The NFT world moving fast. Each day unveils some new development, exciting project, or revolutionary breakthrough––along with, it seems, some fresh scam separating community members from their crypto and NFTs.
Why do NFT scams abound? Well, the value of the global NFT marketplace was estimated around $1.6 billion USD in 2021 – and it’s only grown since. Scammers are out for their piece.
It’s also an emerging and fluid industry. Decentralization is exciting and empowering, but in these early days, with still-improving oversight and some rough-and-tumble user experiences, it also makes for fertile ground for scammers.
But that shouldn’t deter the crypto-curious from diving in. Crypto is a thrilling and revolutionary space – it’s already changing the way we work and live. And NFTs are a particularly exciting facet of the industry, reimagining digital ownership and changing our definitions of what “art” can be.
With a bit of knowledge, preparation, and common sense, it’s simple for everyone to stay safe, collect, and enjoy NFTs. Here’s how.
What is an NFT?
What is it that scammers are after, anyway? Sometimes it’s cryptocurrencies, but often, it’s NFTs as well.
NFT stands for non-fungible token. While that sounds technical, all “non-fungible” means is that something can’t be divided into smaller parts.
Let’s compare cryptocurrencies and NFTs: Bitcoin and Ethereum, for example, are fungible. This means every Bitcoin is identical and holds the same value, just like every $10 bill can be exchanged for another $10 and it will have the same value. It doesn’t matter which Bitcoin you own, since they’re all the same. And you can, as many do, own an entire Bitcoin or teeny fractions, like 0.00000000001 of a single Bitcoin.
NFTs, on the other hand, are non-fungible: each one is unique, has its own value (which can fluctuate), and can’t be divided into smaller parts. It’s very important which NFT you own, since one could be worth seven figures and another worth seven cents.
Owning an NFT is just like owning any physical piece of art. The Mona Lisa, for example, is one complete work. If you cut it into pieces, you wouldn’t suddenly own several Mona Lisas, you would have just destroyed the original one (and shame on you for that).
You can own shares of an NFT, in an arrangement called fractionalized ownership. But, like owning stock in a company, this just divides up ownership of the NFT, not the NFT itself. An NFT can never be divided into smaller pieces. It is a singular thing.
This one-of-a-kind quality is what makes NFTs revolutionary: the ability to truly own a completely unique digital artwork.
Common NFT Scams to watch out for
So, now that we understand what NFTs are…how can we keep them safe?
In these early days, the decentralized nature of blockchain is a double-edged sword. It makes much of the cryptocurrency world possible, but its lack of regulation also enables scammers to bamboozle naive investors.
Here are some of the most common NFT scams – and how to avoid them.
1. The Rug Pull
Probably the most common NFT scam, the classic "rug pull" looks something like this: a project spins up, builds hype, sells a run of NFTs and trumpets grand promises about the golden future of the project. Then, one day not long after the sale, everything suddenly shuts down: the site goes offline, its social accounts and Discord go dark, and the team vanishes in a puff of smoke––with all their investors’ money and none of the promises fulfilled.
These teams often promise all sorts of shiny benefits to lure buyers in, perks like cool merch, exclusive events, bonuses for token holders, even video games where you can play as your character.
Then they disappear overnight, and with the team gone, the value of the NFT tanks. Your money's gone with no way to get it back. You look down and see not a plush, comfy carpet, but a cold, unforgiving concrete floor. The rug has been pulled.
What are signs of a rug pull?
A few clues can indicate if your rug is securely fastened…or if it’s ripe for pulling. See any of these red flags? Then steer clear.
- Anonymous team: The project team is anonymous and refuses to share any information about themselves.
- No history: The team has no easily found history of previous legitimate projects, healthy communities they’ve built, or successful launches.
- No roadmap or whitepaper: The project has no publicly available development roadmap, nor a whitepaper explaining the technical background and philosophy of the project.
- Not open source: The project’s code is not open source or publicly viewable, meaning they might have something to hide or a shoddy, slapdash smart contract.
- No audits: There are no third-party audits or reviews of the project's code to ensure everything is above board.
