How to avoid NFT scams
Any form of cryptocurrency is likely to be a prime target for scammers and cybercriminals who seek to exploit unwitting investors. NFTs are no exception, as has been demonstrated over the past few years during their rise in popularity.
NFT scams can be incredibly damaging for both legitimate sellers and investors. With scammers taking advantage of largely unrelated spaces, this can lead to substantial financial losses for both legitimate sellers and investors.
It is, therefore, important that anyone dealing with NFTs is aware of the types of NFT scams they could be exposed to and, importantly, the steps they can take to avoid becoming a victim of a scam.
Here, we discuss what some of the most common NFT scams are, how they can be avoided, and how our solicitors can support you in such situations.
What is an NFT?
To quickly summarise, an NFT is a non-fungible token. It is a digital asset that exists on a blockchain and has a unique identification code and metadata which distinguishes it from any other. This also means that NFTs cannot be replicated or directly replaced by another.
NFTs can come in many different forms such as a piece of art, or musical composition.
What is an NFT scam?
There are a variety of scams you could potentially fall victim to when trading and investing in NFTs. These scams are often designed to catch our less experienced people who are using NFT marketplaces, but they can also exploit any market participant who is not careful.
NFT phishing scams
If a scammer has access to basic personal information (such as an email address), they will use this in an attempt to extract further sensitive data.
During an NFT phishing scam, a scammer will often send emails containing malicious links to fake websites. When a user reaches the fake website, they will be prompted to enter personal details, such as their cryptocurrency wallet key information and currency. Any information which is entered on the website is then stolen.
It has been well documented that NFTs are seen as being increasingly popular and an effective way of securing a good return on investment. However, this means that it is also common for investors to be mis-sold an NFT, with the promised rights and returns not being delivered. With NFT, the details of the smart contract where these rights are set out will usually be withheld until the NFT is purchased.
This is a type of scam that is prevalent in a variety of sectors. It is as simple as a scammer promising high investment returns encouraging potential investors to pay more for even higher returns.
When someone invests in a NFT with this promise in place, they may try to remove their funds or promised returns, only to find that this is not possible.
Rug pull scams
This is a type of scam that specifically involves cryptocurrency, including NFTs. It stems from the common phrase ‘pulling the rug out’.
Scam artists will attract potential investors to an NFT project and then pull out before the investment is able to take off. This then leaves any unfortunate investors out of pocket and without anything to show for the money that has been spent.
NFT giveaways should be treated with scepticism, no matter how legitimate they appear to be. NFT scammers will often use social media to promote an NFT giveaway, encourage others to share news about the NFT, or sign up to a website in exchange for an NFT.
To actually receive the NFT in question, scammers will seek to obtain crypto wallet information.
Promoting an NFT can be difficult given how saturated the market has become. Having an endorsement can be an effective marketing tool for NFT creators – hence why it is common for scammers to imitate real artists or celebrities.
Anyone who is fooled by an impersonation could see their details stolen by the individuals responsible for creating the fake NFT.
Pump and dump
Pump and dump scams are fairly straightforward. It occurs when a large amount of cryptocurrency, or NFTs from a single creator, is purchased by a group to artificially inflate its value.
Once the price reaches a certain point, the scammer will then dump the assets and cashes out, leaving anyone who has purchased a crypto asset or NFT with a product that is no longer valuable.
It is possible to simply fake an NFT in some instances. Criminals may copy an NFT and sell counterfeit versions on reputable marketplaces, none of which will have any real value.
Victims may only find out about this after they have purchased the fake NFT.
How do you avoid an NFT scam?
While NFT scams have the potential to be very damaging, there are a number of ways to spot a scam before it’s too late.
Use verified NFT marketplaces
If you intend to invest in NFTs, it is strongly advised that you use a verified marketplace to ensure your investment will be legitimate.
When NFTs are sold on a verified marketplace, such as OpenSea, this should provide confirmation that it is legitimate and its value is accurate.
Carry out due diligence on sellers and websites
It is a simple tip, but it is important that you conduct thorough research before committing to any NFT purchase. Of course, any investment of this nature will come with a small element of risk, but by taking the time to complete proper due diligence, you can be confident that you understand what you are purchasing.
Do your own research on the seller and the history of the NFT to make sure that everything is in order before you proceed.
Keep all logins and crypto wallet information private
As with any other personal information, it is critical that you keep your logins and crypto wallet information private.
On that same note, it is also worth implementing strict security tools to protect your devices, such as anti-virus and anti-malware tools. This can protect you if you inadvertently click on a malicious link. You could also consider using a VPN for further encryption security.
Use a cold storage wallet
It is a good idea to have a cold storage wallet to store your cryptocurrency. An ‘offline’ digital wallet will be protected from any online hacks.
Should you speak to a solicitor about NFT scams?
If you are concerned that you have fallen victim to an NFT scam or you want further information regarding your legal rights, it can be difficult to know where to turn. Taking legal action may be the most sensible course of action, depending on your circumstances, but this is something that should only ever be done with the assistance of an expert NFT solicitor.
By working with a solicitor who has specialist expertise in dealing with NFT disputes, you can be certain that your matter will be in the safest pair of hands. Cases related to NFT scams always tend to have their own set of intricacies, which highlights the importance of having tailored legal advice and representation.
Having the advice and guidance of a solicitor on your side will improve your chances of being able to reach a settlement without having to head to court, saving you time, money and potential stress.
In some cases, it may not be possible to reach a resolution. Where this is the case, a solicitor can provide you with robust representation and will often mean the difference between a successful and unsuccessful claim.
Our expertise with NFT scams
At Saunders Law, our partner-led team have more than 40 years of experience in handling a wide range of legal matters, including those related to intellectual property and, more recently, NFT scams.
Our experience allows us to provide carefully tailored support to all of our clients, and our strong track record of success has been independently recognised with rankings in client guides, the Legal 500 and Chambers and Partners.
We also have expertise in a wide range of related matters, including advising owners of NFTs who are subject to copyright infringement, NFT creators and trademark owners.
Speak to our NFT solicitors today
If you have been subjected to a NFT scam, it is important that you seek out legal advice from specialists in the field as soon as possible.
At Saunders Law, our team specialising in cryptocurrency and NFT investment scams will always offer a free initial consultation to establish if we are able to assist you and the steps that need to be taken. Our advice is straightforward and tailored to your needs.
You can be rest assured that your team will tirelessly fight your corner, ensuring that the best possible result is achieved for you, no matter what that may be.