have access to the seller options such as setting the price, accepting bids, or updating the display text.
This check is easy if you have the NFT’s identification number. Then, all you would need to do is a simple search for the number. This will vary between marketplaces but it’s generally just logging into your account and entering the number in the provided search box. Once you select “Go to the number”, you should see the seller options as buttons somewhere on the page.
List all the NFT Numbers You Own
This method can be time-consuming if you own many NFTs, but it will show you everything.
It works similarly using the ID for verification but you request to see all the NFTs you own. Once you have the list, you can check each one to see if it is the one in question. It will even work if you are unsure of or don’t remember the NFT marketplace.
Simply go to the blockchain network’s website and select the “owned Numbers” option then paste your wallet address into the space provided. Once you hit “Query”, you will have a complete list of numbers you own.
Monitor the Selling Price
The final verification method does not reveal the owner of an NFT but it may identify which NFTs are counterfeit so you can use it as a preliminary screen before moving on to more complex methods.
It is NFT’s particular values that make this work. There are a variety of reasons for these values, but they are similar to those associated with physical artwork. They are what a reasonable buyer and seller would agree upon during transfers.
For instance, if you see your NFT priced significantly too low for what it is truly worth, that might be a sign that the NFT is fake. You can then inform the original creator to see if the selling price is accurate to confirm or deny any suspicions.
Keep Your Investment Safe
The best way to avoid existing and new NFT scams are to stay informed. With the popularity of NFTs on the rise, a greater understanding of who owns what is essential. However, in such a saturated market of available profit and millions of dollars circulating, this information can become ambiguous. So to ensure that any NFTs you own or want to acquire is legit, you should use several methods to check their validity and avoid scams as they appear.
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