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With the steady adoption of decentralised finance (DeFi) stemming from Bitcoin, other digital assets became popular. The rise of non-fungible tokens (NFTs) was in 2021 when the cryptocurrency industry was in a bullish market.
With an increase in popularity of an industry, especially when financial incentive is involved, comes the increase of scams and schemes with malicious entities looking to prey on vulnerable investors, collectors, and traders. Over the course of 2021, hackers plundered £11.5 billion worth of cryptocurrency through scams. While regulators and authorities across the world are looking to mitigate the risks in the decentralized industry, there are still ways for scammers to gain access to investors’ assets.
Knowing the scams is the first way to avoid them.
Pump and dump schemes
NFT scammers will hype a project or digital asset and buy assets in the project to make it seem as though the project is in major demand. This raises the floor price (the lowest price for an item in a collection) and makes the project appealing to collectors. Once they have sold items in the collection at a high value, they’ll sell their items - sinking the value of the collection - and walk away with a profit.
It’s called a “pump and dump” scam because the scammer will “pump” money into the project to elevate the price and then “dump” their assets to make a profit but leave investors will a significantly reduced asset.
Intellectual property theft
Some scammers will take the original work of an artist and turn it into an NFT and sell the collections on a marketplace. Buyers, seeing the original art, will be led to believe that they are investing in original art and be willing to put down funds to invest in the digital, blockchain-based version of the artwork.
The problem is once the artwork is on the blockchain, it is there forever. To add salt to the collector’s wound, once cryptocurrency has been paid, the transaction cannot be reversed. This is why online trading tools like Bitcoin Smarter have very strict verification and KYC policies in place to avoid scammers from creating fake accounts.
Social engineering on online platforms
If you use Telegram or Discord, you are one of many NFT collectors who use the platforms to connect with others in the space. Not only do the platforms offer a way for like-minded investors to interact, but they also often give first hints to a token drop or the latest asset landing in a collection.
However, the online platforms also offer a way for scammers to pose as technical support. Through this, they use social engineering tactics to gain a user’s trust. This trust in decentralized finance can end in trouble when the scammer gets access to cryptocurrency users’ accounts which contains their NFTs and cryptocurrency.
Phishing links don’t always look suspicious. Scammers can use sophisticated methods to make a fake link look normal and harmless, leading a person to click to a page where they either steal your NFTs and cryptocurrency or are able to install malware on your device.
These links also are designed to take you to a page that looks identical to the authentic website which would give no cause for suspicion.
To avoid this, take every care to look at a website’s link and make sure that it is legitimate when you are asked to enter any personal information.
Take care to get to know what are legitimate collections and talk to people in the space before buying an NFT. The more you know about the space, the better your chances are to avoid the risks and enjoy the process of collecting, investing, and trading digital assets.
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.