As many influential leaders and their followers dive deep into the NFT space, so do all the scammers. Scammers go where the money is being made and there is no exception when it comes to non-fungible tokens.
When I first began my journey into the wondrous world of NFTs, I remember one of my main fears was the risk of being scammed. We all work hard for our money, anything that we can do to avoid being scammed and making others aware of the risks will ultimately help the NFT community continue to flourish. So, how can you avoid being scammed when dealing with NFTs?
Here are my top tips to avoid being scammed when dealing with NFTs.
- Never give out your secret phrase.
- Avoid visiting untrustworthy sites.
- Always do your own research.
- Watch out for pump and dumps.
- Don’t get greedy.
- Only transact with people you trust.
- Be aware of counterfeit NFTs.
- Steer clear of brand impersonators.
1. Never give out your secret phrase
Giving out your secret phrase is comparable to giving away your social security number, you do it with extreme caution. Your secret phrase holds all the power over your crypto wallet and the digital assets within. If someone were to get a hold of your phrase, they could easily transfer all your assets to another wallet address leaving you with nothing.
The only time you should ever need to enter your secret phrase is if you need to import you wallet. This would usually only be required if you have removed the app from your phone or the extension from your computer. If you visit a site that requires you to enter your wallet’s secret phrase, it’s very likely you are on a scam site.
Many people may not realize how crucial their secret phrase actually is in order to maintain security, that’s why I preach the importance of safely storing your secret phrase.
2. Avoid visiting untrustworthy sites
Scammers love to take advantage of basic human nature. As humans, we sometimes misspell things—leading us to the wrong site. In the NFT world, these scam sites can be extremely dangerous. Scammers have been known to create sites that are an exact replica of an authentic site, leaving unsuspecting victims susceptible to a cyber attack.
If scammers are able to get hold of your secret phrase, or even gain control of your desktop, they will be able to gain complete access to your wallet and all of the assets within.
Always double-check the URL to ensure the address you are visiting is correct, never enter your secret phrase—especially at the request of a site, and avoid doing anything you don’t feel absolutely comfortable doing. Keep in mind, if something seems too good to be true then it probably is.
3. Always do your own research
I can’t express this tip enough. Doing your own research on any digital asset you are considering investing in is critical to ensure all your assets remain safe, including your currency. One common scam found in the NFT space is known as a Rug Pull. A rug pull is an exit scam where developers build a bunch of hype around a product/brand—and then once liquidity flows into the project, they pull out the liquidity, leaving consumers empty-handed.
This exact scam has happened to me once before. The brand had great art, a growing community, but almost no communication from the developers of the project. People quickly became aware of the lack of communication from the creators and went into panic mode.
One key sign to look for when investigating a potential investment is to look and verify that the creators of the project are completely open and honest about who they are as humans. If you find little or no information regarding the actual human being behind a project, someone who is willing to put their own reputation on the line, this should be a huge red flag.
Aside from rug pulls, there are various other scams to watch out for. Conducting your own research will give you the ability to make the best decision possible when considering your next digital investment opportunity.
If you are unsure of what to look for when researching an NFT brand to invest in, then take a look at my Collector’s Buying Guide which will show you what I personally look for when I buy my own NFTs.
4. Watch out for the pump and dump
The classic pump and dump scheme is one of the most misleading plots in the NFT space. A pump and dump is when a person or group of people purchase a large number of digital assets in order to drive the demand and the price of an asset up. Once the pump increases the value and liquidity, scammers dump all their assets for a nice profit.
One of the easiest ways to detect a pump and dump scheme is to study the transaction history of an NFT. It is common to see a nice and steady rise in value with a diverse group of buyers, depending on the number of assets available. If you happen to see the same two or three people buying and re-selling for a higher price, this could be an indication of a pump and dump scheme.
If you find yourself in a pump and dump project, it is best to get out as quickly as you can—and hopefully without losing any of your money. An even easier way to avoid losing money due to a pump and dump scheme is to avoid the situation entirely by doing your own research. Sorry, I had to say it.
5. Don’t be greedy
In my experience, being greedy is the quickest way to lose everything you have. Greed comes in many forms, but in the NFT space, there are a great number of greedy folks looking to make the quickest buck possible.
