The year is 2023, and technological innovations are practically never-ending! But with the rise of the fin-tech domain, the possibility of finding hurdles also increases. Despite NFTs and the crypto-verse posing themselves as an opportunity that is too good to be true, the hassle of NFT scams continues.
Nowadays, everyone understands the importance of security and privacy when it comes to buying NFTs. In fact, given the recent hacking wherein 32 users lost 1.7 million worth of NFTs, every NFT user is on edge. The only problem, however, is how one can avoid NFT scams that can happen at any given moment?
In this regard, it is also important to be aware of the top 10 types of NFT scams. Not to forget, there are a lot of ways through which you can ensure your safety and security. In this blog, we will be walking you through all the possibilities through which you can avoid being in murky waters.
Web3 Security – The Basics
Web3 is the next generation of the internet, also known as the decentralized web. It is based on blockchain technology and aims to provide a more secure and decentralized way of exchanging information and value. In web3, users have more control over their data and can interact directly with decentralized applications (dApps) without intermediaries.
The security of web3 is based on the blockchain’s ability to provide secure and transparent transactions. A public ledger is used to record all transactions, making it hard for hackers to tamper with the data.
Moreover, the use of smart contracts and decentralized storage solutions, such as IPFS, help further enhance the web security of web3. However, it’s important to note that it’s still a relatively new technology, and there are ongoing efforts to further improve its security.
A private key is a secret code used to access and manage a user’s assets on a blockchain. It is a crucial component of blockchain security, as it is the only way to prove ownership of an asset and access it. In the case of NFTs (non-fungible tokens), a private key is used to prove ownership of a specific digital asset, such as a piece of art or a collectable.
It is used to sign transactions and transfer ownership of the NFT. It’s important to note that private keys should be kept safe and never shared with anyone, as they can be used to gain unauthorized access to a user’s assets.
To protect your NFTs, you should store the private key offline in a hardware wallet or a paper wallet and use a strong password to encrypt it. Additionally, using multi-signature (multisig) and storing the private key in multiple locations can provide an additional layer of security for your NFTs.
Are NFT scams a reality?
The reality of NFT scams is that they are becoming increasingly prevalent in the growing NFT market. Scammers can create fake websites or social media accounts that mimic legitimate NFT marketplaces or creators to trick users into sending them money or personal information. This can occur in many ways, such as by creating counterfeit NFTs, in the form of NFT giveaways or by tricking users into buying fake NFTs that do not exist.
When buying NFTs, users need to be vigilant about the various form of scams that can take place. The possibilities include phishing, pump-and-dump, and bidding scams, to name a few.
Another form of crypto scam is when scammers try to take advantage of the hype around NFTs by promoting “get-rich-quick” schemes, such as promising unrealistic returns on investments in NFTs. Furthermore, some projects may be falsely advertised as NFTs when they are not, and users may be misled into buying a token that they believe is unique and has value, but in reality, it doesn’t.
Overall, while the NFT space can revolutionize the way we contemplate digital ownership and value, buyers need to be cautious and informed to avoid falling victim to scams. A thorough knowledge of common NFT scams like pump-and-dump schemes can help users stay vigilant at all times.
Can you recover your NFTs?
In order to recover your stolen NFTs, you will need to enter a recovery phrase or backup phrase, also known as a seed phrase. Seed Phrase is a backup of the private keys associated with the NFTs stored in the wallet. In simple terms, it is a set of words that can recover access to an NFT wallet or account. It is essential to keep the seed phrase safe and secure, as anyone with access to it can access and control the NFTs in the associated wallet.
How can you manage your seed phrase?
Managing a seed phrase for an NFT wallet or account is vital in ensuring the security and accessibility of the NFTs stored in the wallet. The first step is to create a strong and secure seed phrase, typically consisting of 12-24 words, which can be generated by the wallet software.
It is imperative that you write down the seed phrase on paper and then keep it in a secure place like a fireproof safe or a bank deposit box. Avoid storing the seed phrase on a digital device, as it can be vulnerable to hacking or data loss. Additionally, avoid sharing the seed phrase with anyone, as it will give them access to your NFTs. It is also essential to keep a backup of the seed phrase in case the original is lost or damaged.
Where can you store your seed phrase?
A seed phrase for an NFT wallet or account can be stored in various physical and digital locations, each with its own benefits and risks.
One option is to write down the seed phrase on paper and store it in a safe location, such as a fireproof safe or a bank deposit box. This provides a high level of security but also increases the risk of losing the seed phrase if the paper is damaged or misplaced.
Another option is to store the seed phrase on a digital device, such as a USB drive, external hard drive, or even a password manager. This can be a convenient option, but it increases the risk of data loss or hacking.
Furthermore, you could also store the seed phrase on a hardware wallet, a specialized device for securely storing cryptocurrencies and NFTs. These wallets are designed to be highly secure and tamper-proof, but they also can be costly.
