Non-fungible tokens are a type of distributed leger token that has taken the world by storm in recent months. NFTs represent digital assets, like unique collectibles and artwork. They can be used to track ownership and provide provable scarcity for all types of items, from sports cards to home décor.
NFT scams have been on the rise as well, with over $1 billion lost so far this year through fraudulent practices like fake ICOs and phishing attacks. As NFTs become more popular in mainstream markets, these scams will only continue to grow until something is done about them. We’ll explore what NFT scams are exactly, how they work, who’s being targeted most often (hint: it’s not who you’d think), and how to avoid them.
NFTs, or non-fungible tokens, are digital assets that have unique properties. This means they’re not interchangeable and can’t be duplicated like traditional cryptocurrencies. Unlike a cryptocurrency’s coins with their predetermined supply limit (only 21 million bitcoins will ever exist), NFTs’ value is determined by the number of people who want them for whatever it is they do.
An ERC-20 token contract defines what makes each coin different from another–its name, symbol, decimal amount in ETH/BTC, total supply cap etcetera–while also defining how to transfer ownership between parties on the blockchain. These technology standards allow any Ethereum address to store multiple types of coins, each of which is differentiated by a different NFT.
The most popular ERC-20 token standard right now is the non-fungible Ethereum’s native currency called ETH, and this system works as long as everyone agrees on what an “ETH” actually means in terms of value or function. But if you’re designing your own tokens to represent something else–gold coins for example–then it becomes necessary to provide more detail about how they work, so that people know exactly what they can do with them.
NFTs are valuable because there aren’t very many like them out there: In this way they differ from traditional currencies which have unlimited supplies.
This is where the idea of scarcity comes into play, and that’s why NFTs can be considered a type of commodity rather than just money. Scarcity creates value in any market by limiting supply to drive up demand, but with NFTs it also means you don’t know what else might crop up at some point–particularly if your NFT represents something physical such as an artwork or piece of land–so its price can continue to go up even after an initial high-value purchase. This is especially true for assets whose rarity isn’t naturally determined by nature (e.g. gold) but rather by a human-created process (e.g. money printing).
NFT scams are on the rise as more people enter crypto and NFTs become a new frontier for fraudsters to explore–even though they’ve been around since 2017 when CryptoKitties became one of the first NFT games with real economic value, followed soon after by Rare Pepe Wallet cards
In less than two years these non-fungible tokens have already gone mainstream: There’s an entire industry devoted to them now that includes art galleries, auctions, in-game purchases made through smart contracts, even trading card game tournaments where rare items can be worth tens of thousands or even millions of dollars.
So if an NFT is a digital collectible that’s not worth anything until somebody decides to buy it, then what happens when people trade them without realizing they’re worthless? Owning something risky and having its value suddenly drop is one thing, but what about the 100% purely unadulterated con artists who are playing in the NFT space.
A NFT scam, which is a form of fraud that takes place in the crypto world when an unscrupulous individual sells someone something they know is not worth anything. The seller just wants to make a quick buck and will tell you whatever lies it takes for them to get your money. This sounds like a scam as old as time with an NFT they can happen faster, and be larger than anyone could’ve imagined at their outset.
The best-known NFT scam targeted a game called CryptoKitties, which is the most popular NFT. The seller took some of their own “fake” cats and put them up for sale in order to drive down the value of other players’ assets. This was an insider attack that involved someone who knew what they were doing–a well-meaning person would have been outed as soon as they started manipulating prices because every transaction has a publicly viewable price history on Etherscan.io, but this person had no such intention.
This CryptoKitties “scam” is really just a competition for control over the price of NFTs. It can happen in many other games, too–even those with more centralized economies and less open markets–because these kinds of scams are all about manipulating prices through supply and demand. When there’s only one person or company controlling supply, monopolistic practices like this have long been known to create an opportunity for manipulation that harms consumers without any benefit to themselves. The lack of transparency around pricing makes it harder to see what’s happening because their stocks stay high-priced as they sell off inventory, creating shortages that drive up prices further still.
Non-fungible tokens are especially vulnerable to scams because they are governed by less than open markets. The lack of transparency around pricing makes it harder to see what’s happening because their stocks stay high-priced as they sell off inventory, creating shortages that drive up prices further still.
Non-fungible tokens are especially vulnerable to these types of manipulations because they are governed by open markets which means you can easily see the results in real time without going through any middlemen like an auction house. It also opens up some big questions about how we should regulate smart contracts like these so that people don’t find themselves being ripped off.
If you find yourself taken advantage of by an NFT scam, fear not! There are organizations out there working to make NFT markets a secure space, and better yet, companies like Payback Ltd. help get your money back.
Your NFT has been stolen! What now? Don’t worry – there are ways of getting back what’s rightfully yours and putting these scammers behind bars where they belong. Contact email@example.com for more information on our services or visit our website for more information.
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