Industry manager explains why NFT fraud protection falls on brands and not marketplaces

Non-fungible token (NFT) marketplaces should commit to fighting fraudulent NFTs, but brands are far more responsible for protecting NFT investors, according to an industry leader.

Brands issuing NFTs should take the first step to protect themselves and potential investors from fraud, BrandShield CEO Yoav Keren said in an interview with Cointelegraph on October 12.

According to Keren, it is easier for a brand to recognize NFTs that were not released by the company itself, rather than marketplaces like OpenSea or Rarible. NFT marketplaces typically have less insight into which brands make NFTs when they launch and other details, the CEO noted.

While marketplaces should not consider the reality of NFT fraud, it is still a must for brands to publicly and transparently keep their audience updated about all NFT offers, Keren suggested, saying:

“Brands should understand the legal implications of misuse of their image and should take steps to protect their customers across all platforms, websites and marketplaces.”

The CEO further said that counterfeiting and copyright infringement have emerged as the two most common forms of NFT fraud so far.

Counterfeit NFT fraud involves unauthorized copies being sold despite the existence and sale of an original NFT submission by its creator or authorized party. Copyright and trademark infringement refers to fraudsters who hijack a brand’s likeness or image to create and sell NFTs without prior approval.

Both types of NFT fraud occur on some of the largest NFT marketplaces, including OpenSea, Rarible and Nifty Gateway, Keren noted.

“We conducted a scan on OpenSea and found 41,500 suspicious NFT listings using unauthorized likenesses or images associated with prominent celebrities who have promoted NFTs or cryptocurrency,” Keren said. In these cases, fraudsters used copyright or trademark infringement to defraud consumers, he added.

One of the ways to eliminate NFT fraud is for platforms to encourage more reporting of fraudulent listings when a suspicious listing is detected by a user of the platform. “Ideally, brands and marketplaces should work together on solutions,” Keren said, adding that attacking a problem from multiple angles is the fastest path to an effective solution.

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Despite encouraging brands and marketplaces to do their best to protect NFT investors, BrandShield’s CEO emphasized that it is still important for consumers to do their own research while investing in NFTs. It is important to not only double-check the website of the NFT marketplace domain, but also go for only verified NFT sellers and avoid suspicious shortened links.

“Work to verify an NFT before you buy, because by the time marketplaces catch these abuses, it’s often too late,” Keren added.

The rise of NFTs and the metaverse has created yet another way for fraudsters to mislead investors into falling for scams and counterfeits. According to data from crypto risk management firm Elliptic, NFT investors fell victim to more than $100 million worth of NFT fraud and theft related to NFTs in a period from July 2021 to July 2022.