Don’t Fall For These 8 NFT Scams

Jhe massive growth in the creation, collection, and sales of NFTs over the past few years has led to a growth in NFT scams seeking to separate investors from their money or cryptocurrency. In 2021, the NFT market grew by 21,000%, with $17.6 billion in sales, according to Fortune.

NFTs stored in cold wallets – digital wallets that can be disconnected from the cloud for maximum security – are generally safe from theft or hackers. But there are many NFT crypto scams and many ways hackers are looking to cash in on the NFT trend.

Understanding and avoiding the most common NFT scams can help protect your investment. Of course, you’ll want to remember that NFTs are still highly speculative investments. You could potentially lose money on your purchase even if you buy a legitimate NFT and protect it from cybercriminals.

8 common NFT scams

Here are eight of the most common NFT scams:

  • carpet zipper
  • Parachuting
  • Investment
  • Bait-and-Switch
  • Pump and dump
  • Counterfeits
  • Piracy
  • Phishing

Rug Pull: sale of fake NFTs

NFTs exist in the digital realm, which means they are not “real” objects that you can touch or feel. And it makes it even easier for people to create fake NFT projects, selling digital assets that have no value.

In an “all-in” scam, cybercriminals promote an NFT project on social media, make false promises about profits and value, then vanish into the sunset like a stagecoach bandit in the Wild West. The value of NFT will drop and scammers will often make it impossible to sell.

How to avoid this scam

To avoid a carpet pulling scam, avoid buying NFTs from projects or investment companies you have never heard of. Look for new projects on established centralized exchanges like Binance, Coinbase or FTX.

It’s also wise to follow the old adage, “If it sounds too good to be true, it probably is.”

Airdrop: Promises of free NFTs

If you’ve ever seen tweets from people claiming to be Elon Musk or another well-known figure and promising free crypto, you’ve seen an “Airdrop” crypto scam in progress. Today, the same scams are taking place with promises of free and high-value NFTs.

The scammer will ask for your digital wallet information to deposit your free NFT, but instead will take your information, hack your wallet and steal any existing money, crypto or NFT in your account.

How to avoid this scam

Only buy and sell NFTs or cryptocurrencies through established exchanges and store your investments in a hosted wallet. Apps like Coinbase take care of the security of your investment and are insured against hackers.

However, Coinbase is not responsible for any loss if you have given your password to someone else. Just like you would never give your banking password to anyone, protect your crypto wallet password or private key. Senders only need your wallet’s public key to make a deposit.

To further protect any crypto or NFT investment, consider using a hardware wallet that you can take offline when not transacting.

investment scam

An investor or investment scam is similar to a Rug Pull scam, except that the people who are supposed to create an NFT project appear to be legitimate developers with a well-known name behind them.

This happened recently when a group of cybercriminals started the Evil Apes project as part of the legitimate Evolved Apes community, Vice reported. Evil Apes took off with $2.7 million in investor money and then disappeared. The Evolved Apes community, however, sought to make the most of the stressful experience, rising to start a new project called “Fight Back Apes”.

How to avoid this scam

Investing scams are a little harder to spot, as they work under the guise of legitimate developers and investment firms. The best advice in this case, according to an Evolved Apes investor who goes by the name of Mike_Cryptobull, is to do your own research.

Don’t ignore the red flags. If something seems “off”, it probably is. And, he pointed out in an interview with Vice, “[D]don’t invest more than you can afford to lose.

Bait and Change Auctions

As with artwork, toys, and other collectibles, NFTs are often purchased through auctions. In an auction scam, the scammer is the buyer – someone tries to sell an NFT, but the person who ultimately buys the NFT pays with cryptocurrency of a lower value than agreed upon.

How to avoid this scam

Respect the original terms of the agreement if you sell an NFT. And be aware of the market value of cryptocurrencies to avoid getting scammed. Check the transaction before accepting a payment to make sure it’s what you agreed.

Pump and dump

This scam originated in the trading community and has become one of the most common crypto NFT scams. In a pump-and-dump, a single investor or a group of investors will buy a large amount of crypto or NFT from a specific game or creator. This drives up the value.

