The blockchain industry has grown rapidly in the past few years. This growth has been led by three critical subsectors in the industry. Decentralized Finance (DeFi) has collected over $220 billion in total value locked (TVL). Non-Fungible Tokens (NFTs) and the metaverse have also been important areas in the industry. In this article, we will focus on NFTs and identify some types of scams that are popular.
What are NFTs and their market size?
To understand what NFTs are, we need to see what the term fungible means. According to the Merriam-Webster dictionary, fungible refers to an item that is capable of mutual interchangeability. As such, the item can be replaced easily with another thing of equal part or quantity.
Therefore, a non-fungible item is the opposite of this, meaning that it cannot be interchanged. The concept has been widely embraced in the blockchain industry, thanks to the important concept of smart contracts.
A good example of an NFT is when Jack Dorsey sold his first tweet for $2 million. While it is possible to take the exact tweet, it is impossible to take the core part of its code. The same is true with other items like art. It is practical to draw an example picture like what Leonardo da Vinci drew. But it is impossible to replicate the same picture. This is what makes many art pieces so expensive.
Therefore, non-fungible tokens are items that exist in a blockchain like Ethereum or Avalanche that cannot be replicated. In the past few years, the volume of NFT sales has skyrocketed. According to Axios, the volume of NFT sales in 2021 exceeded $17 billion, and some estimates have placed the figure at a much higher point. For example, this report by Reuters estimated that NFT sales rose to $25 billion.
NFTs became popular because of a combination of factors. The most important one was that interest rates have been low for a while. As such, people who were looking for places to store their money found NFTs a good option.
Examples of top NFTs
There are various dimensions of NFTs. For example, a person can come up with a unique piece of art and then sell it in the form of NFT as long as there is demand. However, in the past few years, most NFT sales have been in the form of collections that can be traded.
The most popular NFT collection is known as Bored Ape Yacht Club (BAYC), which was started by a company known as Yuga Labs. In 2022, the club launched its own token known as ApeCoin. The company even raised funds at a $4 billion valuation. BAYC is a collection of 10,000 NFTs that are mostly owned by celebrities. At the time of writing, they had a market cap of 1.1 million ETH, which is equivalent to $3.4 billion.
Other examples of NFT collections are Mutant Ape Yacht Club, Clone X, Auki, and Kiwami. With this in mind, let us look at examples of top NFT scams.
NFTs are traded in marketplaces. The most popular NFT marketplaces are OpenSea, Rarible, Binance NFT, Crypto.com NFT, and Coinbase NFT. However, since this is a relatively new field, many people are still trying to find their way around. At the same time, it is easy to create a dummy NFT marketplace and market it using platforms like Facebook, Google, and TikTok.
Therefore, just to be safe, it is recommended that you focus on established marketplaces like OpenSea and Binance NFT. While these platforms are not always scam-free, they at least try to identify and weed out malicious actors. Another way is to always confirm the URL that you are using to buy NFTs. In most cases, scammers will create websites with URLs that have a close resemblance to other reputable companies.
Another type of NFT scam relates to illegitimate offers. This can happen in various forms. For example, some scammers focus on email marketing, where they send messages to thousands of people with discount offers. These people are then redirected to fake marketplaces.
While most people ignore these offers, some do follow them and make the purchases. And since the NFTs are fake, they spend money on worthless items.
There are several ways of staying away from these scams. The most important one is to just ignore all emails with offers on NFTs and even cryptocurrencies.
NFT cryptocurrencies and ICOs
Another type of NFT scam relates to cryptocurrencies, Initial Coin Offerings (ICO), and pre-sales. An Initial Coin Offering is a period where a project developer will come up with a project and then sell coins to the public. People who buy these coins lose their money because these projects are not genuine. Therefore, you can avoid these scams by just staying away from ICOs.
A quick look at CoinGecko shows that there are now over 13,000 cryptocurrencies. While some coins like Avalanche and Solana are valuable, some smaller ones are not. Some of these ungenuine coins are in the NFT industry. Therefore, always do your research before you invest in a cryptocurrency in the NFT industry.
An important fact about NFTs is that minting them is substantially easy. All you need is a cryptocurrency wallet and some skills. Anyone can mint an NFT within a day. Therefore, a common scam is where people create NFTs that resemble the popular ones and sell them as their own. This is a common practice even in the most advanced marketplaces like Rarible and OpenSea.
There are other types of NFT scams, and unfortunately, they will continue increasing in the coming years. Other types of scams in the industry are pump and dump schemes, rug pull schemes, and fake giveaways. You can avoid these scams by just following simple principles. For example, always insist on using good marketplaces when buying NFTs. Also, before you buy an NFT, think about what you are buying. Is it something you will love owning when its price rises?