To store your NFT collection safely, you could also use cold storage. Cold storage is the offline storage of cryptocurrencies, digital assets or NFTs. Keeping NFTs in cold storage provides a higher level of security as the private keys that control access to the NFTs are stored in a device that is not connected to the internet, making it less vulnerable to hacking, theft, or other malicious activities.
Cold storage options include hardware wallets, paper wallets, and offline software wallets, all considered very secure methods for storing NFTs.
Ultimately, where to store the seed phrase will depend on security, accessibility, and personal preference. It’s essential to carefully consider these factors and choose a storage method that best meets your needs.
Secure your NFT at home
For NFTs like digital art, you could decide to keep them safe at home. However, keeping NFTs secure requires a combination of physical and digital security measures. Firstly, it’s essential to keep your NFTs stored in a secure digital wallet protected with a strong and unique password. It’s also a viable idea to allow two-factor authentication for an added layer of security.
Secondly, keeping your seed or recovery phrase safe and secure is important. As mentioned, seed phrases are the key to recovering access to NFT wallets, so it’s important to store them in a safe place, such as a fireproof safe or a bank deposit box.
Thirdly, practising good security habits, such as keeping your computer and digital devices updated with the latest security patches and avoiding clicking on suspicious links or downloading unknown software.
Finally, it’s essential to keep a backup of your NFTs and seed phrases in case of data loss or theft. This can be done by storing a copy of your NFTs and seed phrases on a USB drive, external hard drive, or in the cloud.
Following these steps can help in ensuring that your NFTs are kept safe and secure at home.
NFT & Crypto Scam Forms – how to stay safe
There are certain ways through which you can save yourself from NFT scams like phishing attacks. In this blog section, we will walk through strategies that can be incorporated to stay safe.
Use smart contracts for security
Smart contracts can provide a high level of security for NFTs and other digital assets.
Smart contracts are described as self-executing contracts. These write the terms of the agreement directly into lines of code. The smart contract will automatically execute the corresponding actions when certain conditions are met. Smart contracts aim to eliminate the need for intermediaries and reduce the risk of fraud or human error.
One example of how smart contracts can be used for security is by creating unique digital assets, such as NFTs. Smart contracts can be used to mint unique digital assets and ensure they cannot be replicated or counterfeit. This is done by embedding a unique digital signature or hash into the smart contract, which can be verified by anyone to confirm the authenticity of the NFT.
Another example is using smart contracts for escrow transactions, where the smart contract would hold the funds in escrow and release them only when certain conditions are met. This eliminates the risk of fraud or non-payment by either party.
Using smart contracts to automate and enforce the rules and conditions of transactions can provide a high level of security for digital assets.
Blind signing & how to stay safe
Blind signing is a popular term of the NFT atmosphere that is often used as a double-edged sword. In essence, it is a technique used to protect the privacy of digital signatures. Through blind signing, you can get a signature from someone without revealing the message’s contents to the signer.
The process works by first “blinding” the message by adding a random number, creating a blinded message. The blinded message is then sent to the signer, who signs it without seeing the original message. The signed, blinded message is returned to the sender, who removes the blinding factor to reveal the original signed message.
This technique is instrumental in situations where the signer should not have access to the message’s contents, such as in voting systems, or when a user wants to prove ownership of a private key without revealing the key.
Blind signing also enables a user to prove possession of a private key without revealing the key, which is helpful for privacy protection in decentralized systems. It can also be used for off-chain transactions, where the user does not want to share their transaction data with the signer.
However, keep in mind that blind signing is a complex technique and requires a high level of trust and security in the signer and the process to ensure the integrity of the signature.
Protecting yourself from blind signing
Protecting oneself from blind signing involves being aware of the potential risks and taking steps to mitigate them. To do so, firstly, it is important to verify the identity of the signer and ensure that they are trustworthy. You should also verify the authenticity of the signature and the message to ensure that it has not been tampered with.
Another way to protect yourself from blind signing is to use a zero-knowledge proof system, which allows one to prove possession of a private key without revealing the key. This can be done by using a zero-knowledge proof protocol such as zk-SNARKs.
Additionally, it is essential to keep the private key and seed phrase secure and away from prying eyes. It’s also important to use a hardware wallet or another form of secure storage for your private keys and seed phrases.
Finally, it’s important to be vigilant and monitor your transactions regularly to detect any suspicious activity. If you suspect that your private key or seed phrase has been compromised, you should immediately transfer your assets to a new wallet and update your private key and seed phrase.
By being aware of the risks and taking appropriate measures, you can protect yourself from blind-signing and other potential threats to your digital assets.
What is a Crypto Rug Pull?
Crypto Rug Pull Scams are a type of fraud that occurs in the NFT market. It occurs when the creator of a seemingly popular NFT project suddenly withdraws their support and “pulls the rug” out from under investors, leaving them with worthless NFTs.
