'There are many scams' in NFT sales, warns NFT Watchdog: How to protect yourself from scammers
If some of the internet buzz around NFTs feels shady to you, you're not alone. Internet searches for "NFT scams" hit all-time highs in early February, according to Google Trends.
You could be forgiven for thinking that nonfungible tokens — which allow internet users to purchase and own internet-based content, such as images and videos — are a scam altogether.
A studio audience recently sat in confused silence as Jimmy Fallon and Paris Hilton compared "Bored Ape" NFTs. That the pair of digital monkey images collectively fetched north of half a million dollars of the celebs' money may have you thinking that this whole thing is detached from reality.
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But plenty of investors are seeing the value in NFTs. Some want to own rare digital collectibles. Others are fans of the art they're purchasing. Still others believe that the technology that allows internet users to track the provenance and ownership of things online is the future of the internet. Investing experts caution against investing much more than you're willing to lose in NFTs, since they're speculative investments whose value is determined almost entirely by investor demand.
No matter your reason for getting into NFTs, you need to remember one thing: Where there is money to be made, fraudsters abound. "People come in and think it's like Disney World — no one is bad and everyone is cool," says Franck Bossi of NFT Watchdog. "But there are many scams, and people forget to look at important specifics."
Here's how experts say you can protect yourself.
Avoid come-ons from 'friends'
Once you join NFT communities, be prepared to hear from a lot of folks looking to hype their projects, says NFT Club cofounder Adam Morris. "NFT guys will typically hype NFTs on Twitter, Discord, Telegram, and Reddit," he says.
This is where scammers lurk as well, he adds. "They will often join Discord servers and mass-message their members, DM people on Twitter, or make connections on apps like Bumble Bizz," he says. "They will do their best to sell their scam as the next big marketing opportunity."
The scam messages you'll receive will take a few common forms, says Morris. You may be offered an NFT in exchange for sending cryptocurrency to a particular online wallet, and never receive it.
Or you may be asked for help in marketing an "up-and-coming" collection or to work alongside an exciting new creator. When you send crypto to help "mint" the new collection of NFTs, the project will disappear completely.
Morris says that once you join NFT communities on Discord, for example, you will likely receive dozens of messages a day about potential NFT opportunities. "While some may be legitimate, it is generally a good idea to avoid all direct messages," he says.
Video by Ian Wolsten
Protect yourself while shopping
So if the general advice is to avoid jumping at opportunities being pitched in your DMs, where do you shop for NFTs? A good place to start, experts say, is on trusted online NFT marketplaces, such as LooksRare and OpenSea. "Neither will take custody of either the NFT or the cryptocurrency used to trade," says Morris. "The platforms exist to create a safe place for people to buy and sell their assets."
From there, however, you still need to take some precautions. Be careful navigating to either site: Both messages from scammers and sponsored ads atop your google search results may contain lookalike links. You're better off navigating directly to their websites.
And even when you're on a legitimate site, scammers may try to trick you with copycat versions of prominent projects. Look for blue checkmarks next to projects, which indicate that they're verified on the NFT platforms.
Vet potential projects
Even if an NFT project isn't an outright scam, its creators may be looking to make a quick buck at your expense, says Bossi. While some projects seek to create long-term value for investors, others aim to rapidly onboard buyers to pump up the price of the NFTs before selling for a quick profit. If you're still holding at that point, the value of your NFT could shrink to nothing.
The "check under the hood" of an NFT project is to look at its "roadmap" — a document that outlines the goals and spending priorities of the NFT's creators. The roadmap behind any NFT you buy should be transparent about who is behind the project and what they intend to do with your money. "An NFT may have great art, but would you spend money on a painting if you didn't know who the artist was?" says Bossi.
Video by Mariam Abdallah
Another red flag: Major portions of the project's budget are earmarked for marketing and giveaways. "If they're trying to get a lot of people to buy because one of them is going to win $200,000 in Ethereum, we know something is fishy," he says. "We know that people are just here for the money."
Bossi acknowledges that even legitimate projects may serve as poor investments. "99% of NFT projects out there are probably going to fail," he says. But to have a chance at earning long-term value from your investment, avoiding the projects that will seek to pull the proverbial rug out from under you is key.
"The ones that will create real value are the ones with a business plan," he says. "There's no guarantee it will work, but at least they'll have a chance to create something that will produce value for investors later on."
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The article "How to Protect Yourself From NFT Scammers: This Isn’t Disney World, Where ‘No One Is Bad,’ Warns NFT Watchdog″ was originally published on Grow (CNBC + Acorns).