Not All NFTs Are a Scam — But There Are Definitely Bad Apples
While the NFT landscape as a whole may not be a scam, there are definitely scammers in the bunch that buyers should be aware of. Here's what to look out for.
March 17 2022, Published 2:34 p.m. ET
With NFT artists, minters, and sellers making bank, it’s natural for investors to wonder whether NFTs are all a scam. The reality is much more nuanced. There are many legitimate NFTs on the world’s blockchains, but even their value is speculative.
All things considered, many scams have been discovered in the NFT landscape and investors must do their due diligence prior to spending cryptocurrency on a potentially fraudulent token.
Scams have freckled the larger NFT economy.
As a vehicle for art, collectibles, and other alternative assets bound by the blockchain, NFTs and their associated smart contracts allow people to make transactions without leaving the digital space. The vehicle itself isn't a scam—but sometimes, the players behind the NFT can set it up in a way that’s fraudulent.
Some of the more infamous types of NFT scams that have surfaced include plagiarized NFTs (rather than original art or other types of work), pump and dump schemes that lose their value after whales get their fill, and bidding scams that trick people into accepting a different and lower-valued cryptocurrency upon selling the NFT.
Some NFT projects are downright fake, otherwise known as rug pulls. Like crypto rug pulls, NFT rug pulls push tokens that aren't able to be resold. Earlier this year, the Frosties rug pull scammed thousands of investors out of more than $1.2 million by going dark after writing one last tweet that read “I’m sorry.”
Like previously criticized ICOs (initial coin offerings), some NFT airdrops have been fraudulent. An NFT airdrop scam works by stealing a crypto wallet address and stealing some or all of a person’s NFT portfolio.
Discord hacks are also a big type of NFT scam. In this case, hackers gain access to a Discord group’s server and post a fake link, gathering people’s sensitive information and stealing from them.
NFT values are inherently speculative.
There are plenty of legitimate NFTs. Some are used to trade art, others are used to facilitate metaverse utility, and others have use cases completely outside the realm of digital—like the first yacht NFT ever sold.
However, most NFTs are valued based on speculative prices. This isn't different from the traditional art and collectible transaction values you’ll see over the decades. Still, it’s a risk that investors should be aware of. The number of Ether (ETH) or other crypto tokens you buy your NFT for today may not match up with its value down the line. You’ll have to consider two things. First, there’s the value of the NFT and any associated work on its own, plus the value of the cryptocurrency it trades with.
Is sifting through NFT scams worth it?
For some people, embarking on the NFT journey has been fruitful. From Bored Ape Yacht Club to 76ers Legacy and beyond, investors have made millions of dollars off their trades.
For others, it has been detrimental to their finances. From Mercenary to Blockverse, NFT scams are evidence that all NFTs are what they seem to be. Investors must do their due diligence and determine if an NFT smells like a scam or seems, above all reasonable doubt, legitimate.