Those involved in the scam will then sell the NFTs at the same time, leaving anyone unaware of the scheme stuck holding an NFT that has depreciated significantly in value.

How to avoid this scam

Review transaction history before purchasing NFTs from a specific project or creator.

Some NFTs can significantly increase in price due to their intrinsic value. But take the time to research the fundamentals of the project to see if there is a good reason for the price increase. If there isn’t, avoid it.

Counterfeit NFT Scam

Just like fine art, expensive clothing, or even fiat currency, NFTs can be counterfeited.

The scary part is that these fake NFTs can be listed on reputable sites. But they have no value.

How to avoid this scam

Before buying an NFT, even from a legit exchange, check that there is only one of your NFTs to sell. Remember that NFTs are unique and original creations. Just like there is only one Mona Lisa, NFTs are one of a kind.

NFT Culture advises you to make sure you know the exact smart contract address of the NFT you are purchasing. And double-check the exchange where you are buying the NFT to make sure it exists on that exchange.

If you are unsure if an NFT is an original, ask an expert you trust.

Piracy

Hacking comes in many forms and can be used to separate people from their most sensitive passwords, bank account information, personal information – including your social security number – and, ultimately, your money or your good credit rating.

A report by Chainalysis found that hackers stole $3.2 billion in cryptocurrency in 2021 – and that doesn’t include stolen NFTs. Since both NFTs and crypto are stored in similar digital wallets, you might also be worried about the security of your NFTs.

A hacker can obtain your digital wallet information in several ways, including hacking into the crypto exchange that hosts your wallet.

How to avoid this scam

To protect yourself, create strong and unique passwords for each account. If a hacker gets into your main bank account through a data breach, you want to make sure they can’t access other financial accounts as well.

Unlike other NFT crypto scams, you may have less control over preventing the hack. Make sure to use a reputable crypto exchange that insures your funds against loss if they suffer a data breach that is not your fault.

You can also protect your passwords. You can use Google’s Password Checker at passwords.google.com. Quickly change any insecure password.

It’s also a good idea to use a password manager to keep all your passwords safe.

Phishing

Far more common than hacking, phishing schemes allow cybercriminals to gain access to your account without having to breach a large company’s database. Often people fall prey to phishing schemes because the emails, ads, or text messages that hackers use to trick you into divulging sensitive information seem so legitimate.

In a phishing scheme, the victim voluntarily gives information, such as the private key to a digital wallet.

How to avoid this scam

Never give anyone your digital wallet private key, crypto exchange password, or other information that could be used to gain access to your accounts.

If you receive an email that appears to be from a crypto exchange, an NFT developer or creator, or your favorite NFT game, do not click the link. Instead, visit the company’s page directly by performing a Google search or typing the link to its site directly into your browser.

If an offer – like receiving free NFTs just by clicking the link in the email – sounds too good to be true, it probably is.

Phishing scams are among the most common, but they can also be avoided.

Carry

NFT scams are more prevalent than ever. However, they are preventable. If you take the proper precautions and don’t jump on an opportunity that seems too good to be true, you can protect your NFTs.

FAQs

  • Are nfts scams?
    • NFTs are not scams. NFTs are original and unique forms of digital currency that have an actual monetary price based on their market value.
    • But investors should be aware of counterfeit NFTs, which are scams.
  • Is an NFT real money?
    • An NFT is not money. NFT stands for “non-fungible token”. In the financial world, “fungible” means that it is interchangeable with the equivalent currency. For example, if two people were to exchange dollar bills, each person would still have a single US dollar. Similarly, one bitcoin is equal to one bitcoin.
    • However, since non-fungible tokens are all unique, you cannot trade one NFT for another and walk away with the same value. NFTs have the value that the buyer is willing to pay.
  • How do I know if my NFT is legit?
    • If you are planning to buy an NFT, you should investigate its contract on an NFT exchange. If you find two NFTs that are exactly the same, one is not real.

This article originally appeared on GOBankingRates.com: Don’t Fall For These 8 NFT Scams

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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