NFTs: Fraudsters Are Preying But The Industry Is Fighting Back

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Despite 2021 being a landmark for crypto in so many respects, NFTs have certainly stolen the show. After a staggering first quarter, sales slumped somewhat over the spring only to go on to post over 700% growth in the third quarter, with trading volumes exceeding $10 billion.

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What’s driving the growth? While cryptocurrencies have become hugely popular over recent years, their appeal is nevertheless limited to the groups whose interests span finance and technology.

To date, DeFi is the dominant value generator on blockchains, and many non-financial apps have struggled to gain adoption. NFTs, on the other hand, have become the shapeshifters of the blockchain world, able to represent any kind of digital asset.

A Global Craze

NFTs have exploded in such a way that they have changed the art and the digital art market, as well as how assets are traded and conceived within the world of blockchain. They have been able to introduce the features of scarcity and ownership that have previously been missing from digital files.

So, it’s hardly surprising that the artistic community was the first to embrace NFTs, and the trend quickly made it to the upper echelons of the art space —with Christie’s among the first major auction houses to begin endorsing the concept of NFT art.

However, it didn’t take long for NFTs to become a marketing tool of choice across the board. From fantasy football with the major European soccer clubs like PSG and Juventus, to limited music releases from the Kings of Leon and Mike Shinoda, NFTs found vast new audiences of fans beyond the world of crypto.

But it didn’t stop there either. Now, kids across the globe can find their favourite LOL Surprise dolls in digital trading card format, based on NFTs. Budweiser launched an NFT drop of limited-edition digital beer cans that sold out within an hour.

Marriott Hotels recently launched its own NFT collection exhibited at the prestigious Art Basel event in Miami Beach. NFTs have become THE must-have new branding tool in every marketer’s handbook. Now, the metaverse is the next big use case for NFTs, which will form the backbone of an entire universe of digital assets. So, far from being a speculative bubble, NFTs are here to stay.

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Amid Euphoria, Bad Actors Move In

While NFT mania is great news for the cryptocurrency sector, the rapid pace of growth and general sense of euphoria has created space for bad actors to move in. Now, stories of rip-offs and impersonation scams are becoming rife.

Listing how fraudsters are attempting to manipulate the NFT rush to their advantage would be a gargantuan task. But there are a few motifs that depict a modus operandi.

In a long Twitter thread, an NFT developer described the several ways in which scammers prey on social media. For example—while fake “official accounts” are rife on Twitter— they impersonate moderators of official channels on Discord to try and rip off members and steal users’ crypto or NFTs.

Further, impersonating famous people or brands to try and cash in on their names to sell fake NFTs is becoming another issue. One of the loudest ones was a fake Banksy sale where a buyer bought over $300,000 worth of art.

In that case, the money was recovered, but in other cases, that’s unlikely to happen. Also, through art theft, scammers will use copies of a legitimate artist's work to mint NFTs and sell them without their knowledge.

Innovators Step Up

Such problems are common in a nascent industry, and the crypto sector is well-used to fraudsters attempting to cash in on bull markets. However, with global brands and celebrities piling into the NFT space, there’s big money and big reputations on the line.

As such, the sector needs to provide solutions against NFT fraud to support this ongoing path to adoption —and as always, crypto innovators are stepping up.

One innovator is Starly, a gamified NFT launchpad and marketplace on the Flow blockchain that allows creators to launch their own gamified NFT collections. Each collection is organized randomly into sealed packs with three different classes of rarity.

Collectors can then trade cards on the marketplace and earn rewards from creators when they achieve certain milestones along the way. The platform is designed to enhance engagement between influencers, creators, and their followers but without compromising on trust.

When a creator registers on Starly, they must connect one of their social accounts —Instagram, Twitter, or YouTube— to verify their followings. Only then can they proceed to create an NFT collection, which generates a storefront for them on the Starly marketplace. Each card also has its own serial number allocated by the protocol, serving as a unique identifier.

Further Developments

Using a trusted platform is one thing, but companies like PhotoChromic provide additional layers of authentication and security for users on both sides of the NFT transaction.

PhotoChromic is a blockchain-based identity solution that uses NFTs themselves as the individual’s identifier. It aggregates biometric proof of life, together with government-backed ID verification and unique personal attributes onto an NFT that attests to their identity.

Twitter has already leaked some demo footage of a new feature allowing users to upload NFTs to their profile in the same way they upload pictures and videos today. So, it could only be a matter of weeks or months before we see celebrities and influencers using PhotoChromic NFTs as proof of their authenticity, similar to the “blue tick.”

Ultimately, a buyer of NFTs on Starly would have a traceable link between the influencers' verified real-world identity, their PhotoChromic ID NFT displayed on their social profile, and their Starly account issuing their brand NFTs.

With the potential of the virtual metaverse now looming over future developments, the NFT space mustn’t get taken over by fraudsters and thieves. Creating an environment where authenticity and integrity are baked in at the platform and protocol level is the best way to crowd out bad actors with good ones.