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How Not to Fall For NFT Scams in The Crypto Market
Non-Fungible Tokens, or NFTs, are digital works of art that represent ownership. Unlike coins such as Bitcoin and Ether, NFTs are unique assets that cannot be replaced or copied. This is why they have gained popularity among web3 users such as art enthusiasts, game players, and those interested in the metaverse.
As the popularity of NFTs grows, their proportion in the crypto market is also increasing, drawing more people into the NFT market. However, the rise of high-return scams has led to numerous cases of fraud using NFTs. In this article, we will discuss common NFT scams and provide tips on how to avoid falling victim to them.
Types of NFT Scams
Rug Pull Scam
A rug pull scam is a common occurrence in the cryptocurrency investment market, where a malicious developer or leader abandons a project and absconds with all the generated funds. Typically, these scams occur after developers have convinced investors to buy a large number of products through marketing promotions. The developers then make excuses to give up the project and disappear, leaving investors unable to sell their NFTs, resulting in their prices plummeting in a short time. The only profit in this kind of scam goes to the NFT creator.
To avoid falling victim to a rug pull scam, it is crucial to investigate the integrity of the project thoroughly. This includes researching the online NFT marketplace, brand endorsements, team background, community, economic model, and other relevant factors.
Phishing Website
One common NFT scam is the copying of original NFTs. In this scheme, the fraudster copies the artist’s original work and creates an NFT, which they list for auction in their market account. These copied or stolen NFTs are designed to look like original works, and buyers may be fooled into purchasing them.
Once the buyer realizes that they have been scammed, they discover that they own worthless copies of the original artwork. Another type of scam involves creating NFTs that look similar to popular NFT collections, leading investors to believe they are part of a new series created by the original senior collection team. These buyers eventually become the main losers of the scam.
Fraudulent NFT trading websites are also a common occurrence. It can be challenging to distinguish between fraudulent and legitimate websites because scammers make fake websites look similar to real ones. Worse still, fraudsters may record all the information you enter on the website and steal all your crypto assets.
Phishing is another type of scam that involves receiving a phishing email claiming that a social media account has been stolen, prompting users to provide login information for authentication. Giveaways that require users to enter their login information are also a common phishing tactic.
To avoid falling victim to NFT scams, it is essential to be cautious when searching for trading websites on the internet. Always investigate the website’s authenticity before entering any personal information. Additionally, beware of false login prompts and never enter your mnemonic phrases or master key of the cryptocurrency wallet.
Airdrop/Giveaway Fraud
Many of us have received ERC-20 or ERC-721 tokens as airdrops, but fraudsters are always looking for opportunities to commit phishing scams. The victim may receive an NFT from the fraudster, along with phishing information such as unsafe websites or links, prompting them to conduct transactions. These transactions often involve using a fake Metamask interface or generating malicious transactions. To avoid falling victim to these scams, it is best to avoid interacting with airdrop tokens or NFTs.
Scammers may also use fake giveaways to trick users into sharing sensitive information. For example, the Impactor Discard Server scam involves sending fake giveaways through DMs to prompt users to share personal information. To avoid becoming a victim of these scams, it is crucial to be cautious and only participate in giveaways announced by official channels.
Remember, always be skeptical of unsolicited messages or offers, and be careful when sharing personal information online.
Counterfeit/Plagiarized NFTs
In some cases, an artwork is minted as an NFT, but the artwork is not the original with intellectual property rights (IP). On platforms such as OpenSea, users can convert any image into an NFT, regardless of whether they own the IP for the image. Fraudsters may plagiarize NFTs from other users’ works and list them on the NFT market for auction, misleading buyers into thinking they are purchasing a legitimate NFT. Once the fraud is exposed, the NFT becomes worthless.
To avoid being scammed, it is essential to ensure that any NFT you purchase from the market is from an authenticated account. You can also contact the original artist through social media channels to confirm the ownership of the NFT. Remember, always be cautious and do your research before purchasing any NFT to ensure you are getting a legitimate product.
Bid Fraud
False bids in NFT auctions are a prevalent scam in the NFT market. This occurs when a legitimate seller tries to auction their NFT to obtain cryptocurrency, but fraudsters attempt to change the quoted token to a lower-value coin. Another tactic is to manipulate the NFT listings in the market by moving the decimal point to the right by one number, causing the buyer to unwittingly pay a much higher amount than they initially saw.
To avoid falling victim to these scams, it is crucial to be cautious, especially during the process of minting NFTs and transferring them. Always double-check the quoted token and the decimal point to ensure that the amount you pay is accurate. Remember, being careful and attentive can help prevent fraudulent activities in the NFT market.
How to avoid NFT fraud
Before agreeing to any transaction, be sure to check all the details. Is the market reputable and well-known? Can you view the transaction history of buyers and sellers? Read comments and check the creator’s participation to see if there are any previous complaints about their transactions. If you plan to invest in a project, make sure to check the developers behind it to ensure they really exist.
Avoid clicking on links in emails from unknown sources, as they may lead to fraudulent trading websites. Do not accept NFTs from people you do not know or trust, and ensure the security of your private key and mnemonic phrases. Use strong passwords for your cryptocurrency wallet and other NFT accounts, and consider using KYC2 authentication for added security.
Sometimes intuition can also help prevent fraud, so avoid engaging in any suspicious or dubious trades. Remember, if something looks too good to be true, it probably is.
To summarize, keep the following suggestions in mind:
- Keep your login information private
- Use KYC2 authentication
- Use a cold wallet
- Avoid contact with suspicious information
- Use safety tools to protect your assets
- Check the seller and website information before participating
- Check the transaction history of the NFT
- Select only trusted platforms, such as Gate.io, which many investors trust
Case Analysis: Logan Paul’s CryptoZoo
The recent shutdown of the CryptoZoo NFT project, led by Logan Paul, a top US internet influencer, is a prime example of how NFT projects can fail.
Logan Paul has millions of subscribers and fans across various social media platforms, and his CryptoZoo project allowed fans to hatch certain animals by purchasing egg NFTs. The animals had varying levels of rarity, and users could breed them to create even rarer animals that produced more tokens. However, disputes between the developers and Logan Paul about paying the programmer’s salary led to the developers leaving for Switzerland with the project’s code. This has left many fans at a loss, with some reportedly losing over $500,000.
According to public information, many fans are considering legal action, as they believe that online celebrities are conspiring to profit from fraudulent NFT projects. In the case of CryptoZoo, Logan Paul has publicly stated that he will reimburse the community in the near future, but it remains to be seen if this will happen.
It’s worth noting that online paid promotions must be clearly disclosed under the Federal Trade Commission Act of the United States. Failure to disclose business cooperation with project operators when promoting virtual assets can lead to administrative penalties, as was the case with Kim Kardashian, who was fined $1.26 million for promoting a cryptocurrency without disclosing that she received a promotional fee of $250,000.
In summary, the failure of the CryptoZoo NFT project highlights the risks of investing in NFTs, especially when there are disputes between the project’s operators. It is also essential for online celebrities to disclose their paid promotions to avoid legal penalties.
