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How to protect yourself from scams while you trade NFTs

Updated: Apr 26, 2022

The world of Web3 contains probably the highest concentration of innovators compared with other sectors of the global economy. Unfortunately, this applies to Web3 scammers as well, who are making an absolute killing out of NFT investors.

Because crypto investing is at such an early stage, the combination of low transparency and high financial stakes makes it a target-rich environment for the enterprising con artist.

NFTs are particularly attractive for criminals. The whole premise of an NFT's value is complicated, and complexity makes it easier to manipulate the human brain.

Because you can rarely recover what you lose, you should be doubly cautious when engaged in transactions involving crypto assets, and certainly in the case of NFTs. This article gives you an overview of how to spot when you are being conned.

How scams manipulate the brain

First of all: realize that you are a potential victim! Nothing makes you more vulnerable than thinking that scams are something that happens to other people.

Second: understand how scams typically work. The scammer will try to align something you want to believe with something that benefits them. The means the process will start with a good feeling. Everyone wants to get a good deal or catch a break, so that is how a scam will present itself: “If you act now…” “You’ve been selected…” etc.

In the eagerness for the promise to be true, your brain shuts down critical thinking and blocks out observations of salient data that call into question the desired outcome. You are capable of making errors that you would not normally make.

This vulnerability is baked into the code of the human brain and unfortunately, there is no patch or update that can fix it. But there are measures that can offset the risk.

The bottom line: the better the deal looks, the less you should trust your instincts, and the slower you should move to part with your money.

Wallet grabs

It’s a sad fact, but true, that the majority of money being lost in the NFT space is due to investors giving scammers direct access to their crypto wallet!

Crucially, this involves enticing the investor away from an established platform like Binance. This could be through sharing a link on Discord, announcing a ‘giveaway’, or some form of hype. In more sophisticated cases, it involves creating a close copy of a legitimate site, so the investor believes they are on an established platform.

When the user initiates the transaction, the process stalls owing to an ‘unexpected issue’. In order to proceed (“I’m so close!”) the user is invited to enter their seed phrase, after which it’s lights out for the wallet and its contents.

The lessons we can draw from the (many) scams that have already taken place are:

1) Never follow a link to purchase an NFT

2) Always start the process from the homepage of a legitimate platform

3) Never type in your seed phrase to facilitate a financial transaction - that’s not what it’s for!

If all this sounds very basic, bear in mind that statistically speaking it is the most likely way that you will be scammed. So don’t be a statistic!

Investment frenzies

A more ambitious scam is mass manipulation of groups of investors by creating hype around a project, soliciting investment, and running off with the cash (also known as a rug pull).

There are various ways to drum up interest, including giveaways of NFTs that give investors a sense of ownership and a desire to believe that the project is legitimate. It does not involve tricking people into giving up their wallet details. Tragically, the money is given away willingly.

To avoid this requires the ability to resist giving in to FOMO. But a good rule of thumb is also not to invest in people you do not know, or who do not have an established public profile (e.g. Tom Cruise) and hence have no viable way to ‘disappear’.

Counterfeit art

Clicking on the contract address will take you to a comprehensive overview of the NFT in question (transactions, owners etc.)

Even on legitimate platforms such as Rarible and OpenSea, scammers have found ways to sell unsuspecting buyers fake versions of popular NFTs.

The way to avoid buying fake art is to triangulate: in other words, compare what you are seeing with other marketplaces. Discrepancies indicate fraud.

For a start, the price of a fake artwork will typically be a fraction of the market price visible on similar marketplaces. This is how the scammer draws buyers in, and it should be an immediate disqualifier.

Next, the user, owner, and contract address should all be visible on the marketplace. You should try to match all three with a second source, ideally the project website of the actual creators. It is hard, if not impossible, for a scammer to fake these, and discrepancies once again immediately prove fraud.

Counterfeit people

Although it is harder, it is possible for some scammers to assume the identity of a creator, either by getting through the verification process for a given platform and minting NFTs of their work, or by hacking into an existing verified account.

This means that – while you should never deal with an unverified creator – verification is not enough by itself.

In the case of NFTs whose artists have a public profile, it is worthwhile searching for evidence that they have knowingly entered the NFT marketplace and are not currently seeking to reclaim their identity!

Closing words

Security is improving all the time, particularly on major platforms. The team at Binance, for example, manually reviews each new NFT placed for sale on their NFT Marketplace. That means that they will be looking for the same red flags as we have been discussing in this article.

That being said, you can’t lose by being extra cautious. Assuming that there is a good chance you are being scammed is a good place to start any transaction, given the highly dynamic state of play in the NFT marketplace today.

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