How to identify different types of scams and ways to avoid them

Non-fungible tokens (NFT) are the future of merchandising, game development, and social media. That’s why thousands of investors are jumping on board and capitalise on this continuing trend. However, bad actors are stealing millions worth of assets from honest traders and slowing down NFT development.

Developers are doubling down on making the best security system to counter bad actors. There will still be some unforeseen exploits that hackers will abuse against investors like you. Therefore, you have to be careful as an investor of digital assets. Here is everything you need to know about NFT scams including what are some examples as well as how to avoid them:

Here are common crypto scams and how to avoid them

Different kinds of NFT scams that have worked

NFT scams can come in various forms and you’d be hard pressed to identify them. Fortunately, they can be quite obvious once you know what signs to look for. Experts have categorised the most commonly used scams used to attack traders. Here’s how and, why they work, and where you can find them:

Phishing

Among the most notorious and common NFT scams to watch out for is phishing. It is disguised as a common input box into an interface similar to sites that you trust. Once you place your personal or login information, the scammer will store it and use it as their own. Wallets like MetaMask have become targets of phishing scams, making people unwittingly give up their account passwords. 

Fortunately, MetaMask, among other wallets, gives you full custody of your keys, making the ability to login your account on other devices seem pointless. However, many scammers are wise and would instead target your NFTs directly. The most infamous case in 2022 is Seth Green’s stolen Bored Ape and Mutant Ape NFTs to a clone of the Gutter Cat Gang website. 

Rug Pull

Bad actors can pull-off the rug pull scam without needing to develop any intricate program. In fact, most of these kinds of scams are precisely done because nothing at all is being developed. Business-minded individuals can easily trick investors into funding their supposed projects that should be successful in the future. 

A rug pull scam involves a form of advertising for fake NFTs that are promised to provide traits that their targets are looking for. That could be usable on video games or working as a form of ownership to an intellectual property. Once they gain a certain amount of funds for their startup, they will suddenly vanish, making the asset worth nothing in the end. Such scams are typically conscious with their advertising to avoid real experts from discovering and calling them out.

Pump and Dump 

Unlike a rug pull, a pump and dump is loud and proud in the crypto scene. It will feature real NFTs, making it one of the most difficult scams to avoid. It would involve a handful of traders exchanging assets and raising the price with each transaction. This emulates an upward trend on marketplaces and attracts other investors’ attention. 

Newcomers would purchase a handful of these NFTs at their current price from the existing traders. However, these existing traders appear to be working together or are a single person using different wallets. Hence, the money used to pump the price circulates in the same place and the money spent to buy the NFTs from them just adds to their fortune. 

Learn how to spot and avoid Bitcoin scams 

Counterfeit/stolen property NFTs

How do NFT scams work using stolen properties? The answer is how easy it is for everyone to mint anything on the Ethereum blockchain. There are several services giving users the solution to mint their properties into NFTs so it can circulate on the network and be sold online. However, marketplaces like the OpenSea are filled with artworks from digital artists around the world.

These are counterfeit NFTs because the minted property you are buying is not permitted by the creator. Artworks that give you rights to ownership of the art have to be legally stated like the whitepaper for the Bored Ape Yacht Club NFT collection. Counterfeit artworks cannot give you the same privilege because the seller isn’t the owner.

How to spot and avoid NFT scams

Learning how to spot fake NFT and scams is simple but it will need conscious practice. Scammers are aware of the factors that make a real crypto-based project and that’s how they can be convincing. It’s simply better to ask ‘how do NFT scams work’ to know their limitations. Here are some example of factors that can help you spot or avoid them:

Set up multiple wallets

Making multiple wallets is the basics of how to avoid NFT scams. You have a main wallet that keeps all of your valuable assets that you don’t plan on moving anytime soon. A second wallet is needed to be your liaison between your main wallet and the platform where you are sending your NFT like a market or a gallery. 

All wallets are secured with multiple layers of encryption but you never know when a hacker is resourceful enough to pull out all of its contents. If you are using a liaison wallet to separate the assets for trade from the ones in storage, then you can rest assured that nothing like that will leave you with nothing. 

Don’t trust unknown sources

Phishing scams can appear everywhere like your email inboxes, promotional posts on social media, or a forum thread from someone posing as customer support. The only way to recognise if they are dubious is to study the URL provided. Scammers can be sloppy and make bad interfaces but even the most convincing clone can’t mask their URL. An easy misspelling on the domain name is a dead give away. 

Research the seller, developer, and artist

Whether it is a pump and dump scheme or a rug pull, there will always be a name associated with them. Make a list of the developer, founder, endorser, or any words that sound like a brand name. Search them on Google to reveal if they are real or whether they are actually in the cryptocurrency business at all. 

Learn to make helpful investment strategies here

If the person is real, then check their background like education, previous works, and most notable achievements. A real expert won’t risk their title selling a scam because doing so would permanently ruin their career. Artists are also worth checking out if you are looking to buy artwork NFTs. If they are selling minted assets of their works, then they would always have those links ready on their social media profile like Twitter, Instagram, or Facebook.

Double check the NFT’s transfer history

The best trait of an NFT is how traceable it is while most crypto can be thrown into a mixer. This is how Seth Green located his Bored Apes’ buyer being DarkWing84 and contacted him. You can do this through the NFT listing page then go to its ‘chain info’. If the asset has only ever transferred between the same set of wallet addresses, then it is a pump and dump scheme. They have only traded their asset to the other wallet by bidding a high price to set how much they want to sell it for. 

Use reputable exchanges only

Among the most common NFT scams is a phishing site posing as an exchange. You can easily tell if it’s fake the more popular it is. The best way to avoid such a scam is to navigate to the website yourself through web browsers or using a shortcut that you have already prepared for quick trading. 

Many phishing scams will, instead, pose as a lesser-known or non-existing exchange offering a cheaper rate than mainstream platforms. This is an enticing opportunity because 1% can quickly amount to thousands in United States dollars for big transactions. 

Be a wise investor in the blockchain world

Other than the examples given above, there are plenty of creative ways bad actors have developed to steal your valuable assets. Always ask ‘what are NFT scams’ and learn all of the new kinds of modus operandi reported on the news. You can follow the above tips on how to avoid such attacks and feel free to discuss new ways to protect yourself with other investors. 

The NFT industry is already on its way to revolutionising various industries like merchandising, game development, and content creation. It’s a billion-dollar world that will keep growing ever more valuable in the near future. Thieves know this and are stopping at nothing to nab the profit away from host traders like you. Stay vigilant and never let criminals get away with your hard-earned assets. 

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Words: Clarence Clarke