Being greedy when buying and selling NFTs can easily backfire if you aren’t careful. Here are some of the most common ways people get greedy with digital assets:
- Buying too much of one digital asset-
Purchasing a large amount of the same asset can be extremely risky. If the price of your investment plummets to zero, you may be left with nothing of value. This can be a devastating experience for anyone.
- Trying to attain something that’s too good to be true.
If you ever receive a message saying you’ve won something and all you need to do is send some currency for the transaction, avoid this at all cost. Some people have a hard time passing up a good deal, but some deals aren’t as great as they appear to be.
Although these are only a couple of examples of greed when dealing with non-fungibles, they are very real scenarios that could end very badly. I say keep the greed to a minimum and help others stay aware instead.
6. Only transact with people you trust
Make sure you only transact with people you know and trust on a personal basis. Transacting with an untrustworthy person can end very badly. Say you send someone your digital asset with the promise of payment upon delivery of the said asset, but instead the person doesn’t pay you and keeps your non-fungible token.
It’s like taking candy from a baby, it is literally that easy if you are unaware of this type of scam. If you are looking to buy or sell one of your NFTs it’s best to use a secondary marketplace such as OpenSea.io. When you sell an NFT on OpenSea, you have the ability to keep the sale private and specify one address that is allowed to purchase it.
Allowing the marketplace to be your trust when transacting with a stranger is one of the best options in my humble opinion. This way, there is no confusion on pricing, gas fees, and who is getting what.
7. Be aware of counterfeit NFTs
Nobody likes a fake, especially when NFTs are supposed to be unique, irreplaceable, and non-interchangeable.
Counterfeit NFTs have been purchased by people who thought they were purchasing the real deal. One easy way to check for a replica is to look at the transaction data and check who minted it and when. Then you can compare this data to what you know about the NFT creator and ensure it is indeed authentic.
These replica NFTs generally look identical to the real thing but keep in mind, it’s all about the metadata and when the token was actually minted on the blockchain. Avoid authenticating an NFT simply by how it looks.
8. Steer clear of brand impersonators
Brands and start-up companies are generally very active on social media. From Twitter to Discord, brands are all over online, that is why it is essential to know the exact brand name and logo when you are looking to buy an NFT from a specific brand. Usually, you are able to find a trustworthy link on the brand’s official social media accounts.
A common indication of brand impersonation is additional words or characters in the name. For example, scammers may add the words Official, Authentic, or even add a checkmark to make an account appear verified. If you are unsure of brand authenticity, reach out to the brand personally or someone you trust in the community.
Furthermore, brand impersonators are known to contact people through their DM on social media and other various platforms and act as customer support or community moderator. A brand should never directly contact you to ask you for your seed phrase, to send money, or any other request that may make you feel uncomfortable.
If you are unsure of the brand or any members of the brand reaching out to you, it’s best to just avoid them until you have time to do your own research and authenticate exactly who you are communicating with.
How Common Are NFT Scams?
One of my main concerns when I first began buying my own NFTs was the possibility of getting scammed out of my hard-earned money. But then I thought to myself, how common are NFT scams, and should I really be that worried?
NFT scams occur on a daily basis multiple times per day and on various platforms. Discord, social media, and other online platforms are lurking with scammers who are waiting to take advantage of you. The best way to avoid NFT scams is to get educated on the types of scams taking place.
Personally, I have been scammed one time which was a rug pull incident. And although still a scam, at least I did receive a number of NFTs out of the deal. However, I still encounter multiple scam messages on Discord and some of my social media accounts on a weekly basis. My point is, scams are not to be taken lightly. They are out there and people fall for them every day.
If you have important digital assets you wish to keep safe, I highly recommend storing your NFTs in a more secure wallet that is less likely to be hacked. To learn more about how I keep my assets safe, check out Securely Storing Your NFTs: A Complete Guide.
Overall, it comes down to being aware of what scams are out there. Do your research, don’t do anything that makes you uncomfortable, and if you find yourself in an uncomfortable situation get out of there as fast as you possibly can. Remember, you are in control. Don’t be fooled by these scammers.