NFT Hacks and Scams

As NFTs continue to draw new users, hacks and scams have begun to surface in the nascent industry.

According to blockchain analytics company Chainalysis, the two most popular NFT-related crimes are money laundering and wash trading. The amounts involved are, however, relatively small with Chainalysis estimating that such criminal activities generated illicit profits of US$10 million in 2021.

Nonetheless, investors and collectors of NFTs need to be on their guard.

In January 2022, hackers exploited a bug vulnerability in the OpenSea NFT marketplace to purchase high-value NFTs from users at well below market prices. Elliptic, a blockchain AML analytics company, found that no fewer than five attackers exploited the bug loophole to buy at least 12 NFTs: including Bored Ape Yacht Club, Mutant Ape Yacht Club and Cool Cats NFTs.

Illicit actors have also taken advantage of Discord, a popular chat platform used by NFT communities to communicate, to take over or impersonate the official servers of NFT projects including Larva Labs. In December, a hacker infiltrated the Discord server of Monkey Kingdom, an NFT collection founded by entrepreneurs in Hong Kong, to steal 7,000 Solana, or approximately US$1.3 million, from would-be buyers through a phishing scam.

The NFT industry is no stranger to copyright infringement issues. OpenSea said in a recent tweet that over 80% of the items created with its free minting tool were plagiarized works, fake collections and spam.

CryptoSlam’s Calpu told Forkast: “Plagiarized works have always been an issue and will continue to be an issue within the NFT industry. For that reason, it’s important for buyers to check multiple sources of verification that they are in fact buying an NFT with a verified and known author, whether that verification is by the marketplace or by confirmation on social media.”

“Just like in the traditional art world, counterfeits and forgeries also run rampant. The silver lining is that with NFT technology it’s fairly easy to determine fakes, and plagiarized works,” he added.