Are NFT Scams Common?
Scams exist in many areas of life, defined as fraudulently obtaining money or goods from unsuspecting victims.
The Internet is hugely beneficial for society and helps improve many people’s lives. But it has led to criminals using it to defraud people—from phishing and fake shopping websites to dating scams.
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Cryptocurrencies use the Internet and are not exempt from scams. The anonymous nature of cryptocurrencies has made things easier for fraudsters.
NFTs are an extension of cryptocurrencies and are an arena with frauds targeting newbies and the uninformed. Since this is a relatively new technology, most people have likely been victims of one form of scam or another.
What are some of the common NFT scams?
After a project launch, the founders exit the project with investors’ funds. The founders close the assets associated with the project, such as the Discord server and Twitter account, and leave the scene. With the founders no longer involved and little trace of the project, the price of the NFTs decreases until it becomes worthless. The investors possess nothing more than NFT JPG images on the blockchain.
The NFT space has been rife with these scams throughout 2021. As people become aware, these deceptions are becoming less common.
Anonymous founders carry out rug pulls; people have no idea of the real identity. Given the anonymity and lack of traceability with crypto wallets, it’s a straightforward scam to perpetuate.
This is rife in the NFT space. The founders of the project promise various developments for the project.
After the launch, they fail to implement these promises. Over time, the value of the NFTs decreases, and the investors are left holding the bag.
Nearly every NFT investor has been a victim of such activities. Such schemes are also known as a slow rug; the founders leave the project slowly.
These schemes are difficult to classify as a fraud; the founders are in a position to kick their promises into the long grass. And many often come up with all manner of excuses why developments fail to progress.
Pump And Dump
This is where an individual or a group of people team up to buy large quantities of the cheapest NFTs in the collection (buying the floor price).
They drive up the collection price, also known as “sweeping the floor” or “wash trading.” After a significant price increase, the NFTs are sold for a profit, and the culprits exit the market. The value of the NFTs decreases, people are left with NFTs worth less than the price paid.
The project founders are known to engage in such practices to drive up the price of their collection.
Fraudsters try to mimic real projects by creating websites and social media profiles with a similar appearance to the actual project.
They aim to lure unsuspecting victims to a website and mint fake NFTs. The victim connects their wallet to mint an NFT, which turns out to be an empty file.
Victims are targeted through direct messages or posting links in the comment section of Social Media platforms.
The problem has become rampant: fraudsters routinely hijack the real Discord server of a project, disabling the power of admins and moderators and placing links to direct members to a fake minting website.
Customer Support Scams
This is a problem commonly seen on Discord and Telegram. Scammers contact through direct messages offering to help people mint NFTs or provide bonus airdrops.
As a customer service representative, the scammer tries to obtain wallet details such as passwords and the seed phrase. Using the information, fraudsters drain the funds from the wallet.
The problem is that NFT projects warn members not to engage in direct message conversations. Official members of staff have ceased contact with members directly through direct messages.
Experienced people will not fall victim to such scams; newbies are the intended targets.
Intellectual Property Theft And Fake Collections
There are projects known to take the artwork from talented artists and use it for their collection. Without agreements in place, this is a form of theft.
Projects using artwork from an artist without permission are a theme in the NFT community.
On discovery, the reputation falls, and the value of the NFTs decline in price; it becomes a loss-making investment.
Some individuals take artwork from upcoming projects, load it to marketplaces such as Open Sea and aim to impersonate the actual project.
Buyers of these NFTs become victims of a scam.
Scams are common because the NFT market is new, with many new people entering the space. It allows fraudsters to exploit inexperience and vulnerabilities.
The best approach for a newbie is spending time in the NFT community, networking with others on platforms such as Discord, and becoming fully aware of the technology before major investment sprees.