How to detect NFT fraud?

Since the most valuable NFTs such as Bored Apes artwork and punky-looking characters are sold in ETH, the prices of NFTs and ETH usually tend to move in sync. That hasn’t been the case in the last couple of months. The prices of ETH and NFTs running on the Ethereum network have diverged sharply. Interest in NFTs has continued to wane and trading volumes have fallen sharply in recent months, according to tracker DappRadar. The world’s largest NFT marketplace, OpenSea, is seeing its lowest monthly sales in a year, according to Dune Analytics.

While free-falling crypto prices may account for some of the drop in NFT transaction volume, the decline is too steep to be explained by this alone, according to Chainalysis.

Scams galore

The real question to ask is: was the initial hype real appreciation in the market, or was it whipped up to cover up a lot of shady stuff going on behind the scenes?

Part of the reason the NFT market is now viewed with suspicion is the fact that unlike crypto, KYCs are not mandated to trade NFTs. NFT trading occurs between wallets and unidentified individuals, making NFT money laundering a very real possibility.

Crypto investor and uber-bearish crypto commentator Mr. Whale has drawn attention to this darker side of the burgeoning NFT space. He argues that because art is so subjective and in the eye of the beholder, NFTs often do not face scrutiny from lawmakers and regulators. This aspect of art is the main reason why it has been used as a vehicle for illicit financial flows for centuries, he added. “If you have $1 million in illegal money, you would spend $1 million on your own NFT. You can do this yourself or use a trusted third party account. Then you sell the junk for nothing and bank the profits.”

Some of the Bored Ape hype may just be a bunch of shady crypto bros trading NFTs with themselves at crazy prices so they can convert their “black” to “white”.

Wash trading, which means executing a transaction where the seller is on both sides of the trade to paint a misleading picture of an asset’s value and liquidity, is another problem area for NFTs. In the case of NFT wash trading, the goal would be to make one’s NFT appear more valuable than it really is by “selling it” to a new wallet controlled by the same owner. In theory, this would be relatively easy with NFTs, as many NFT trading platforms allow users to trade by simply connecting their wallet to the platform, without the need to identify themselves.

How to detect NFT errors

How can you as an investor detect malpractice? Here are some tips.

Price: If the NFT you want to buy is priced significantly higher than the collection’s floor price, it’s possible that the NFT has been traded, especially if that NFT has few or no rarities that could explain a higher price point.

Payment History: Tools like Etherscan and BscScan can be used to check the transaction history of an NFT. Some marketplaces, such as OpenSea, also display this information on their listing pages. A sudden jump in the price of an NFT without any prior activity can be a sign of wash trading.

Previous owners: Look for wallet addresses that appear multiple times in your transaction history. If the same wallet has bought an NFT multiple times, it could be a sign of wash trading. You can also look at individual wallet addresses to see if they have interacted with other wallet addresses listed in an NFT’s transaction history – another potential sign that the wallets may be closely linked.

The saddest part with all the hype and the scam is that real use cases of NFTs are overlooked and ignored because of the hype. NFTs are not an easy way to make money.

Beyond buying and selling art, NFTs can be used to prove the authenticity of prices and rare goods, add value to microtransactions, and register domain names or property in both the virtual and real worlds. Many innovative projects seek to emphasize the utility of NFTs.

Whatever the future holds for the NFT market, many agree that it has reached a tipping point where anything is possible. As Irene Veng, founder and CEO of Oxford-based Certi.NFT, said, perhaps the NFT market crash is a reminder that the main purpose of NFTs is not to make money.

Disclaimer:

This article was written by Giottus Crypto Exchange as part of a paid partnership with The News minute. Crypto-assets or cryptocurrency investments are subject to market risks such as volatility and has no guaranteed return. Do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.