You have decided to purchase an NFT.
In recent years, unique digital artworks created on smart contract platforms have been on the rise, with celebrities forking out tens of thousands for ape jpegs and artists selling NFTs for millions.
Maybe you've decided to take a peek at what's going on and see what all the fuss is about, but you've also heard about the many scam artists in the space.
It's the best way to avoid being a scam artist. We broke down the types of scam that are out there and how to avoid them.
The basics should be the first thing that comes to mind. There are two ways to buy NFTs, one of which is Minting and the other through a secondary market.
Minting means you'll be getting in early and taking part in the initial launch of a collection by buying one or more of its NFTs at a set price.
If you buy an NFT that's already been made, you'll be paying another person an agreed amount for the NFT to be transferred into your possession, most likely via a middleman.
For the most part, the safest way to buy NFTs is through the methods above.
For the purposes of this article, we'll be focusing on the most common types of NFTs, as these are the most common types.
If you want to buy said NFT, you need a special wallet with the rightcryptocurrencies inside. There are a lot of different wallets out there, but the two we'll focus on are MetaMask and Phantom.
It's so many. There is still a lot of money to be made in the up-and-down world of cryptocurrencies. There are people who look to scam others out of money. NFTs are no different.
New methods of scamming are popping up all the time. The main NFT scam are listed.
Chunks of money.
Minting an NFT requires you and your wallet to sign a transaction in order to exchange currency for something else. A device designed to steal everything from the wallet being used to mint has been known to be launched by some scam artists.
This type of scam usually relies on someone minting with auto-approve turned on, or just minting in a hurry without reading what the transaction says.
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The rug is pulling.
A "roadmap" of the goals they're planning to complete and the dates they want to do this by will be published by most NFT projects. The idea is to allow prospective investors to see exactly what their money is going towards. Not every project creator sticks to this.
In the past there have been a number of well-publicised "rug pulls" with both large ETH and SOL collections, in which creators suddenly deleted their social media accounts and disappeared with the mint funds. Anyone who bought into the project is left with an NFT that is inevitably down in value, and is not likely to recover that value again.
There's an OTC scam.
Some people will trade with each other. It's a good place to be a scam artist. Simple theft, waiting for you to send your NFT, and then sending nothing in return are just some of the ways you can be ripped off without the safety of an middleman.
"If the price seems too good to be true, it's probably a fake."
People have been known to set up extra accounts to look like they are moderations in order to facilitate fake trades.
There are fakes.
If a scam artist sees a new or upcoming collection that is popular, they may try to make their own version of the collection in order to get buyers.
You can see that there are many ways to be ripped off. How do you purchase one that is safe? Even though complete safety is a luxury, there are still ways to protect yourself. Here are some things to think about when minting.
A burner wallet is a good way to keep your money.
It's important. It only takes a short time to set up a new wallet using MetaMask or Phantom, and it's always worth it. There's a reason. You won't lose everything you have if your wallet is compromised by a wallet scam.
If you want to read the transaction carefully, turn off auto-approving.
This one is all about avoiding wallet draining scenarios. If you don't have auto-approve on, a transaction box will appear if you don't approve before the mint goes through. This will give you an idea of what's being exchanged. Click cancel and walk away if something looks suspicious.
The links should be double checked.
Even though an NFT collection is legitimate, you can still be a victim of wallet-drainers. It's not uncommon for scam artists to create near-identical social media accounts and circulate a fake link in order to take over a legitimate project. Don't click on anything if it seems suspicious, and double-check what you're clicking on to make sure it's legit.
You should research what you are minting.
There are still rug pulls to worry about even if you avoid the pitfalls. If you want to avoid these, make sure you only mint projects that have legitimate teams behind them, and avoid the ones that are being run by anonymous developers, as it's easier for them to disappear if they decide they no longer want to.
If you want to find out more about the project you're thinking of minting, the best place to start is on the website/Discord/Twitter pages of the project.
What kind of safety features are offered by the launchpad is one final thing to consider. MagicEden created a number of "Safety Signals" for future launches, such as asking projects to sign legal contracts and put their mint funds in an escrow wallet.
"On the backs of the project rugging, Launchpad was paused for two weeks (which was a painful decision, but it was the right call)," a MagicEden spokesman said. The time was taken to strengthen the screening process. We helped launch 250 unique collections into the NFT. Safety protocols allow us to identify our creators and verify KYC-ed accounts at financial institutions. Quality protocols were put in place to evaluate projects that mint on the primary market. Almost all of the projects that approach us for launchpad support are rejected because of the creator screening mechanisms, which evaluate everything from user following to NFT artworks and utility.
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If you're buying a collection that's already made, you're less likely to be caught up in the wallet drainer scam. Is it the good news? There is a chance that you will run into rug pulls, fakes, and attempted OTC theft.
One of the best ways to counteract the fact that there is no safe way to trade NFTs directly OTC is to not do it all. Secondary marketplaces are the best place to buy second-hand. For the purposes of this article, we're going to focus on two of the biggest: Open Sea, the world's largest NFT market that deals with both ETH and SOL NFTs, and the previously mentioned MagicEden, a popular marketplace. There are some things to consider when buying a second-hand NFT.
The collection needs to be verified.
It's important to know that you're buying a real NFT and not a duplicate that isn't part of the collection.
According to Open Sea, it has a system to help with this. First time buyers may benefit from badging. Badges are represented by blue ticks on the NFT pages of some Open Sea collections. The ticks are put in place to make it easier for buyers to avoid fakes. The price seems too good to be true. The price is dependent on supply and demand. If an NFT is cheaper than other NFTs from the same collection, then you should be careful.
Credit: opensea.io
Open Sea is constantly improving its search function in order to help people find authentic content and is building tools to prevent fake blue mark badges. The platform has a tool for fighting fraud. The copymint prevention system is the most advanced tool in the fight against fraud. It uses image recognition technology to find potential duplicate NFTs.
MagicEden has similar tools in place that allow users to flag collections that are not real. There is a manual team in place in the market that can take further action.
Research is the study of things.
It's not always safe to say that a project has been around for a while. The "slow rug" is a scam in which project creators become less and less engaged over time. They might stick to their plan but eventually they will miss deadlines and update the community less and less.
Research is the only way to counteract this. Make sure you visit the project's social pages first if you hear about an NFT and want to buy it. Is the project's creators still using the platform? They might be posting regular updates on the social networking site. There is a plan. If the answer is not a "yes", be careful.
Whether you're minting or buying on secondary, time and research are your best weapons against getting ripped off. There is a constant pressure to act quickly. If you resist that urge, you can still protect yourself.
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