Inside the crazy world of NFT scams: Internet Scambusters #1,017
NFTs -- non-fungible tokens -- are the latest thing in speculative investment. Millions of dollars are being "won" and lost every day.
If ever there was a case for proving that the less you know, the more likely you are to get scammed, it's in this new and bustling cyber market.
They're not for the fainthearted and the safest route may be to steer clear of them -- but if you're intent on trying your luck, this week's issue will tell you about the most common NFT scams and how you can reduce the risk of getting conned.
Let's get started…
NFT Scams and 10 Ways to Avoid Them
Has the world gone crazy? You buy something called an NFT, which doesn't physically exist. And then, if you're lucky, you sell it for a profit, paid maybe with money that doesn't exist either.
Welcome to the world of non-fungible tokens (NFTs) -- a dark and mysterious place that's riddled with scams.
It's mind boggling, and people have already lost millions in pursuit of the ever-elusive dream of getting rich quick.
We won't get technical in this report. If you want to know exactly what an NFT is, it's best to do your own research. There's plenty of info on the web.
Instead, for simplicity, let's just say that an NFT is a unique piece of digital code that is linked to something else of potential value -- maybe a work of art, actual or digital, or perhaps a song.
You buy an NFT using cryptocurrency, and that piece of code, and your ownership of it, is stored in a digital ledger called a blockchain.
That's it! You can buy and sell NFTs on specialized websites, and, because each one is unique, it can become valuable.
The best real-world example was the NFT created -- or "minted" as the pros call it -- linked to the first ever Twitter "tweet" by the firm's founder Jack Dorsey. It sold for $2.9 million last year.
It went on sale this past April for $48 million. But guess what, the highest bid it attracted was just $280! That's what we mean by crazy.
It's important to know that when you buy an NFT, the digital code is usually all you own -- not the item it's linked to.
Let's take another example. Suppose you own the NFT for the Mona Lisa (which, as far as we know, has not yet been minted), you don't own the masterpiece, the copyright or any of the millions of copies that have been produced. But you're the only one owning the code!
You may think that only crazy people would join the fray. But there's big money to be made, so there are actually plenty of "players" in this game.
For example, one computer server hosting a collection of digital art NFTs has a digital gallery where artists can post their work and which hosts an NFT group -- and has 70 million members!
It's a world ripe for scammers. And there are plenty of them too.
3 Most Common NFT Scams
NFT scams come in all shapes and sizes, targeting both investors/collectors and artists/creators. The most common ones naturally target the people who know least about NFTs but are anxious to get in at the early stages (like now!) in hopes of making a fortune.
1. The NFT Rug Pull Scam: This is a simple trick where scammers invite investors and collectors to buy shares in a new collection of NFTs, supposedly reaping a profit when they're sold. Thousands of dollars, sometimes millions, pour in. Then the crooks disappear with the cash.
2. Fake NFTs: The process of minting an NFT is actually quite complex and can cost about $1,000, using specialized software. And once it is locked into a blockchain ledger -- the code for the item and its ownership -- it can't be copied or altered.
But that doesn't stop crooks on some dubious websites from digitally forging them and offering them for sale. Unless the buyer knows what they're doing, they generally don't find out they've been conned until they try to offer theirs for sale.
Not only does the investor lose out but also the artist whose work has been hijacked.
3. NFT Customer Service Phishing Scam: It's no surprise that, with so many NFT rookies trying to play the market, scammers would set up services that are supposed to help them when they run into problems.
Crooks set up replica sites of genuine NFT traders. Investors usually end up there when they miss-key the site address or click on a phony link. The scammers simply ask visitors for their sign-on details plus other security information and then clean out the victim's NFT collection and, often, their cybercurrency accounts.
How to Avoid an NFT Scam
- NFTs are clearly not for the fainthearted and the number one piece of advice is not to enter this marketplace unless you have a good idea of what it's about. Do your research. The current shake-out in the cybercurrency world, which has seen entire fortunes disappear and even top currencies plummet in value, shows what a dangerous place this is.
- Once you have enough knowledge and feel ready to dip a toe in the water, do just that: make only a small purchase.
- Only trade on well-known, established NFT sales sites. The respected Motley Fool financial site has a Top 10 list of Best NFT Marketplaces.
- Even when you use these sites, look for a small blue check mark next to a listing. This signals that the seller's account has been verified and that the seller already has significant, verified sales.
- When visiting a site, don't get there by clicking on links, especially on social media. You might get a similarly sounding, identical looking scam site. Instead, know where you want to go, key in the address, and double check you typed it correctly.
- If you're thinking of investing in a new collection of NFTs, research not just the offer but the organization behind it. Check their track record and what others are saying about them.
- Beware of bargains. Some NFTs are offered for sale on multiple sites, sometimes at different prices. Check these multiple sites and, if you spot what appears to be a great bargain, it's probably a scam.
- If you're an NFT minter -- usually a digital artist -- run a check to see if your work has been hijacked and is being offered for sale elsewhere. There are several free NFT checking sites online; these can also be used by buyers.
- Know your cybercurrency. Most NFTs are bought and sold using the cybercurrency Ethereum, priced in ETHs. Be sure you know the value of the currency when you trade and watch out for scam buyers and sellers who switch the currency to a lower-valued one mid-transaction.
- Keep your personal, financial information to yourself. Fake sites will ask you to link your cybercurrency account and then empty it. And never give out the 12-word security string that digital wallet companies give you to reactivate your account.
We've tried to avoid being too technical in this issue but there's an awful lot to learn to become a successful NFT trader/investor. If you're not prepared to learn and do all the necessary research, steer clear of NFTs!
(Note also that Scambusters does not offer financial advice and this information is provided for educational purposes only.)
That's all for today -- we'll see you next week.