NFT (Non-Fungible Tokens) fraud occurs in the digital market. These digital assets can be described as ownership certificates for assets, such as artwork or music. In some cases, they can represent assets in the real world, such as real estate.
Since NFT spaces are popular, they are filled with various criminal deeds that can cause severe financial losses and identify theft.
If you’re dealing with an NFT fraud, read the rest of this article. We feature the common types of NFT fraud, how to spot and prevent fraudulent behavior, and what you can do to legally protect yourself.
What are Common Types of NFT Fraud?
Some of the most common NFT fraud types include the following:
- Pump and Dump schemes. By increasing the NFT value, fraudsters sell it when it reaches a high, stealing investments from the investors.
- Wash Trading. This occurs when people purchase and sell NFTs within their circle to make it seem like there’s a sense of demand for them. It enables them to increase the price when selling it to others.
- NFT Freebies. Fraudsters offer fake NFT giveaways so that they can get people’s data and money.
- Stolen NFTs. When fraudsters create fake versions of popular NFTs, they list them on marketplaces to make them appear legitimate.
- Influencer Fraud. Sometimes influencers are compensated to put their name on a stolen NFT project to lure victims.
What Should You Do if You’re a Victim of NFT Fraud?
If you’ve been a victim of NFT fraud, or if you suspect you have, there are some things you can do to take action and hopefully recover your losses.
Stop All Communication with the Fraudster
This will prevent you from sending them further information or money. It’s best not to contact them to force them to repay your money, as this will make them disappear, making them harder to trace by law enforcement.
Collect as Much Information as You Can
Gather as much information about the fraudster, such as transaction IDs, wallet addresses, and even social media messages they sent you. This can help lawyers to trace them and ensure you build a strong case with lots of evidence.
Report Stolen NFTs to the Platform
If you suspect an NFT is stolen, you can report it. However, you will usually require proof of a wallet drain or police report. When you submit this, the NFT platform will flag the token ID to make other users aware of it. This can help you to prevent any resales from occurring.
Contact a Lawyer to Assist You
When you find yourself in an NFT fraud, you should contact a lawyer on ContractsCounsel, an online legal marketplace connecting clients with vetted lawyers.
Since NFT fraud can be complex, a lawyer will help you comply with all appropriate laws and take appropriate action.
Here are some other ways in which a lawyer will help you.
Clarifying Your Claims
You might not be completely sure that you’re dealing with fraud, so a lawyer will help to clarify the situation. They will identify if your case involves fraud, breach of contract, or other violations.
Communicating with Marketplaces
Although it’s challenging to track and recover funds from a fraudster, when marketplaces are involved in the fraud, this can increase your chances of successful legal action. If you’ve used a credit card to purchase the NFT, you'll be able to involve your bank.
Lawyers can help you get in touch with platforms and other organizations to report the fraud. They can also send legal notices to marketplaces so that they can assist with investigating the case.
Collaborating with Law Enforcement
Lawyers will investigate the case with law enforcement agencies so that they can report and possibly trace the NFTs fraud. Law enforcement have access to tools to trace and recover stolen NFTs.
Civil Litigation
In cases where the fraudster can be tracked, lawyers will help you take them to court. They’ll gather evidence to strengthen your case and represent you in court to try to recover your losses.
How Can You Protect Yourself Against NFT Fraud?
Fraudsters are becoming smarter in how they target and lure victims. Here are some things to be aware of so you don’t fall prey to their fraudulent behavior.
Be Careful on Sites
Some fraudsters will target people on dating or social media sites, mentioning investment opportunities that seem too good to be true. If you meet someone on such platforms and they try to sell an NFT opportunity to you, this is a common method of trying to trap you and you should avoid communicating with them further.
Do Your Own Research
Whenever you’re tempted by an appealing NFT product or project, investigate its creators and whitepapers before you take action. Check that you’re purchasing from a verified account before you hand over your money.
If the NFT project’s team hasn’t identified themselves with names you’ll find in the real world or they’re offering a “limited-time-only” event, these are red flags.
See if you can find any information about the artist or creator on social media. If you suspect the NFT you wish to purchase might be stolen, get in touch with the creator on different platforms to find out if the NFT is actually theirs.
Don’t Share Your Private Key
You should never share the private key to your wallet with any website that has an incorrect URL or which isn’t verified.
Use Hardware Wallets
If you’re purchasing a valuable NFT, you should use a hardware wallet. This is an electronic device that stores your private keys. It’s common in cryptocurrency spaces and can be used to protect your assets from online dangers by being stored offline.
Do you need a lawyer for NFT fraud?
Contact an NFT lawyer on ContractsCounsel. All lawyers are experienced and vetted on the platform. They’ll be able to guide you through the NFT fraud process, from reporting it to representing you in court if you need to take legal action. While recovering your losses is never guaranteed, a lawyer will increase your chances.
