NFT: Beware of Scams

The NFT market started to gain momentum in 2020, growing more than 300% from the previous year and representing millions of dollars worth of cryptocurrency. During the first week of May 2022, sales of these tokens subsequently fell by 92% compared to September last year. However, the market still generates the equivalent of millions of dollars, raising many concerns about the security of this asset. If a thief had to break through the security of a museum before stealing a work of art, they could gain access to a digital wallet containing malware or social engineering.

When digital artist Qing Han passed away in 2020, scammers took the opportunity to sell his artworks as NFT, in his name. Last September, famed graffiti artist Banksy had his website hacked and placed an ad selling what was to be his first NFT; one collector paid $336,000. The NFT market offers opportunities for many scams:

Scams on Discord: The chat platform is divided into communities called servers where people can talk, stream and play games together. In December of last year alone, 373 members of a Discord server from gaming marketplace NFT had compromised their digital wallet authentication, losing a total of $150,000. Another scam on Discord consists of sending DM by making users believe that they have indeed been approached by a brand, an artist or an influencer. Don’t be surprised by NFT projects without verifying that the offer is legit.

Fake Social Media Profiles: Beware of possible fake profiles. Often these are copies of real profiles, and all you need to do is look at the details to tell the fake from the real one. You should also be wary of bots inviting users to comment on posts; use social media to communicate with them and request information that can give them access to crypto wallets.

Phishing Fraud: Replica NFT marketplaces or fake crypto wallets are shared on Discord, Twitter and forums as well as via email. The degree of resemblance to real companies is impressive and it takes a keen eye to spot minor differences in the URL or overall layout.

Imitation artist: In addition to Banksy and his fraudulent website, other artists have experienced similar situations. Tyler Hobbs, the artist behind the “Fidenza” Art Blocks project, has denounced the SolBlocks platform for using its code to sell replicas of his works. Derek Laufman’s artwork was also sold through a fake account with the artist’s name, and even got a verified icon.

Pump and dump scams: The type of scam closer to NFT speculation involves a person or group of individuals buying a large number of NFTs (or cryptocurrency) and reselling them to artificially create a false impression that the asset is in high demand. In this way, market forces will increase resale profits. On the buyer side, this pattern seems to be validated by influencers who share the NFT on their profiles, making it a great opportunity. Ultimately, these buyers expect to resell at a higher price, which never happens.

“pulled carpet” scams: The scammers promote a project, ask for investment and abandon it without notice. This usually happens once they believe they have “completely exhausted investors”, have removed all funds from an NFT wallet, and removed their profiles from markets and social media.

Auction Scams: Fake NFT auctions are one of the most common types of scams. These occur when a real seller tries to auction an NFT. The seller indicates the cryptocurrency in which he wants to be paid, but a scammer can successfully change the currency of his listing to a currency with a lower value. It can also work by adding and removing an NFT list from a market by moving the decimal number one to the right. Without noticing the change, a buyer could end up paying much more than the originally intended amount.

Hacking Social Media Accounts: Fake offers and giveaways are a great way to pique users’ interest. Surprisingly, they can even come from established user accounts. However, the reality is that quite often these accounts have been hijacked by scammers to promote fraudulent schemes. Once a user tries to access the fake offer, they are asked to enter their password or personal information, provide their contact details and receive nothing in return.

Fake mints: In these schemes, scammers are dropping NFTs into influencers’ wallets, making it look like the celebrities have slapped the NFTs on the blockchain. Indeed, many buyers monitor specific portfolios for new business to anticipate massive interest and an increase in the value of an NFT. According to OpenSea, the largest NFT marketplace, over 80% of the free NFTs on the platform are fake, pirated by other artists, or spam.

There are plenty of scams to look out for when diving into the world of NFTs, and as usual, scammers never pass up an opportunity to make money. That is why it is important to always be vigilant.

Benoit Grunemwald (ESET)

Photo credit: DR
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