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It is now paramount to identify NFT scams and NFT frauds. The NFT space isn’t what it used to be. The small community centred on trading digital assets has changed. Currently, NFT seems to be misinformed as a get-rich-quick scheme which has led to a massive rise in NFT scams and NFT fraud.
As more NFT traders skyrocket into the space, new projects are cropping up and gaining massive followings. Money is flying everywhere, and it’s confusing to know what projects, brands, and influencers to trust. Why? Because even some of the most popular people and organizations have been caught promoting NFT scams or behaving in unethical manners.
For example, @NFT was the joint investment of Mark Cuban and Jason Falovitch. They were suspended from almost all social media platforms for failing to properly label sponsored posts. And this is even worse, they were promoting (and allegedly profiting from) many projects that turned out to be fraudulent.
There’s an extreme lack of responsibility in NFT. So it’s a higher priority than ever for NFT investors to know how to detect NFT red flags and keep themselves safe. This guide covers almost everything you need to be aware of in safeguarding yourself and your investment.
But before we break down exactly how you can detect NFT red flags, it’s fundamental to comprehend how scams are perpetrated in NFTs. And that brings us to rug pulls.
What’s a rug pull in crypto and NFTs?
A rug pull is a scam in which a team promotes their project and then disappears with all the funds after investors have put money into the project. This leaves collectors without any valuable assets.
A good example is the Evolved Apes. A week after the launch of the Evolved Apes NFTs, the unidentified creator of the project known as Evil Ape disappeared and drained the project of 798 ether ($2.7 million).
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How to Identify NFT Scams
Scammers in NFT are presumed to be smart. Stealing in the blockchain ecosystem demands a developed understanding of blockchain technologies and smart contracts. It also takes good marketing skills. They are intelligent people and know how to craft their scams. It can be difficult or even impossible to trace them, but here are top tips that can help you identify NFT scams:
1. Who is the Project Team?
It is important to identify who is behind the NFT project? Is it someone or a group of people well-known in the NFT space? How long have they been active in the NFT community? How long ago were the founders’ accounts created? These are things that can tell you a lot about an NFT project.
Furthermore, if information about the group isn’t verifiable in any capacity, that is your first warning. Indeed, the NFT space encourages anonymity, however even the most mysterious of NFT engineers have local area documentation, for the absence of a superior expression. A task with unknown engineers isn’t really a trick, however, you ought to have the option to find a tad of data about the undertaking leads.
An excellent place to start your research is Twitter and Discord. The team should have an account that is more than a few months old. Ideally, the founders follow and have followers in the NFT space, tweet regularly, engage with others in conversations about NFTs, and so on. The project team must engage with the community.
When an established artist announces a new project, it’s quite easy to confirm whether or not it’s legitimate. But if a PFP project starts gaining a following, and you can’t even tell if the “Lead Artist” or “Marketing Director” is a real human being, then that’s a red flag.
2. Their Social Media Following
It is easy to buy followers and engagement to boost a Social Media account. This is applicable to Twitter, Instagram, Discord and other social media platforms. It is important to detect if their social media following is genuine or not. Take for instance their Twitter account was created one month ago and all of a sudden, it has over 50,000 followers. That can be suspicious! A good way to find out if their social media following is genuine is using tools like Twitter Audit.
Also, scrutinize the endorsement. If an NFT project partners with a celebrity or influencer that isn’t engaging or interested in the NFT space already, that is a red flag. A good example is when Jake Paul was found promoting NFT scams.
3. Is the NFT mint price reasonable?
The mint price of an NFT is another factor to determine if an NFT project is a scam. So, it is safe to say that some minting prices can be acceptable. A good example is Bored Ape Yacht Club (BAYC), which had a mint price of over 1 ETH, which is very overpriced. But initially, it had a minting price of 0.08 ETH. In this case, NFT projects that have higher mint prices were initially at a low mint price, but due to the increase and relativity in value, their minting price increases. Another good example is Doodles.
A reasonable minting price is usually below 1 ETH. If a new NFT project comes up with a minting price above 1 ETH, that is a red flag.
4. Community Management
Most innovative NFT projects are community-focused in the NFT space, a very good example is Bored Ape Yacht Club. The founders of BAYC imagined their apes existing in an exclusive bar, accessible only to members of a club. In keeping with this idea, the founders put time and energy into fostering a real sense of community for their collectors. This tactic was remarkably successful and popularized the idea of community-based NFT projects.
An NFT project that does not have a focused plan on how to positively impact the NFT space is a red flag. If they can’t vividly answer the questions of interested traders, if they can’t vividly explain their goals in the NFT space, if they can’t vividly tell why they were inspired to create their NFT project? then that is a red flag. They are not there to contribute to the community but rip off money from interested investors.
5. The NFT Project Roadmap
It is important to note that the NFT project’s roadmaps are not legal contracts or agreements. And if any terms or conditions or promises in these roadmaps fail to be established, it is not a breach of contract. You cannot legally sue the NFT project team for not fulfilling their promises.
And this is a major reason why it is crucial to fully understand the concepts included in NFT project roadmaps. Roadmaps, in many cases, are lists of things that the project developers hope to achieve once the primary sales have ended.
When reviewing roadmaps, identify the promises of the NFT projects and investigate if these promises can be fulfilled and how feasible they are. If the roadmap seems to promise too much and does not majorly have a unique goal and purpose, it is a red flag. It is just a way to buy people’s attention into investing money in the NFT scam.
Final Thoughts: How To Identify NFT Scams
The best way to identify NFT scams and NFT fraud is to do your own research(DYOR). Doing your own homework gives you a personal touch of what an NFT project is all about. Ask questions on their discord community, on Twitter and on other platforms where they are visible. Communicate with other NFT traders to hear what they have to say about an NFT project. Engage with the NFT community and see what the community has to say about a particular project. It is wise to get yourself equipped with the basic knowledge of NFTs before buying into any project.
The truth is digital assets are not yet widely regulated but we all can put our hands together to safeguard the community.
