Non-fungible tokens, or NFTs, have turned the digital art world on its head. However, as with all investments that promise quick returns, the NFT market has attracted its share of scams. These fraudulent practices range from ‘rug-pulls’ and phishing to bidding scams, pump-and-dump schemes, and plagiarized NFTs.
1. Rug-Pull Scams
Rug-pull scams involve con artists who build hype around an NFT, only to disappear after investors have sunk their funds into the project. The method of operation is often deceptive, with these fraudsters leveraging social media to create excitement around their NFT and drawing in investors. Once they’ve amassed substantial funds, they promptly disappear, leaving investors in the lurch.
An infamous example is the Frosties NFT scam orchestrated by Ethan Nguyen and Andre Llacuna. The duo used persuasive tactics such as exclusive mint passes and special giveaways to draw in investors, only to vanish with over $1.3 million once their social media campaign took off.
2. Phishing Scams
Phishing scams are a tried and true method of hacking, repurposed for the NFT world. Fraudsters typically send out counterfeit links, often via email or popular social media and forum platforms. Once clicked, these links can install spyware or keyloggers that compromise the victim’s account.
One such phishing scam targeted OpenSea users in February 2022. Duping users into thinking they needed to update their contract details, scammers copied OpenSea’s email and led unsuspecting NFT owners to sham websites, making off with nearly $1.7 million worth of NFTs.
3. Bidding Scams
Bidding scams often occur when sellers place their NFTs up for sale on secondary markets. Scammers place high bids to attract sellers but then switch the cryptocurrency used for the transaction without the seller’s knowledge.
For instance, a seller might expect to receive a significant amount in Ether, only to find themselves paid in a much less valuable cryptocurrency like Dogecoin. To protect against this, sellers should always double-check the currency being used for payment before finalizing any transaction.
4. Pump-and-Dump Schemes
The dark side of the NFT world mirrors the murky waters of stock market scams. Fraudsters cunningly manipulate the price of an NFT by spreading misinformation, artificially inflating its value. As soon as the price hits a peak, they swiftly offload their stake and melt away, leaving hapless investors with an investment that’s plummeted in worth.
These scams often use the reach and influence of social media platforms, and sometimes even rope in celebrity endorsements, to drum up enthusiasm around an NFT. It’s not uncommon for these crafty con artists to invest substantial sums into an NFT, driving its price upwards and making it an enticing, yet ultimately dangerous bait for unsuspecting investors.
5. Plagiarized NFTs
Unique digital tokens form the cornerstone of NFTs, but plagiarism is an unfortunate and common issue on many NFT platforms. Recently, OpenSea revealed that a shocking 80% of NFTs created using its tool were counterfeit.
Investors who unwittingly purchase these plagiarized tokens stand to lose significantly when the NFT is revealed to be a fraud. To safeguard against this, it’s essential to verify an NFT’s authenticity before purchasing, and to examine the seller’s history and social media profiles to confirm that the art is original and belongs to them.