Are NFTs scams? 7 common scams and how to avoid them
No, NFTs are NOT scams. There are scammers preying on people who are new to NFTs, which is completely different.
$40 Billion. That's how much money NFT sales made in 2021.
88,000 collections. Thats how many collections were minted.
To say the least, those numbers are insane. I don't want that money going into the wrong hands so read on to make sure you protect yours.
Are NFTs legit?
"NFTs are the future"'
'NFTs are scams"
You've probably heard both sides to this story. We're here to clear some things up, starting with NFTs are NOT scams. Or a bubble.
It's a sad perception this industry has received because all of a sudden scammers realize there is money to be taken advantage of. Here are 7 of the most common scam tactics and how to avoid them at all costs
7 most common scams with NFTs
- Rug Pull
- Phishing
- Pump & Dump
- Airdrop
- Bidding scam
- Hacking
- 'Investment'
These are some of the most common scams in the NFT/crypto space. Keep reading to find out exactly what they are and how you can avoid them every time.
Rug Pull
A rug pull is probably the most common scam in the space. Scammers will lure in buyers by promising lucrative things such as making money or ROI. This tactic is common because one of the main reasons people buy NFTs is to try to make money.
After the project is sold out, poof, the founders are gone like Houdini along with their unfulfilled promises. This causes the NFTs value to drop with little hope to ever recover.
How to avoid the scam
ALWAYS do your research! Check the social media profiles of founders, the project's discord, and opinions from the unbiased public. If the team behind the project is anonymous be very cautious.
And remember, its its too good to be true...it probably is!!
Phishing
Have you ever received an email from a company, maybe the bank, asking you to secure your account? Chances are that email was one of those phishing scams trying to steal your NFTs. The scammer makes the email look legit, as well as the website the victims are redirected to.
In the phishing scheme victims willingly give up highly sensitive information such as passwords or digital wallet seed phrases because they believe its legit.
How to avoid the scam
Never ever everrrr give your seed phrase or private key to ANYBODY! Ok, except your mom.
If you ever get an email that claims to be an NFT or crypto company, an exchange, or anything else, don't enter any information! Instead google whoever emailed you and verify their contact information. If they are offering you free stuff or ask for personal info, it's probably a scam.
Pump & Dump
A pump and dump is when an investor, or a group of investors purchase a large amount of crypto or NFTs from a project. This drives the value up, temporarily. People in on the scam then sell the NFTs at once. This leaves unsuspecting people holding crypto or an NFT that has greatly decreased in value.
How to avoid the scam
You can do a couple things to verify the legitimacy of the NFT. First check the transaction history on the blockchain. Then on Etherscan see what % of total NFT supply the top holders own. If it’s more than 10% it’s probably best to stay away.
Airdrop
Scammers use social media to promote fake NFT collections giveaways. They make "signing up" as easy as entering your crypto wallet information. When you think you're about to receive your free NFT (who doesn't love free) the scammers gain access to the wallet and drain everything.
How to avoid the scam
Any crypto wallet address you submit anywhere publicly, make sure its a hot wallet. Large amounts of crypto and valuable NFTs should be safely stored in a ledger.
Bidding Scam
Similar to physical art and collectibles, NFTs are also purchased through bids. Normally it's pretty straight forward, the NFT goes to the highest bidder. This scam happens when a someone is selling an NFT, but the buyer bids with a cryptocurrency with a lower value. This may fool the seller into accepting the bid.
Earlier this year in March, a Bored Ape Yacht Club (BAYC) NFT sold for 115 DAI ($115) instead of 115 ETH. What most likely happened is the seller fell victim to the bidding scam thinking the 115 DAI was equivalent to 115 ETH.
How to avoid the scam
ALWAYS triple check before accepting any offer! You must make sure it is the agreed upon cryptocurrency, and that its the full amount! This is one of the easier NFT scams to avoid, you just need to keep your awareness sharp.
Hacking
Nobody likes a hacker. Hacking can come in many different forms but the end goal is to steal your personal information on hopes of accessing money or assets. Even if you don't give away your information directly, hackers can still find it elsewhere such as dark web forums.
The information they mostly go after includes passwords, social security numbers, and banking info. Even without any of this information if they were to hack into the crypto exchange you use (coinbase, for example) your crypto wallet is at risk.
How to avoid this scam
The safest way to protect your crypto & NFTs is by storing them on a cold wallet or ledger. This should be a wallet that you never connect to any sites, make purchases with, or even share the address to it. You should also create strong & unique passwords for each account. Do not use the same password or variations for your accounts! Another step further is to not keep any credentials anywhere on your mobile devices because hackers can hack into icloud accounts and access all notes, saved passwords, etc.
Lastly, never click on suspicious links! Oh, also Use a cold wallet. Please use a cold wallet. We beg you, use a cold wallet.
Investment scam
An investment NFT scam is similar to a rug pull. Anonymous teams that seem reputable and experienced will hype up the project on social media to make unsuspecting outsiders FOMO into the project.
Just like in a rug pull, once the team sells the project they run away with the investors money and never touch the project again. Although usually anonymous teams use this scam, it can also be a prominent figure. Recently adult star Lana Rhoades was accused of pulling off a similar investment scam with her NFT collection.
How to avoid this scam
Above all, do your own research!! Before you buy anything do your due diligence on the project founders to make sure they are who they say they are. Don't believe offers that are too good to be true. Don't ignore the red flags either, if something seems off it's probably best to look for another project. After all, the risk is not worth it.
Final Thoughts
Although reading about scams may have scared you a bit , you should not be worried if you take precautionary measure and always DO YOUR RESEARCH! All things considered, a quick NFT flip is not worth putting your crypto and assets at risk. At this point if you don't have your crypto, NFTs, and assets on a cold wallet you're at risk. And next time someone says "NFTs are scams" show them this article :)