Navigating the Risky Waters of NFT Investments: Tips and Warning Signs

Non-Fungible Tokens (NFTs) have gained tremendous popularity in recent years, attracting millions of dollars in investments. These digital assets have taken the art world and the gaming industry by storm, allowing creators to monetize their work and buyers to own unique pieces of digital art, collectables, and other assets. However, with the explosive growth of NFTs, there has been an increase in scams and fraudulent activities that investors need to be aware of. In this article, we will discuss some of the risks involved in investing in NFTs and how to avoid being scammed.

Fake Marketplace

Another risk associated with NFT investing is the proliferation of fake NFT marketplaces. Scammers create fake websites that mimic legitimate NFT marketplaces and trick investors into depositing their funds into the scammer’s wallet. The scammers then disappear with the funds, leaving investors with no way to recover their money.

Fake NFT marketplaces can be difficult to spot, as they often use similar branding and user interfaces as legitimate platforms. Investors should be wary of unsolicited offers or advertisements for NFT marketplaces. Scammers often use social media platforms and messaging apps to promote their fake marketplaces, promising high returns and quick profits.

Fake Giveaways

A NFT free mint project typically operates by allowing users to earn NFTs in exchange for their actions, such as completing surveys, watching advertisements, or participating in promotions. The NFTs earned through these projects are usually not valuable and might not have any real-world use.

While NFT free mint projects can be a great way to learn about NFTs and to get involved in this exciting new technology, there is a risk that many of these projects might be scams. This is because NFTs are not regulated, and anyone can create an NFT free mint project without having to prove their legitimacy. This has led to a rise in scams where people are promised NFTs but never receive them. In some cases, these scams might even ask for personal information or access to users’ cryptocurrency wallets, which can result in the loss of funds.

NFT project with anonymous team

Another red flag to watch out for is an NFT project with an anonymous team. While some legitimate projects may choose to remain anonymous, it is generally safer to invest in projects with transparent and identifiable teams. An anonymous team may not have a reputation to protect, and they may disappear with investors’ funds without any repercussions.

Centralised Marketplace risk

Trading NFTs on centralised marketplace often does not need two factor authentication (2FA) as it is considered as trading. This allows an hacker to withdraw funds from an account he compromised of which he doesn’t have 2FA codes to directly withdraw the balance. How? Let’s say the compromised account has balance of 1000$. The hacker can put for sale with his account a worthless NFT for 1000$. Then, the hackercan simply accept the offer with the victim account. Now the hacker has the 1000$ on his account of which he hold all the necessary verification codes to be able to withdraw while the victim is left with a low value NFT. Some of the best centralised marketplace, like Binance NFT marketplace, added a security layer allowing you to limit the amount that you can spend in a single NFT. Others, allows you to set a PIN number that is needed to start trading NFT every time you enter the marketplace. However, it is important to keep this risk in mind when choosing a centralised marketplace.

Rug Pull Scams

Investing in NFTs can be risky, especially when the project team does not deliver on their promises. Some projects may start with a lot of hype but fail to follow through with their roadmap goals, leaving investors with worthless tokens. The project team may even disappear with investors’ funds, leaving them with no recourse. In many cases, this happens quickly, but there have also been instances of slow rug pulls where the project is gradually abandoned, with a lack of updates and new developments.

A clear example of this is represented by Moody Krows NFT project on Immutable X. The project was launched in 2021 with a lot of traction and hype as the first NFT project to launch on Immutable X (Ethereum Layer 2) and it was defined a blue chip by many crypto influencer. However, time passed, the bear market arrived, deadlines are past due and of the Moody Krows team we have no news. The last tweet was January 2022, meantime the floor price plummet from 1 ETH to 0.01 ETH.

Counterfeit NFTs

Minting a digital file as an NFT doesn’t make it a new piece of intellectual property or give you ownership of it. Instead, this simply turns a digital file into something that you can store on blockchain. Scammers can easily steal a digital creator’s work and open an account on an NFT marketplace where they list the counterfeit piece for auction.

One notable NFT scam involved the celebrity influencer, Paris Hilton. In 2021, a scammer created a fake Paris Hilton NFT on the Ethereum blockchain and sold it for $1,600 worth of cryptocurrency. The scammer then used a popular NFT marketplace to sell the fake NFT to unsuspecting buyers, who believed they were purchasing a rare and valuable collectable. The scam was eventually discovered, and the marketplace removed the fake NFT, but not before several investors lost their money.

Another example of an NFT scam is the case of the “COVID Alien” NFT, which claimed to be the first NFT linked to a physical object, a real-life sculpture. The NFT was sold for over $600,000, but it was later revealed that the sculpture did not exist and that the whole project was a scam.

Then, how do you protect yourself?

To avoid falling victim to NFT scams, investors should follow these tips:

• Conduct thorough research before investing in any NFT project. Check the legitimacy of the project, verify the team behind the project, and read the project’s whitepaper.
• Be cautious of free mint NFTs and other too-good-to-be-true offers. These are often scams designed to compromise your wallet or steal your funds.
• Only buy NFTs from reputable platforms and marketplaces. Avoid purchasing NFTs from unknown sources, as they may be compromised or fraudulent.
• Enable 2FA on your wallets and exchanges and add extra layer of security where available.
• Monitor the project’s roadmap and progress to ensure that the team is delivering on its promises. Be wary of projects that fail to meet their goals or disappear with investors’ funds.
• Be highly suspicious of NFT airdropped in your wallet of which you don’t know nothing about. Do not transfer them nor sell them, they might compromise your wallet.
• Keep your wallet credentials safe and always verify links and the sender email address before clicking on it.

Conclusion

While NFTs have the potential to be a lucrative investment, they also come with a significant risk of scams and fraud. Investors should be cautious and conduct thorough research before investing in any NFT project. By following these tips and staying vigilant, investors can avoid falling victim to NFT scams and protect their investments.

About ChainTrack

ChainTrack is a new tracking company that aims to provide a high quality tracking service at the cheapest cost estimate on the market. We help cybercrime victims when Bitcoin and other cryptocurrencies are involved, such as in cases involving Hacking incidents, Investment Fraud, SIM-Swapping, “Exit Scams”, Ransomware, Embezzlement, Theft, and Divorce cases. We work with exchanges, law firms, law enforcement, regulators, blockchain companies, ICOs, executives, and crypto VC firms to help track and recover stolen cryptocurrency. Visit chaintrack.io to open a case or get more informations.