- In Ponzi schemes, older investors are paid with the investments of newer ones
- NFT pump and dumps are where an entity artificially inflates the value of an NFT
- Scammers manipulate bids to inflate NFT prices artificially using fake accounts
The world of NFTs still offers a wide variety of opportunities for fans and creators, but remains rife with different types of scams. Here are the five most common and damaging ones and how to avoid them.
1. Ponzi Schemes
NFT Ponzi schemes have become an alarming trend. Older investors are paid with the investments of newer ones instead of with profit or other legitimate sources. When the number of new investors diminishes, the structure collapses, resulting in huge losses for older ones.
These schemes are often disguised as novel NFT projects or exclusive investment opportunities. Beware of projects that pledge impressive returns without risk. Check whether the people behind the project are legitimate and the basics of the project itself.
2. Pump and Dump
NFT pump and dumps are where an entity or a group of entities artificially inflates the value of an NFT or a collection of such via misinformation or hype. Typically, scammers use social networks to publicize exaggerated claims regarding the project’s potential value. They hike the price and dump the NFTs when they reach a peak. The price plummets thereafter, leaving new investors in the lurch.
Intense, sudden hype surrounding a new NFT project is cause for concern. Always do independent research to assess its value.
3. Bidding Scams
Scammers manipulate bids to inflate NFT prices artificially using fake accounts. They create seemingly high demand and value. The candidate-buyer places a higher bid, deceived into thinking the NFT has a higher than the actual value. They buy the NFT at the inflated price, after which the scammers withdraw, leaving the victim with an overvalued asset.
If the price escalates suspiciously quickly, the auction might not be legitimate. Always use verified platforms with mechanisms in place that check whether the bidders are credible. Research the typical market value of analogical products.
4. Fake Giveaways
Giveaway or airdrop scams are where someone claims to be giving away NFTs or cryptocurrencies for free. To take part, users must share a private key, send a small amount of cryptocurrency, or reveal personal data. After that happens, the scammers disappear without providing any assets.
Don’t fall for events that require you to pay or provide sensitive information to participate. Legitimate giveaways and airdrops do not come with such prerequisites.
5. Fake Websites
Scammers create fake websites that imitate legitimate NFT projects or marketplaces. These websites claim to offer trading services or they sell fake NFTs. They appear professional and legitimate, luring unsuspecting users easily.
To avoid this scam, make sure you’re visiting the official site by double-checking the URL. Look for reviews from trusted sources, secure connections (https), and credible contact information. Be wary of sites appearing in unsolicited emails.
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