How to avoid a rug pull
You can do a few things to avoid a rug pull.
First, research any NFT project before investing in it. Check out online forums and social media to see if there are negative reviews about the project or its team. Look out for social media channels that have large followings but little engagement: it’s easy to buy followers, but only real projects will invest the time and effort required to build a healthy community.
It's always better to invest in well-established and reputable projects rather than new, unvetted ones. See if they are backed by any big names in the industry or have a strong community following. Taking your time before buying may not get you the bragging rights of an early investor, but it can save you the embarrassment and pain of getting scammed.
A legitimate NFT project will be transparent, with a team that’s transparent, communicative, and experienced. If you have any doubts about a team’s intentions, get outta there.
Finally, diversify your investments. Don't place all of your eggs in one basket. If you want to invest in NFTs, consider participating in a few different NFT projects rather than going all in on one.
2. Phishing Scams
New tech, old scam. Phishing may be the most timeworn and beloved scam: an attempt by a stranger to elicit private information from you like login details, passwords, credit card info, and other sensitive data they can use to take your money.
What does phishing look like in crypto? Anything that asks for delicate information like your private key or 12-word seed phrase, if your wallet includes those, or similar data. That might take the form of a pop-up on a site, a random Discord DM from a stranger, or the like.
Thankfully, phishing scams are among the easiest to defend against. If your wallet has a private key, simply never, ever give it to someone you don’t know and trust. No legitimate crypto service or project will ever ask for your wallet’s login info.
Anyone who gets that info has complete control of your wallet, including the ability to empty it out. So keep your login data secure. There is no redder flag than someone asking for it.
3. Discord DMs
Have you ever found yourself randomly added to a Discord server and then bombarded with messages from someone trying to sell you an NFT?
If so, you've been the victim of the Discord DM scam, perhaps the most blunt and least eloquent of the crypto swindles.
In this common scam a stranger will add you to a Discord server (usually without your permission) and then start inundating you with messages about an exclusive, unmissable, once-in-a-lifetime NFT project they're cooking up.
Often these projects don't even exist. Other times they might be a pipeline into a rug pull. The bottom line is that this person is trying to trick you out. Like many traditional scams, this one is strictly a numbers game: they spam thousands of people in the hopes that a handful will fall for it.
How to avoid Discord DMs
Be wary of unsolicited messages about NFT projects, especially if they come from a stranger. If it seems too good to be true, it is.
If you're ever unsure whether an NFT project is legitimate, do your own research and ask around in online forums before investing. If you can’t find enough information to put yourself at ease, it’s always safer to walk away.
4. The Fake Airdrop
Here we have a more crypto-specific scam. An airdrop is when someone deposits a free token, or NFT, into your crypto wallet. This is a common and often legitimate marketing tactic used by cryptocurrency projects to build hype.
To receive an airdrop, projects will often require you to perform certain tasks like following them on social media or signing up for a newsletter. If the airdrop is a scam, this is often where the trick lies: these airdrops will take you to a phishing site where they’ll try to snatch your private info and get access to your wallet.
How to avoid fake airdrops
Remember that to receive free NFTs, you should only provide your public wallet address. Once again: never, ever give away any other sensitive information to receive an airdrop. Your wallet login info gives you complete control over your wallet, including the power to send all your crypto anywhere in just a few clicks. It’s essential only you have that power, so keep it close.
Remain skeptical of aidropped tokens that have no real utility or product behind them. Steer clear of projects where the team pressures you to accept an airdrop and assures you they’ll provide more details later. If they’re desperate for you to accept their airdrop, something nefarious may be afoot.
Don’t let scams stop you
It may sound scary out there, but in reality, most scams are easily avoided with a little common sense, trusting your gut and the occasional Google search. NFTs are incredibly exciting, and scams shouldn’t stop you from enjoying and benefiting from them. There’s a reason so many people are interested in them and why the NFT market has exploded in the past two years.
So now, armed with the knowledge you need to keep yourself safe, we hope you’ll venture out and enjoy this exciting new tech.