The scam is usually pulled off by the creator or a group of developers behind an NFT project, who will create a sense of hype and excitement around their project by promising high returns or limited-edition collectables. Once the project has gained traction and the NFTs have been sold to investors, the creator will withdraw the project, and the NFTs become worthless.
Rug pull scams can be hard to detect, as the creators often use pseudonyms and fake identities to hide their tracks. It’s important to do your own research and due diligence when investing in NFTs, and be wary of projects that promise high returns or limited edition NFTs.
How to stay safe?
In order to stay safe from a rug pull, you should;
- Be sceptical of projects that promise high returns or limited-edition NFTs
- Research the development team behind the project, and verify their identities as
- Look for red flags such as a lack of transparency or a sudden increase in token supply
- Be cautious of projects with a small community or low trading volume.
It’s also imperative to keep in mind that the NFT market is still relatively new and not regulated, so investing in NFTs always carries a high level of risk.
What is a slow rug?
A slow rug, also known as a “slow burn” rug, is a variation of the rug pull scam, in which the creator of an NFT project withdraws support for the project over a more extended period of time instead of all at once.
In this type of scam, the creator will continue to sell NFTs and provide support for the project, but over time, they will slowly withdraw their support, causing the value of the NFTs to decrease. This gradual decrease in value may be harder to detect than a rug pull, as the investors may not realize that the project is no longer viable until it’s too late.
Like rug pulls, slow rugs can be difficult to detect, and it’s important to do your own research and due diligence when investing in NFTs.
How to stay safe from NFT Scams?
Some steps to protect yourself from slow rug include;
- Be sceptical of projects that promise high returns or limited-edition NFTs
- Research the development team behind the project, and verify their identities
- Look for red flags, such as a lack of transparency or a sudden decrease in activity
- Be cautious of projects with a small community or low trading volume.
Again, it’s important to keep in mind that the NFT market is still relatively new and not regulated, so investing in NFTs always carries a high level of risk, and it’s crucial to be vigilant about potential risks and steps that can be taken to avoid them.
Spotting a rug pull
Spotting a rug pull in the NFT market can be difficult, as the creators of these scams often use pseudonyms and fake identities to hide their tracks. However, there are some red flags and warning signs that can help you identify a potential rug-pull scam.
Firstly, be sceptical of projects that promise high returns or limited-edition NFTs. These types of promises are often used to create hype and excitement around a project and may indicate that the creator is more interested in making a quick profit than building a sustainable project.
Secondly, research the development team behind the project and verify their identities. Look for information about the team members, such as their LinkedIn profiles or past projects, and verify that the information is accurate and legitimate. Be cautious of projects with anonymous or pseudonymous developers, as this may indicate that the creators are trying to hide their identities.
Thirdly, look for red flags such as a lack of transparency or a sudden increase in token supply. Projects that are not transparent about their plans or finances or that have a sudden increase in token supply may be trying to inflate the value of the NFTs before pulling the rug.
Fourthly, be cautious of projects with a small community or low trading volume. Projects with a small community or low trading volume may indicate that the project is not viable and that the creator is simply trying to make a quick profit.
Finally, be vigilant and monitor your transactions regularly to detect any suspicious activity. If you suspect that a project is a rug pull, it’s important to withdraw your investment as soon as possible and notify other investors of the potential scam.
It’s important to remember that the NFT market is still relatively new and not regulated, so investing in NFTs always carries a high level of risk, and it’s crucial to be aware of the potential risks and follow steps to mitigate them.
- OpenSea: As a marketplace for NFTs, OpenSea provides a wealth of information on NFT projects, including the development team and past transactions, which can help users identify potential scams.
- NFT.fyi: It is a website that provides information on various NFT projects, including their development team, trading history, and community engagement. It also allows users to track NFT transactions and identify potential scams.
- NFT detective: It is a web-based tool that allows users to track NFT transactions, detect suspicious activity, and report potential scams.
- Tokenview: It is a blockchain explorer that allows users to view detailed information on NFT projects, including the development team, trading history, and community engagement.
- NFT Investor: It is a platform that provides a wide range of information on crypto projects and allows users to track NFT transactions and identify potential scams.
It’s worth noting that these tools can help you identify potential scams, but it’s important to do your own research and due diligence when investing in NFTs. It’s also important to be aware that no tool can guarantee you spot all the scams, and it’s important to always stay vigilant.
While there are a lot of NFT tools that you can use to stay safe, in our opinion, you need to choose one that best fits your needs. Of course, online platforms are a tricky place to be, but these guidelines are your blueprint for accurate navigation. In this regard, it is also crucial to remember that eminent platforms, like Bored Ape Yacht Club, may also become the target of phishing scams. Identifying a fake NFT before making an investment from your liquidity pool is an important asset. As of 2023, these are the best tools for your usage. Safe Crypto-ing!