There is so much potential with NFTs and if you’re reading this you probably thinking about buying an NFT or have invested in a couple of projects. But before you do, you need to be aware of the scams that are all too common in this unregulated industry.
In 2021 alone, over $14 billion worth of NFTs were lost to scammers, and that number is expected to grow exponentially as people discover more flaws in decentralized finance and the blockchain.
But that's not to say that you shouldn't buy NFTs. The past two years have showcased how NFTs and the blockchain technology behind it are more than just a fad. So, it still makes perfect sense to invest your money in buying a digital art or whatever form of NFT you're interested in.
If you need convincing, how about the fact that the NFT ecosystem opened in 2022 by surpassing the $4 billion mark in sales? Clearly, there's a lot of money to be made in buying and selling NFTs. But as with any investment, you need to be aware of the risks before taking the plunge.
So, put in the effort and time to read about these scams to avoid them:
1 - Discord Hacks
This is by far the most common type of scam in the NFT space. It works like this:
A hacker gains access to a popular Discord server related to NFTs. Once inside, the hacker changes the server's name and logo to mimic a well-known NFT marketplace or project. The hacker then posts fake links that appear to be from the legitimate marketplace or project but instead lead to a phishing website.
These websites look identical to the real thing and trick users into inputting their private keys or other sensitive information. The hacker then uses this information to empty the user's crypto wallet.
Discord has since taken steps to address this problem by verifying the identity of popular Discord servers. But this doesn't mean that you should let your guard down.
One way to avoid this thievery is by turning off the auto-embed feature in your Discord settings. This will prevent links from being automatically embedded in your chat window, and you'll have to approve each link before clicking on it manually.
You should also be suspicious of any server that suddenly changes its name or logo. If you're unsure if the change is legitimate, reach out to a moderator or administrator to confirm.
2 - Rug Pull
A rug pull is when the team behind an NFT project suddenly decides to exit, taking all the money raised from investors.
Rug pulls are often difficult to spot because they usually happen after a project has been quiet for a while. The team will become more active again and start promoting their project heavily. They'll also often offer discounts and bonuses to try and entice more people to invest.
But as soon as they've raised enough money, they'll pull the rug out from under everyone and disappear with the funds. The result is that the NFT's value plummets, even reaching zero. There also are scenarios when the NFT creator removes the function to sell the token. Hence, the buyer won't have any value or selling ability.
To avoid being scammed in this way, do your research on a project before investing any money. Check to see if there's a large following but very low engagement. It's usually a sign that the team is trying to artificially inflate their numbers.
You should also be wary of projects offering too-good-to-be-true discounts and bonuses. If it sounds too good to be true, it probably is.
3 - Fake Airdrops
An airdrop is when a project or token gives away free tokens to its community. They're often used as a marketing tactic to generate buzz and interest around a new project.
But scammers have taken advantage of this by creating fake airdrops. They'll create a fake website or social media account that mimics a legitimate profile and post about an upcoming airdrop. They'll ask people to send them crypto to receive the free tokens when the time comes. Of course, there is no airdrop, and the scammers will make off with all the money.
Another variant of this scam is when the scammer convinces you to link your MetaMask credentials to receive your prize. They then use your MetaMask account to clean out your ETH balance.
You avoid this scam by doing your research before sending any crypto to someone. Check if the project has an official website and social media accounts. If they do, make sure that the links you're clicking on are legitimate.
You should also be wary of any project that asks you to link your MetaMask account. Don't do it unless you're absolutely positive that the project is legitimate.
4 - Fake NFT Marketplace
The popularity of NFTs has led to the creation of many new marketplaces. But scammers are quick to make the most from it by creating fake marketplaces.
These fake marketplaces will often list popular NFTs at highly discounted prices. When you buy one of these NFTs, you'll be asked to send your crypto to a wallet address. Of course, you'll never receive the NFT, and the scammer gets your money.
A fake marketplace is easy to spot if you know what to look for. The first red flag is if the marketplace is brand new and doesn't have any reviews or ratings. The second is if the prices are too good to be true. If an NFT is listed at a significantly lower price than its market value, it's probably a scam.
5 - Impersonation of Customer Service
When dealing with crypto, you'll often need to contact customer service. Whether it's to reset your password or check on a transaction, you'll need to talk to customer service at some point.
Scammers have recently made a living by impersonating customer service representatives. They'll reach out to you and pretend to be from the customer service team of a popular crypto exchange or wallet. They'll then try to get you to give them your login credentials or private keys. Once they have that information, they'll clean out your account.
It doesn't take a genius to avoid this scam. You have to be vigilant when talking to customer service representatives. If someone reaches out to you unsolicited, be wary. And if they're asking for sensitive information, definitely don't give it to them.
Only contact customer service through the official channels. Don't click on any links sent to you, and always type in the URL yourself.
6 - Pump and Dump Groups
A pump and dump are when a group of people buys a certain NFT simultaneously to drive up the price. They'll then sell their asset for a profit once the price has gone up.
These groups are often found on Telegram and Discord. They'll use these platforms to coordinate their buying and selling. And they always take advantage of new investors who don't know any better. You get victimized by unknowingly auctioning on an NFT with zero value. As soon as the bids go up, the group will offload all their NFTs, crashing the price and leaving you with an overpriced and useless asset.
The easiest way to avoid being scammed by a pump and dump group is to not participate in them. But if you're interested in auctioning for an NFT, do your research first. Check to see if the group has a good track record. Also, make sure that you're not the only one bidding on the NFT. If you are, then it's probably a pump and dump group.
Keeping it Real in the NFT Space
Don't get overwhelmed by these scams. Like any other prospective investment out there, there always will be those who try to take advantage of a system's loopholes. So long as you stay vigilant and don't let greed get the best of you, you should be just fine.
NFTs are relatively new, which means there's a lot of room to grow. The potential is limitless, and so are the possibilities of fraud. If you keep it real and acknowledge that anyone may be ripping you off, your instincts will help you figure out if you're being scammed.