In 2021, the NFT market has grown rapidly, with a volume estimated at approximately $22 billion, 280,000 buyers and sellers, and 185,000 unique wallets. However, as the market grows, so do the opportunities for cybercriminals. There are increasing reports of fraud involving NFTs, art, and NFT games. This article discusses NFTs and how to avoid NFT fraud.
Types of NFT fraud
Both cryptocurrency and NFTs are insufficiently regulated areas, and malicious actors can exploit their vulnerabilities to commit fraudulent activities. The news has covered NFT-related pyramid schemes, OpenSea scams, financial fraud involving NFT art, and other cases. The most notable cases of NFT fraud are described below.
Fake websites
Third-party marketplaces such as OpenSea simplify NFT transactions and ensure the security of trades. However, bad actors can create fake marketplaces with similar web addresses to trick users. The visible components of NFTs—the image and text information—can be easily copied, meaning that fake marketplace websites can be made to look very similar to the real thing.
Investor fraud
Investor deception is a fraudulent scheme in which an asset is aggressively advertised on social media, leading to an increase in its price. Once the fraudsters receive the investors’ money, they stop supporting the asset, causing its value to fall and investors to incur losses. A variation on this theme is when NFT developers block the ability to sell the token: they add code that prevents sales, leaving buyers with an unsellable asset.
Market manipulation schemes (“pump and dump”)
Market manipulation schemes involve the deliberate purchase of NFTs to artificially increase demand. Unsuspecting buyers assume that NFTs have value, join the auction, and start bidding. Once the price of the asset rises enough, the scammers sell the NFTs at a profit, and the buyers are left with worthless assets.
Phishing scams
Before purchasing an NFT, you must register a crypto wallet. NFT phishing scams typically use fake advertisements, for example, on Discord, Telegram, and public forums, where they ask for personal wallet keys and a 12-word security phrase. In addition, scammers may impersonate MetaMask wallet support and send fake emails warning that the wallet will be blocked due to security issues. These emails ask you to click on a link to confirm your account. NFT phishing scams are designed to obtain personal data and steal funds from digital wallets.
Support service scams
As with phishing, attackers pose as technical or customer support staff for blockchain trading platforms and contact unsuspecting users on Telegram or Discord. Under the guise of helping to solve problems, scammers send links to fake websites that look very similar to the real ones in order to obtain personal data and access to cryptocurrency wallets. In addition, they may ask for a screenshot to solve the problem. In reality, they want to obtain the credentials of the cryptocurrency wallet.
Price fraud
Price manipulation can occur when reselling purchased NFTs on the secondary market. Traders may change the proposed sale currency to a cryptocurrency with a lower value without informing the seller after publishing the NFT sale listing. This can lead to potential losses for the seller if they do not double-check the currency before concluding the transaction.
Fake NFTs
Fraudsters can copy an artist’s work and post a fake version on an NFT marketplace. Unsuspecting buyers may purchase a fake NFT that has no value.
NFT giveaways
On social media, fraudsters can pose as real NFT trading platforms and advertise NFT giveaways. Usually, scammers promise a free NFT in exchange for reposting an ad and registering on a website. After registering to receive the gift, users are asked to link their wallet credentials. Once they have the credentials, scammers can access the account and steal it.
Fraud against investors
Due to the anonymity associated with cryptocurrency trading, investors often suffer from fraudulent activities when trading NFTs. Taking advantage of anonymity, scammers create seemingly viable projects, attract investments, and then disappear without a trace with the funds received from potential customers.
