Google searches for “NFT scam” peaked in January 2021 as people feared for their online safety on the new and ever-developing platform. Despite NFTs being around since 2014, this past year has seen the market boom. In fact, 2021 marked the year that NFTs broke into the mainstream, and they are quickly evolving. The NFT boom has, however, created new exploitation opportunities for scammers.
This article will provide information on what to look out for and knowledge of the issues within the industry, which will help you avoid coming into trouble and raise awareness of the nature of the marketplace from Fracas Digital NFT Agency.
High rewards with little risks and regulations are what have enticed scammers to target the decentralized ecosystem. Crypto scams have been getting increasingly more sophisticated and convincing, causing a real need for caution when dealing with NFTs.
Scams come in many shapes and forms but follow the format of most readily known online issues, such as catfishing and fake personas, suspicious pop-ups, suspicious looking URLs, deals which seem “too good to be true”, and phishing scams.
The online platform Discord sees the appearance of the most online scam opportunities as hackers gain administrator-level access to the servers, and publish fake links and deals to entice unsuspecting users.
- Gas fees
What are the gas fees?
Gas fees are essentially a payment users have to make to go towards the computational energy required to process transactions on the Ethereum Blockchain, and are measured in units of Gwei. Gas fees are comparable to credit card fees that may charge you for transferring money.
Ethereum has a gas problem as a result of limited bandwidth, which often catches users who are new to the market off guard, as the fees can be high and volatile leaving new buyers confused and out of pocket.
- Environmental Concerns
Gas fees and other processes in the industry can also cause environmental concerns. Many of the computers, that enable technologies like this to operate at their highest level, require large amounts of electricity. There is growing concern within the industry that with further adoption of such technologies, these problems could be exacerbated.
“Pump-and-dump” schemes are an increasingly common form of speculation in the crypto and NFT worlds. “Pump-and-dump” is when a group of people buy multiple NFTs or currency with the intention to artificially drive up demand. Once they are successful (i.e. demand and prices heightened), they will cash out and leave those who weren’t in on it behind with worthless assets. Tactics like this have been seen throughout the history of the stock market, but, with the limited regulations on the NFT market and its volatile nature, they are commonplace.
The issue is a result of attempts to bridge digital and physical in terms of how assets are both tracked and valued. Although this has always been a problem with the art market, how does one value the price of art? The NFT market has less previous data to rely upon to make stable valuations as the process is so new.
- What to invest in?
Although the NFT marketplace for digital collectibles is booming, it doesn’t mean they are a safe investment.
Anyone on the internet can create an NFT out of literally anything, which means there are a lot of bad tokens available for purchase (that might not necessarily be priced accordingly). It takes a trained eye and vast knowledge on key players in the industry to see what’s worth investing in.
- Lack of Know Your Client (KYC) procedures
KYC or know your client procedures are an element of the NFT market which remains rarely exercised and is still lacking regulation. Although all information about an NFT is visible on a digital record on the blockchain, this does not in itself weed out catfish and fake personas allowing individuals to pose as owners or creators of pieces and fraudulently cash in on someone’s creation or property.
KYC measures are additionally seen as an unattractive measure to implement on the NFT marketplace as it requires longer processes, taking time and data submission, thus slowing down a process which is unique for its instantaneous qualities. Companies and organizations do not want to risk losing clients. KYC measures may be slow to arrive in the NFT marketplace.
- Money laundering
Finally, the NFT market has created an opportunity for easy online money laundering.
Given the lack of KYC procedures, money laundering can be exercised through purchasing an NFT for a large amount of money, and then selling the NFT to a third-party account (that they own indirectly) for a lesser amount to write off a considerable amount of money and effectively reduce their tax liabilities. This is one of a number of ways in which money laundering can be carried out that is difficult to be found and prevented.
Although the NFT market has seen rapid growth within the last year with many new supporters and adopters using the platform, there is still some way to go before this particular market is considered as “safe” as more traditional markets. While skeptics may see these issues as “deal breakers” for the NFT market, current users just see these issues as growing pains that will be ironed out with further adoption.
For tailored advice on how to begin your journey into the metaverse, visit Fracas Digital.