Non-fungible tokens are one of the most prominent technologies that emerged with the advent of Web3. While becoming a significant source of revenue for artists, NFTs have also lowered the barriers to entry for new and younger artists and offered them access to the global market. NFTs have not only revolutionized the art market, but are now serving major utilities for industries including healthcare, real estate, insurance, entertainment and more. Ergo, it becomes necessary to address the vulnerabilities that come with decentralized technologies as a way forward for development.
In one of our previous blogs, we discussed how the web3 industry is dealing with massive NFT piracy, one of the main problems faced by NFT artists and creators around the world. Fraudsters and scammers make it challenging to identify genuine NFT collections, while fabricating them is as easy as a quick right-click and copy. While this issue is quite tiring for NFT creators, the situation is more or less dire for investors and NFT collectors as well.
Popular NFT collectibles, such as Cryptopunks and Bored app Yacht Club, sell for millions of dollars a day, which means millions of dollars are at stake when an investor decides to buy a well-known collectible. But how exactly would an investor determine that he bought it from an authentic collection and not from plagiarism? In August 2021, a collector paid roughly $336,000 For fake NFTs after it appeared on the website of popular street artist Banksy. Fortunately, after reports of NFTs being counterfeit surfaced, the seller returned most of the money after about eight hours without giving any reasons for their actions. While the collector in question was lucky to get his money back, that may not be the case for everyone.
There are several ways in which investors can determine the authenticity of an NFT. We’ve listed them for you because we believe the more trust and transparency there is in the system, the more growth we can see for Web3.
- Identify the Too Good to Be the True Deal
For example, if you see a Cryptopunk selling for 10 ETH, the deal is likely too good to be true. At the time of writing, the price bottom of Cryptopunks stood at almost 62.95 ETH, which is inconsistent with the price offered by the seller. Doing your own research while investing, especially in the web3 space, becomes more important as the industry does not have enough rules and regulations to penalize fraudsters.
As a potential investor, verify the average prices, minimum prices and demand of the NFT collection and look for any discrepancies before accepting the deal.
- Verify seller identity
Before jumping into a third-party deal, always verify the identity of the seller or artist. While this is a difficult process, as anonymity is highly valued in the web3 space, there are ways you can verify whether a seller is genuine. Many NFT platforms verify the identity of artists and sellers to prove their authenticity. Make sure you buy NFTs from a verified account by looking for the check mark next to the seller’s name. Also, look for the fake blue check mark.
- Verify the official websites/social media channels of the NFT collection
This is by far the most important step to ensure that you do not buy fake NFTs. Search the official website of an NFT collection and make sure NFT links back to it before making a purchase. A reliable website will contain all the information about the archive, including its usefulness and details of the project’s team. Investors can also do a Google search to see if there are similar looking websites and identify the genuine one through a quick domain check.
Social media channels, such as Instagram and Twitter, are often used by NFT projects to promote their collections. However, copying these channels is also easy. By searching Google, investors can find similar looking social media channels and verify which ones are authentic. For example, a popular collection will have more followers, will most likely have a verification tick, and will list the social links of the original artist of the project.
A reverse Google image search can go a long way in identifying copycat NFTs. To perform Google Image Search, you can download NFT and upload it to Google to investigate similar sources. If there are multiple NFTs that look alike from multiple sources, the NFTs are likely to be fake.
Note that this step only applies to digital image artwork, and does not work for video, audio, and other categories.
NFT collectors can look for red flags in NFT giveaways and fake scams hosted on social media and community channels. If someone from the NFT project is direct messaging you on social media platforms like Discord, Twitter, and Telegram, and luring you into a messy website, it’s probably a fake. View the contact addresses on the platform and contact the artist directly if you are unsure about your potential purchase.
Industry players such as OpenSea and Rarible are trying to combat digital theft by developing solutions that detect fraudulent listings. our firm bitscrunch is developing a state-of-the-art intelligence tool designed to identify and characterize counterfeit NFTs using AI/ML-based advanced models. While these tools are of great help to artists and collectors in identifying and flagging art theft, it certainly helps more if collectors do diligent research and become more attentive before investing in a collectible.
Bitscrunch is a leading data analytics firm committed to building solutions that resonate with investors and collectors of non-fungible tokens and digital assets. Wash trading, inflated prices and NFT fraud are some of the most prevalent issues plaguing the industry. Bitscrunch offers a All-in-one Forensic Solutions With customizable risk management tools that detect NFT fraud and provide detailed analysis on trending NFT projects.