With popular NFTs selling for hundreds of thousands of dollars in minutes, the potential for scams is also high.
With hopeful buyers moving quickly to seal deals, fraudsters can use the frenzy to try to sell fakes, mislead buyers, or, in some cases, outright hack and steal NFTs.
NFT, an acronym for Non-Fungible Token, is a way to claim ownership of online content such as photos or audio recordings.
While some are related to celebrities or historical events, many of the images don’t mean much on their own and have skyrocketed in value due to investor (and therefore scammers’) interest.
That’s what happened last month, when hackers pretended to be from the OpenSea platform to get users’ NFTs just to steal them and resell them for $1.7 million worth of ether.
What is this scam?
On Thursday, the Southern District of New York announced that two men have been charged in a “carpet scam” that defrauded NFT owners of more than $1.1 million.
Ethan Vinh Nguyen, 20, and Andre Marcus Quiddaoen Llacuna, 20, have been arrested and charged with wire fraud and conspiracy to launder money.
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These guys allegedly created snowman-looking NFTs, dubbed “Frosties,” and promised potential buyers everything from huge returns to early entry into the metaverse.
The popular scheme of scammers promising skyrocketing returns just to take the funds and abandon the project, rugs and tugs are especially common among those pushing new cryptocurrency tokens.
These recent arrests are the first federal criminal cases of their kind involving NFTs in the United States.
After securing funding from interested investors, Nguyen and Llacuna allegedly abandoned the project after transferring $1.1 million in proceeds to a cryptocurrency wallet they controlled.
“Mr. Nguyen and Mr. Llacuna promised investors the benefits of the Frosties NFT, but when it sold out, they pulled the rug from under the victim, shutting down the site and moving the funds almost immediately,” U.S. Attorney Damian said. Williams said in a statement.
Beware of such scams
With the NFT market reaching around $25 billion in 2021, many scammers see an opportunity to make the most of people.
While we may be slowly emerging from the craze — Google Trends data shows a 68% drop in searches for “NFT” since the beginning of 2022 — authorities have warned that those trying to lure buyers by promising big returns People can commit fraud.
“NFTs have been around for a few years, but mainstream interest has exploded recently,” Williams said. “Where there is money, crooks will find ways to steal it.”