Non-Fungible Tokens (NFTs) are changing the way we think about ownership in the digital world. NFTs allow for the creation of unique digital assets that can be bought, sold, and traded just like physical assets. From rare pieces of digital art to collectible in-game items, NFTs have created a new market worth billions of dollars.
However, with any new market comes the risk of scams and fraud. The NFT market is no exception. We'll take a look at some of the most common NFT scams and what you can do to protect yourself.
Take Your Time
The first thing to keep in mind when investing in NFTs is to not rush into things. Just because everyone is talking about NFTs and the market is growing quickly doesn't mean you have to jump in right away. Make sure to take time to do your research and only invest in NFT projects that you fully understand and believe in.
When looking for NFT projects to invest in, it's important to find ones with a clear purpose, a talented team, and a solid plan for the future. Make sure to read the white paper, check out the team's background, and look at the project's community and potential for growth.
No Blockchain Involvement
One common NFT scam is when a project claims to be using blockchain technology when in reality they're just trying to take your money. These projects often promise something big in the future that never materializes. To avoid these scams, only invest in NFT projects that are truly using blockchain and have a clear plan for how they will use it.
A good way to tell if a project is truly built on blockchain is to look for transparency and decentralization. Does the project have a public ledger that can be audited? Are there multiple parties involved in the verification of transactions? These are important questions to consider when evaluating the use of blockchain in an NFT project.
Huge Quick Profits Promises
Another type of NFT scam is when a project promises huge profits in a short amount of time. These projects are often pyramid schemes that rely on new investors paying out profits to earlier investors. Eventually, the scheme collapses and the last people to invest lose their money. To avoid these scams, only invest in NFT projects with a solid business plan that aren't promising unrealistic returns.
If a project promises you huge profits quickly, it's important to take a step back and evaluate the situation. How is the project generating these profits? What's the business model? Are there any red flags or warning signs? Make sure to do your due diligence and only invest in NFT projects that you believe in and that have a solid plan for growth.
Huge Hidden Royalties
There are projects that have huge royalties built into the NFTs themselves. These projects often claim that when the NFT is sold, a portion of the sale will automatically be sent to the creator. While this might sound like a great deal for the creator, it can actually harm the buyer in the long run.
Since the buyer will be paying a premium for the NFT because of the royalty, the price of the NFT may be significantly higher than it would be without it. This can make the NFT less attractive to potential buyers in the future and lead to a drop in value. To avoid these scams, only invest in NFTs that have a reasonable royalty structure, if any, and make sure to understand the implications of the royalty before making a purchase.
No Development Program
Another type of NFT scam to be aware of is projects with no development program. These scams often involve trading NFTs, particularly on the Polygon network, with the promise of quick profits. However, the commissions are low and the demand is only speculative, meaning there is no future.
It's important to only invest in NFT projects with a clear development program and a plan for growth. Look for projects that have a talented team, a clear use case, and a strong community.
Finally, NFT spam is a growing problem in the market. These scams often involve emails or messages calling for participation in a “gem” NFT project. The messages may promise huge profits or claim to be from a well-known person or organization. However, these messages are often just a way for scammers to trick you into sending them money or personal information.
Never respond to messages from unknown sources and never provide personal information or send money to someone you don't know. Be especially wary of messages that promise huge profits or ask for personal data, as these are often signs of a scam.
Unfortunately, quick growth in the NFT market attracts those looking for a quick buck, like in the case of this rug pull. We’re in a crypto winter now and the number of NFT scams is significantly lower, but once the hype returns, bad actors will too.
It's always important to be aware of the scams out there and always DYOR. By being vigilant and informed, you can protect yourself and make smart investments in the NFT market.