NFTs have taken the world by storm in recent years. They’ve become an incredible way for digital artists to be recognised and earn money for their work. They’ve also become a way for people to invest their money, with the potential to earn a profit by selling for more money than they bought it for. However, with anything that involves money, there are lots of risks and plenty of scammers ready to take your hard-earned cash. NFTs can be exciting, a really unique thing to own and even a great investment, but you need to be aware of some of the scams before you start investing.
What To Watch For
It can be very hard to tell which NFT traders are legitimate or not, unlike the gambling industry, where you can use trusted sites for reviews of online casinos and know what you are getting into. Owning NFTs and other Cryptoassets is still quite a new possibility and as such there aren’t the same regulations and review sites in place. That doesn’t mean that you are definitely going to be scammed when it comes to buying NFTS but it does mean that you should be wary of what you are getting into and take steps to ensure your transaction is as safe as possible.
NFTs are often seen as a safe investment because they’re sold on an online marketplace, but that’s not the case at all. Rug pulls scams are actually surprisingly common – Privacy HQ ran a survey and found that a shocking 43.8% of respondents had purchased an NFT that later disappeared.
Rug pulls happen when an NFT project raises a lot of money very quickly. There’s often a lot of buzz around it, and the new NFT usually aligns with an already successful NFT and offers something like a video game or art project. Customers buy the NFT expecting a product and then the creator disappears, leaving the purchaser with a totally worthless NFT.
Pump and Dump
Pump and dump schemes have long been the talk of investors and stock exchanges, but the same rules apply to the NFT marketplace. Effectively a group of people buy up several NFTs to artificially inflate the demand and price. Then the creators will buy back their own NFTs at the newly inflated price under a fake name, sell it on at a high price and leave with a pocket full of crypto.
It’s unsurprising that anywhere you expect to find creativity you also find plagiarism, and it’s completely rife in the NFT space. It’s very common for creators on art platforms like DeviantArt to find that their work has been downloaded, converted into an NFT and been sold by the scammer as their own piece of art. The issue is that it’s too easy to mint NFTs so it’s not even pro scammers that are doing this. A lot of the time it’s amateurs that just want to give NFTs ago and don’t realise what they’re doing.
Phishing has been an issue online for years – if you’ve ever received a text message saying that your parcel is on the way or you’ve got an email that’s allegedly from your bank then you’ve experienced a phishing attack. In the world of NFTs, phishing comes in the form of piggybacking exciting launches. Scammers often send emails pretending to announce the launch and hope that people will get swept up in the moment. No matter how exciting a launch is, it’s vital that you always check the web address before giving anyone your money.
Questionable Websites and Links
Similar to phishing emails that try to get your details, the blockchain makes it easy for people to steal artwork. The NFT contract sits on the smartchain with the idea that it makes people approachable, but it also makes people approachable to scammers. If you store your NFT on a computer that’s connected to the internet you’re at risk. If you click a suspicious link you could be giving a scammer access to your computer who could get hold of the NFT. If you want to buy an NFT you need to store it somewhere safe and ideally offline, like a USB stick or external hard drive.
NFTs scams aren’t the only way that you could risk losing money from NFTs. Sometimes you might simply buy an NFT that loses value over time so you end up selling for a loss. NFTs are like any other investment that represents a risk. If you want to buy an NFT then buy it because you love the artwork or the project that you’re backing. You need to be prepared to lose money, even if you successfully avoid all the scams.
The Future of NFTs
One of the biggest reasons why scams of this nature can take place is the lack of laws and regulations surrounding this type of transaction. For lots of people, the fact that Cryptoassets and digital currency are pretty much unregulated is one of the reasons they want to be involved, but it does leave people open to being taken advantage of. Other financial transactions such as online banking and even online gambling have various regulations that they must follow in order to be able to take place – and this helps to keep people safe from being scammed. Online casinos for example need to be regulated and abide by rules set by the UK Gambling Commission. As yet there are no such rules or guidelines in place for NFTs, however, the fact that they’re now becoming more popular is likely to prompt the government to look into how they could and should be regulated. The UK Government recently announced they would be getting involved in launching their own NFT this summer & with that is likely to come various rules and regulations – and for those that need to be protected from being scammed that can really only be a positive move.