NFT: beware of scams

The NFT market started gaining momentum in 2020, growing more than 300% from the previous year and accounting for millions of dollars worth of cryptocurrency. During the first week of May 2022, the sale of these tokens then plummeted by 92% compared to last September. However, the market still generates the equivalent of millions of dollars, raising many concerns about the security of this asset. If a thief previously had to break through a museum’s security to steal a work of art, access to a digital wallet can be obtained using malware or social engineering.

When digital artist Qing Han died in 2020, scammers took advantage of the opportunity to sell his artwork as an NFT, in his name. Last September, famed graffiti artist Banksy hacked his website, posting an ad for the sale of what was to be his first NFT; a collector paid $ 336,000. The NFT market opens up opportunities for many scams:

Scams on Discord: The chat platform is divided into communities called servers where people can talk, stream and play together. Last December alone, 373 members of a Discord server operated by the NFT gaming market saw their digital wallet authentication compromised, losing a total of $ 150,000. Another Discord scam is submitting DM making users believe they are actually being contacted by a brand, artist or influencer. Don’t be surprised by NFT projects without verifying that the offer is legitimate.

Fake social media profiles: Beware of potential fake profiles. Often these are copies of real profiles and it is enough to look a little carefully at the details to distinguish the fake from the real one. You should also be wary of bots that prompt users to react to messages; use social media to interact with them and request information that may allow them to access crypto wallets.

Phishing scams: Replication NFT Markets or Fake Crypto Wallets are shared on Discord, Twitter and forums, as well as via email. The level of similarity to real companies is impressive and it takes a keen eye to spot small differences in the URL or overall layout.

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

Pump and dump scams: The type of scam closest to NFT speculation involves a person or group of individuals who purchase a large number of NFTs (or cryptocurrency) and resell them in order 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’s side, this pattern appears to be validated by influencers sharing 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: Scammers promote a project, solicit an investment and, without warning, abandon it. This usually happens when they think they have “completely exhausted the investors”, removing all funds from an NFT wallet and deleting their profiles from the markets and social media.

Scams at auction: Fake NFT auctions are one of the most common 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 offer to a currency of lower value. It can also work by adding and removing an NFT quote 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 planned amount.

Social media account hacking: Fake offers and giveaways are a great way to pique user interest. Surprisingly, they can also come from established user accounts. The reality, however, is that very often these accounts have been hijacked by scammers to promote fraudulent schemes. Once a user attempts to access the fake offer, they are asked to enter their password or personal information, provide their contact details and get nothing in return.

Fake ticks: In these schemes, scammers release NFTs into influencers’ wallets, making it appear that celebrities have actually minted NFTs on the blockchain. In fact, many buyers monitor specific portfolios for new businesses to anticipate mass interest and an increase in the value of an NFT. According to OpenSea, the largest NFT market, more than 80% of the NFTs created for free on its platform are fake, plagiarized by other artists or spam.

There are a ton of scams to be aware of as you dive into the world of NFTs, and as usual, scammers never miss an opportunity to make money. It is therefore important to always be attentive.

Benoit Grunemwald (ESET)

Photo credit: DR
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