NFT Scam: Popular Schemes and Means of Protection” – The rising popularity of NFTs has led to an increase in scams targeting new and experienced investors. Learn about common NFT scams like rug pulls, phishing attacks, fake NFTs, and pump-and-dump schemes, along with essential steps to protect your assets.
With the development of the non-fungible token ( NFT ) market, the number of scams in this area has also increased. From fake projects to phishing attacks, criminals are finding new ways to deceive gullible investors. Grigory Osipov, Director of Investigations at SHARD , told ForkLog about the most common NFT scams and shared tips on how to protect your assets.
Types of NFTs
Art objects
NFT art is traded on specialized platforms such as OpenSea, Rarible, Foundation, and SuperRare. One of the significant benefits of non-fungible tokens for artists is that they receive royalties from each subsequent sale of their work.
The monetization of digital creativity has become possible thanks to the blockchain, which ensures the authenticity and uniqueness of works, which is important for collectors. NFTs contain metadata confirming authorship and ownership history, and can be sold and bought from anywhere in the world.
Artists are collaborating with brands, musicians, and other creatives to create unique NFT collections that attract attention and high prices in the market. The rise of virtual galleries and exhibitions is also opening up new ways to engage with digital art.
NFT games
In gaming, NFTs are used to create unique digital assets such as items and characters. In such products, each element is a unique token on the blockchain, which guarantees ownership and eliminates the possibility of counterfeiting or substitution.
game players can earn money by solding nft in trading platforms. For example, in Axie Infinity, The Sandbox, and Decentraland, players breed fantasy creatures, buy plots of virtual land, and create content that can be sold to other users. This creates a new economic ecosystem within the metaverses , where virtual assets have real value.
NFT Staking
This is a process where NFT owners can “stake” them on a specific platform or smart contract. In return, they are rewarded with cryptocurrency, other tokens, or exclusive privileges. Staking provides owners with passive income without selling their assets.
NFT passes
These are digital tickets that are unique, non-fungible tokens. They are used to access various events such as concerts, sporting events, exhibitions, conferences, and other events.
Unlike traditional tickets, NFT passes have a number of advantages related to their uniqueness, security and the possibility of additional interaction: access to VIP areas, unique content, purchase of exclusive goods.
What determines the value of NFTs?
Uniqueness and rarity. The more exclusive is the NFT ,then higher its value. For example, unique works of art or rare in-game items may have a high price due to their limited supply.
Popularity and Demand: The value of NFTs can increase significantly if they become popular among collectors and investors.
Usefulness. In the gaming industry, the value of NFTs can depend on their use. In-game items that provide significant benefits are almost always more expensive.
Market and liquidity: In active markets with many buyers and sellers, prices can be higher and more stable.
Despite NFT’s popularity, there are no standards or regulations in the space, which opens up opportunities for scammers. First, many users don’t fully understand how the technology works. Second, anonymity and decentralization make it difficult to track down scammers and hold them accountable.
NFT scam
Rug pull
This is a type of scam where the project’s promoters actively promote it via social media, and then suddenly stop supporting it and take investors’ money after the price rises. As a result, the value of the NFT drops sharply to zero, leading to losses. This includes cases where the developers remove the ability to sell the token.
Phishing scam
It involves fake advertisements via fake websites that ask for users’ private wallet keys or the 12-word seed phrases. Once accessed, the scammers appropriate all of the victim’s assets in the form of cryptocurrencies and NFTs.
Bidding scam
Bidding scams held when the investors want to resell their NFTs which they purchased on the secondary markets. After they list the tokens for sale, bidders may change their preferred form of payment to low-value cryptocurrencies without disclosing it. This results in losses for the seller.
Pump and dump circuits
They refer to a situation where a group of malicious actors buys up NFTs, artificially increasing demand. Unsuspecting investors, thinking the asset has value, join the auction and place more bids. Once the price of the lot rises, the scammers sell the NFTs at a profit, leaving buyers with worthless tokens.
Overpriced
Scammers trade NFTs among themselves at inflated prices to create the illusion of high demand for the asset.
Fake NFTs
Fake NFTs occur when scammers steal an artist’s work and list the fake on a marketplace where they auction off the counterfeit artwork. Unsuspecting buyers end up with a token that has no value.
Investment frauds
Due to the relative anonymity of the Web3, attackers often create projects that appear viable, but then disappear with the funds collected from interested people.
The company “SHARD” has repeatedly encountered investment fraud in the NFT sphere. For example, in mid-2023, the attacker gathered a group in the Telegram channel and offered to buy non-fungible tokens, the value of which, according to him, could increase significantly. Investors invested digital assets worth several million dollars in the project.
Initially, the fraudster gave interest to investors from their own funds and from the funds of other participants, but then withdrew cryptocurrency through exchange services, bought expensive apartments in Moscow City, a premium Lamborghini car and moved to Dubai, stopping all payments. The victims contacted the police. During another visit to his homeland, the fraudster was detained by law enforcement agencies, a criminal case was opened under Article 159 of the Criminal Code of the Russian Federation (“Fraud”).
In their 2023 Cybercrime Report, Chainalysis analysts identified an increase in NFT-related fraud as a trend. According to analysts, the “average check” for attackers in this area has grown to $3,000.
The global NFT market is expected to reach $80 billion by 2025. This will further increase the incidence of NFT fraud. These all are the investment frauds.
How to avoid being a victim of fraudsters?
Check the creators of the project. Make sure that there are honest developers behind it with good reviews on social networks. If they have a lot of subscribers but low engagement, this may be a sign of a scam.
Protect your wallet keys. Never give out your wallet keys in pop-ups or on suspicious websites. Always go directly to trusted cryptocurrency transaction sites. Never use links from pop-ups or emails to enter private information.
Do your research before investing. When buying, make it sure that the NFT which you are buying is from a verified account and he is a real artist. Check the creator’s contact information and transaction history. If it’s limited to one date, it could indicate a scam.
Conclusion: How to Protect Yourself from NFT Scams
NFTs offer exciting new possibilities for digital art, gaming, and investment, but this growing industry has also attracted scammers using increasingly sophisticated techniques. Common scams like rug pulls, phishing attacks, fake NFTs, and pump-and-dump schemes prey on investors who may not fully understand the technology or risks involved. The anonymity and lack of regulation in the NFT space make it challenging to hold scammers accountable, leaving investors particularly vulnerable.
To protect yourself, take a cautious approach when investing in NFTs. Research the creators behind each project, ensuring they have a verifiable history, good reputation, and consistent engagement online. Avoid sharing private wallet keys, seed phrases, or any personal information on suspicious sites or through pop-ups. Always use trusted cryptocurrency platforms and links from official sources. When purchasing an NFT, verify its authenticity by checking the artist’s identity and transaction history, opting for verified accounts on established marketplaces.
While the NFT market is expected to grow significantly, with estimates reaching $80 billion by 2025, it’s essential to remain vigilant. As scammers continue evolving, a proactive approach can help you enjoy the benefits of NFTs without falling victim to fraud.
