Most of the fraudsters manage to rake in a moolah because their victims are either clueless or less informed. On the other hand, when you are armed with adequate knowledge, your chances of falling prey to a scam fall sharply.
To ensure you don’t become a victim to one of these NFT frauds, you should exercise due caution, advise experts.
Buyers must be aware of the fact that an NFT is a piece of art, and its key feature is originality. From unique to collectible NFTs, each project has an original element.
This is not limited to the design of the artwork, it can also extend to the utility of the art as well. The project should list additional attributes or properties for its NFTs and how it ties into its value.
Buy it from credible sources
It is imperative for buyers to buy NFTs only from reputable marketplaces. “Buyers should ensure that they use reputable NFT marketplaces such as OpenSea, LooksRare, SuperRare, Rarible, Nifty Gateway, X2Y2, etc. These platforms provide social audit attributes like linking to the project’s website, Twitter, or Discord,” said Darshan Bathija, CEO & CO-Founder of Vauld.
A thorough understanding
NFT entail digital art, music, video, GIF, avatars, and video game assets. Currently, the majority of NFTs are works of art; consequently, one should have a thorough understanding of the artwork’s purpose and its utility before you go on purchase it.
“Similar to purchasing any painting, individuals must determine whether they are purchasing artwork from persons, artwork itself, or an idea,” said Gaurav Mehta, founder of Catax, an online crypto taxes platform.
Mr Mehta also adds that the first buyers should exercise due caution because there may not be secondary market available or any direct use for the asset for the buyer.
Twitter’s founder Jack Dorsey’s tweet which was originally bought by Malaysia-based Sina Estavi for $2.9 million was offered just over $6,200, about 0.2% of the price he paid.
“It is simple and inexpensive to establish a new category of non-fungible tokens and generate buzz about them on social media and other platforms to create the illusion of excitement and demand. Once NFT have been sold, there may be no secondary market or use for them. Before making a purchase, it is necessary to conduct due diligence on the creators, theme, or market potential, with a high return possibility in mind,” said Gaurav Mehta, founder of Catax, an online crypto taxes platform.
Follow a checklist
Some experts assert that the buyers should follow a checklist before foraying into the NFT universe. There are several aspects that need to be checked which include the founding team, roadmap, authenticity of the founders.
Darshan Bathija, CEO & CO-Founder of Vauld says it is important to have a checklist when analyzing an NFT project.
“The checklist looks at the attributes of the project, the founding team, the roadmap, and the utility of the NFT. NFTs are not just pieces of art, but pieces of utility. The project and the art minted for it i.e., the token should have utility beyond just owning the NFT,” said Bathijia.
He also said that the buyers should look at the authenticity of founders.
“In the NFT space, most founding teams are anonymous. At first, this should be a cautionary sign. Conversely, if the founding team either is open about the identity or themselves doxxed it, it’s a positive sign. Teams that either conceal their identities or use a pseudonym like Punk1234 should be avoided,” said Mr Bathija.
He also advises that the NFT project’s roadmap should be a mix of utility and realistic optimism. “Projects that level extraordinary claims like space travel should be avoided,” he said.
Other considerations
Experts also assert that buyers should see the number of transactions, community size, whether publisher is authentic, floor price, aspirational value, among other factors.
“Customers should see the volume or the number of transactions that that NFT smart contract has witnessed. They should also see the community size which is very important because NFTs primarily get value from their community today. They should also see if the NFTs are issued by the authentic publisher via their verified website or smart contract. Evaluate the floor price and the price action on the marketplaces,” Sidharth Sogani, founder and CEO of CREBACO.
He also adds that the buyers should check the element of exclusivity of NFT. “Buyers should see how many copies of that NFTs are being issued if they are many then it may not have enough value growth. Also, make sure that the NFT has a decent community which is contributing to the liquidity of the protocol,” added Sogani.
So, buyers should make sure that they don’t invest in NFT without taking necessary precautions. Sometimes, making a mistake is easy, but not as easy to undo it.