NFT Scams and How To Avoid Them

Non-fungible tokens (NFTs) have gained significant attention in the digital world, offering a unique way to own and trade digital assets like art, music and virtual real estate. 

Unlike cryptocurrencies such as Ethereum or Bitcoin, which are fungible and can be exchanged one-to-one, NFTs are unique digital items verified using blockchain technology. This uniqueness has opened new avenues for creators and collectors but has also attracted various scams targeting unsuspecting individuals.

What are NFTs?

An NFT is a digital certificate of ownership representing a unique item or piece of content stored on a blockchain — a decentralized digital ledger. This technology ensures the authenticity and ownership of the digital asset, making it possible to buy, sell or trade NFTs on various online marketplaces. 

The allure of owning exclusive digital items has led to a surge in NFT popularity across art, music, gaming and other industries.

5 Common NFT Scams and How To Identify Them

As with any emerging technology, the rapid growth of NFTs has been accompanied by a rise in fraudulent activities. Here are some common NFT scams and tips on how to spot them:

1. Phishing Scams

Scammers create fake websites or send deceptive messages that mimic legitimate NFT platforms, tricking you into providing your private keys or personal information. To avoid falling victim:

• Verify URLs: Always double-check the website’s URL for accuracy. Scammers often use URLs that closely resemble those of legitimate sites.
• Use official sources: Access NFT marketplaces through official links from trusted sources.
• Be skeptical of unsolicited messages: Avoid clicking links or downloading attachments from unknown sources.

2. Fake NFT Marketplaces

Some scammers set up counterfeit NFT marketplaces that closely resemble legitimate platforms. To protect yourself:

• Research the platform: Before making any transactions, research the marketplace to ensure its legitimacy. Look for reviews or news articles about the platform.
• Check for security features: Legitimate sites often have security measures like HTTPS and two-factor authentication.

3. Counterfeit NFTs

Scammers may sell NFTs of digital content they don’t own, such as plagiarized art. To avoid purchasing counterfeit NFTs:

• Verify the seller’s identity: Ensure the seller is the original creator or has the right to sell the NFT. Look for verified accounts or official links from the creator’s website or social media.
• Examine the NFT’s metadata: Check the NFT’s metadata for information about its origin and authenticity.

4. Pump-and-Dump Schemes

Fraudsters artificially inflate the value of an NFT through misleading promotions, only to sell off their holdings at the peak, leaving others with devalued assets. To protect yourself:

• Be wary of hype: Be cautious about sudden spikes in an NFT’s value, and conduct thorough research before investing.
• Diversify investments: Avoid putting all your funds into a single NFT or collection.

5. Bidding Scams

In secondary sales, a scammer may switch your preferred cryptocurrency with a less valuable one without your knowledge during the bidding process. To prevent this:

• Double-check bid details: Always review the bid and ensure it’s in the correct cryptocurrency and amount before accepting.
• Use reputable marketplaces: Conduct transactions on well-known platforms that have measures to prevent such scams.

Why Are NFTs Bad?

While NFTs offer innovative opportunities, several concerns have been raised about their impact:

Market Speculation and Volatility

The NFT market is highly speculative, with prices subject to extreme volatility. This unpredictability can lead to significant financial losses for investors, particularly those who are not well-informed.

Environmental Impact

The creation and transaction of NFTs often involve significant energy consumption, especially those built on energy-intensive blockchain networks like Ethereum. This has raised environmental concerns due to the carbon footprint associated with these activities.

Intellectual Property Issues

The ease of creating and selling NFTs has led to instances where digital art is minted — converted into a unique asset recorded on the blockchain — and sold without the original creator’s consent, infringing on intellectual property rights. This unauthorized use can harm artists and creators.

Money Laundering Risks

The pseudonymous nature of NFT transactions can facilitate money laundering and other illicit activities, as tracking the true ownership and origin of funds becomes challenging. 

Protecting Yourself from NFT Scams

To navigate the NFT space safely, consider the following precautions:

• Educate yourself: Familiarize yourself with how NFTs and blockchain technology work. Understanding the basics can help you identify potential red flags.
• Use reputable platforms: Engage with well-established NFT marketplaces that have robust security measures and a track record of legitimate transactions.
• Secure your digital wallet: Protect your cryptocurrency wallet with strong passwords and enable two-factor authentication. Never share your private keys or recovery phrases.
• Conduct due diligence: Research the creators, sellers and the NFTs before purchasing. Look for verified accounts and cross-reference information.
• Diversify your wallets: Instead of storing all your NFTs in a single wallet, use multiple wallets for different purposes (e.g., one for trading and another for long-term storage). This limits your exposure in case one wallet is compromised.
• Research before joining communities: NFT communities often promote projects, but some may be filled with bots or scammers. Spend time observing discussions and checking member authenticity before engaging.
• Learn about smart contracts: Some scams involve malicious smart contracts — self-executing programs that automatically enforce agreement terms when predefined conditions are met — that give scammers access to your wallet. Before interacting with a smart contract, ensure it’s from a trusted source and review its code if possible.
• Verify social media accounts: Scammers often impersonate popular NFT creators or platforms. Look for official verification badges and cross-reference links with the creator’s official website.
• Use a hardware wallet: For enhanced security, store your NFTs and cryptocurrency in a hardware wallet. These wallets are offline, making them less susceptible to hacks.
• Check blockchain transactions: Use blockchain explorers (like Etherscan) to verify transaction histories. This can help confirm whether an NFT is legitimate and if its creator has a trustworthy transaction record.
• Set spending limits: If your wallet allows, set spending limits to avoid accidental high-value transactions, especially during a phishing attempt or in case of a wallet breach.

• Avoid free NFT offers: Scammers often lure victims by offering free NFTs, which can include malicious smart contracts. If an offer seems too good to be true, it likely is.
• Understand gas fees: Gas fees are transaction costs on blockchain networks. Scammers may exploit your lack of understanding by overcharging or creating fake gas fee alerts. Familiarize yourself with average gas fees on the platform you’re using.
• Stay updated on scam trends: NFT scams evolve quickly. Follow trusted tech news sources, forums, or blockchain security experts to stay informed about the latest threats and prevention methods.

Stay Informed and Protect Your Digital Assets

While NFTs present exciting possibilities in the digital realm, they also come with risks that require vigilance and informed decision-making. Understanding common scams and the broader concerns associated with NFTs can help you better protect yourself and make more informed choices in this evolving landscape of digital assets.

As you venture into the world of NFTs, remember that knowledge is your best defense. Stay updated on the latest scams, educate yourself on how the technology works and approach transactions with caution. While the NFT space offers incredible opportunities for creators and collectors alike, weighing the benefits against the potential risks is essential.

Adopting a cautious and informed mindset can help you enjoy the benefits of NFTs while minimizing exposure to scams and pitfalls. Afterall, understanding and awareness are the first steps to safely navigating any new frontier.