The NFT (Non-Fungible Tokens) market is so new, many people who are getting in may not be aware they are being taken advantage of. This is unfortunate because it gives NFTs a bad name.

It is important to understand that not every NFT project is legitimate. In order to identify what is legit and what is an outright scam may be hard at first. Here are some things to look out for in order to prevent losing any money.

The Basics

Look at the team, utility and technology that is behind the product or NFT. Just like in other cryptocurrency projects, doing research is important. The  thing to remember here is that just because a project is popular does not always mean it is good. Even if the people behind it are all legit, things can always take a bad turn.

Perhaps it is safe to assume not to trust every project. Portraying a professional looking team with a track record can also be part of the scam. Instead, take a look at where the money from the project (e.g. sales of NFT ) is going and who is funding the project. If there is no initial funding, and the project is asking for money, you have to consider what is in it for you. Ask the question,:

"Why should I give you my money?"

It is easy to see where the money is going if you understand blockchain explorers like Etherscan. Look at the wallet address that sold the NFT and see if it is being funneled elsewhere. There might be a reason to move the money to another wallet, but for transparency the blockchain allows tracking where the money flows.

If the project has been funded already, watch out for pump and dump schemes. Some scammers present a brilliant idea for investors, only to take the money and run i.e. rug pull. It would be horrible to be one of those investors because there is no way you can get your money back. Before you give any money to pay for an NFT, make sure that they actually deliver the goods.

The problem with these projects that are crypto-based is that you are taking a risk. This space is highly unregulated, and that is why you need to do your own due diligence.

Beware Of Social Media

Social media like Telegram, Twitter and Discord are becoming the main platforms to spread scams about NFTs. People have to be careful because scammers are taking advantage of popular NFT projects to benefit their illicit activities. This is why anyone who has joined an NFT project's Telegram channel or following a Twitter account for announcements must be extra careful.

Some announcements are made to tell followers to go to certain website links. Most of the time these are clickbait. Sometimes these sites are not safe and could contain malware (computer viruses) that can spy on users or worse steal their data or unleash ransomware. Other malware look for personal data on a user's computer like credit card numbers, account passwords and any important piece of information. Having an antivirus or computer security program helps prevent these threats in case you click a link.

Other channels have bad actors who try to mislead members to join an airdrop for free NFT. Members will likely without thinking twice, click the link and later regret it. The best thing to do is to make sure it is a verified link with the help of an antivirus program, and sometimes the browser (e.g. Chrome, Brave, FireFox) will warn you. When you receive this warning, do not proceed any further to the website and close that window for your safety.

One of the most dangerous scams out there are perpetrated by bots that will ask users to give them private keys to a cryptocurrency wallet or to invest funds in an upcoming NFT project. Never give away or reveal your wallet private key to anyone. That is like giving the keys to your house to a complete stranger. Other times it makes use of public figures and popular influencers to make it appear like they support the project. If you are asked to invest because of endorsements from these figures, be careful. Look for assurances that you will get proper returns or if this is a risk worth taking. At times it is really a rug pull, and people will lose money.

The Best Way

The best way to get into NFTs is via platforms like OpenSea, Rarible and niftygateway. These are commercial sites used by many people to buy, sell and trade NFTs. It is legit because these platforms have not disappeared over night, but that still requires caution on the part of the users. Take note that once a transaction or sale of NFT is completed, it is final. There is no money back guarantee if a person suddenly changes their mind. Platforms are only there to provide a way to exchange value for NFTs.

Go to NFT marketplaces where users exchange value. Many legit NFT projects have their own marketplace where you can buy and sell NFTs. These include:

• Axie Infinity
• The Sandbox
• NBA Top Shot
• Decentraland

This is mentioned as the best way to get an NFT, but it is still not the safest way. These places mentioned do not try to scam you. Despite those assurances, you still have to be aware of certain things. This is because you are dealing with people you don't know. Platforms and marketplaces are there to provide a service, but they don't necessarily provide security and protection for users.

You can also play games to earn NFTs. Crypto gaming platforms use NFTs for gamers to track their digital assets on the blockchain. These are the rewards gamers earned, and NFTs are like a digital portfolio that provides proof of ownership. 

Some NFTs are part of what gives a token utility. These are less likely to be scams, if they are being used for purposes like ticket purchases, land title certificate or membership card. 

Important Thing To Know About NFTs

What if someone sold you an NFT that would later be deleted because it was stored on a Google drive? That in itself is like a scam, even if the original owner of the NFT did not mean it that way.

Make sure that the digital content of the NFT is securely stored for immutability. That means that it cannot be deleted or removed by anyone. There is an interesting article on Medium that shows how to check if the NFT is stored on immutable storage like IPFS.

Otherwise, if you cannot verify that your NFT is immutable then you can likely lose it later on. The risk here is if the NFT is stored on centralized storage sites like OneDrive, Dropbox and Google Drive. The issue here is what if the owner deletes the file or the storage site deletes the account.

You therefore lose your NFT.

IPFS (Inter-Planetary File System) storage is where serious NFT creators save the associated NFT file and can be referenced in the metadata. IPFS storage makes a file permanent on the web. For NFT creators, perhaps it is a matter of not being properly educated on how to properly mint an NFT, or it could be intentional in order to make a quick buck. Some popular NFTs from big projects (e.g. Bored Ape Yacht Club) do assure users that their NFT is immutable and cannot be manipulated or deleted. That is the value proposition there, and a good reason they are highly priced.

Final Thoughts

NFTs can be a great way to own digital collectibles and works of art, personal tickets and even certificates of authenticity. The problem is that users are quickly jumping on the bandwagon with limited knowledge. It is important to understand truly what an NFT is first, and to also have knowledge about cryptocurrency in general. Even people who understand NFTs and crypto lose money, because of careless decision making. Those who get in without knowing what they are in for, will be the ones who lose the most money.

Disclaimer: The content of this article is for reference or informational purposes only. This is not financial advice. Please do your own research always.

( Photo Banner Credit: Elijah O'Donnell and Andrea Piacquadio )