Always be vigilant and never forget your due diligence
The decentralized freedom that Web3 adherents enjoy are also the ones that create an environment where fraudsters and thieves can prosper. Knowing the fake collections from the real ones will save you a lot of heartache in the future. It will keep you from losing your cryptocurrency. Below, we’ve laid out the six ways to spot an NFT scam, so that you don’t fall victim to dishonest cheats.
- Do an internet search
- Check social media
- Go to DappRadar’s NFTs rankings pages
- Search on block explorers
- Use DappRadar’s NFT Explorer
- Be skeptical
There are some interesting facts that everyone should know about NFT trading before they get involved:
- Most projects don’t audit their own code.
- Most NFT projects fail to stay above mint price four months after launch.
- Most NFTs are off-chain, meaning you don’t really own it.
- The majority of NFTs have no intrinsic value and so are impossible to value.
- At the moment, there are very few regulations around NFT trading. If you are the victim of a scam, you will often have no legal recourse.
With the above in mind, read on below to find out how to avoid falling prey to scammers.
1. Do an internet search
Go to your search engine of choice and type in the name of the NFT collection. If the project founders are doxxed, search for them and see if there’s anything on the internet about their history.
If you see anything come up that looks like a scam, it’s definitely worth doing some more research. If you see news articles, blog posts, articles on DappRadar, YouTube videos, TikTok clips or anything similar, and they say the collection is untrustworthy, perhaps it’s best to steer clear.
2. Check social media
Search for a collection’s Twitter page. If they don’t have one, it’s probably a scam. If they do have one and it was set up very recently, it could be a scam. If an NFT collection appears to be successful but they don’t have many Twitter followers, it might be a scam.
Users like @OkHotshot are on-chain analysts, a form of Web3 sleuth who search the blockchain for dishonest scammers. Follow these types of feeds to stay abreast of any misdeeds. Also, take a moment to find what other Twitter users are saying about an NFT collection before you start buying into it.
Join the Discord channel of an NFT collection. As with Twitter, if they don’t have a Discord channel, it could be a scam. If they do have one, spend time there to see what the community is saying and what the collection’s goal is. If it seems like it could be a rug pull, avoid it.
Reddit is where people of the internet discuss things about the internet. Web3 platforms and assets are hot topics across many threads. If you want to find out about an NFT collection before you buy in, check what people on Reddit are saying.
3. Go to DappRadar’s rankings page
As the world’s dapp store and biggest source of information about web3 assets, DappRadar automatically lists NFTs when they are minted onto blockchains. This means that some scam items will occasionally appear in our rankings.
To combat fakes and make sure our community is as safe as possible, we put a “New” badge next to every collection that has recently entered our rankings pages. If you spot this “New” sign, treat a project with extra caution.
We also have an “Info” badge that we put next to collections we suspect might be the victim of price manipulation. Terraforms by Mathcastles, for example, is regularly traded on the secondary marketplace LooksRare. DappRadar thinks the collection could be subject to wash trading, so we’ve put an “Info” badge next to it to warn that it’s a possible scam. Wash trading is where people buy and sell at inflated prices, often to themselves or associates, in order to bump up the floor price of their collection.
DappRadar’s on-chain metrics analysis
For established collections, you can see how they’ve performed over different time periods. We show information over increments of 15 minutes, 30 minutes, one hour, one day, seven days, 30 days or the project’s entire existence.
We also give information on six different on-chain metrics:
- Floor Price – the current floor price of the collection.
- Average Price – the average sale price of NFTs sold over a certain time period.
- Market Cap – we calculate this as the floor price multiplied by the number of NFTs in a collection.
- Volume – the total amount of money, in dollars, that NFTs in the collection have been traded for.
- Traders – the number of people who have sold NFTs from a collection.
- Sales – the number of trades that have taken place.
If a Traders or Sales in a collection have spiked over the previous day, you might want to consider why this has happened. Again, search the internet and check social media. Sudden changes in activity could suggest something suspicious is happening.
Search on block explorers
Every blockchain has something called a block explorer. These are websites where anyone can find real time and past information about on-chain activity. They show data related to confirmed blocks, transactions, wallet addresses and current holdings.
If you’re interested in a new collection or you suspect that a collection might be a scam, search on a block explorer for one of the following associated token properties:
- Token name or symbol, for example Ethereum or ETH.
- Transaction hash
Once you’ve made your search, you’ll probably see if there’s anything that looks fishy. There are certain things you should be looking out for.
If you’re on Etherscan and you go to the token page of an NFT, here are some of the things you should be checking to verify the collection is legitimate. We can use the Bored Ape Yacht Club token page on Etherscan as an example.
Contract Overview and More Info
When you go to a collection page on Etherscan, you’ll see these two boxes immediately. Read them and make sure all the naming conventions are as you’d expect to find them. If you think you’re looking at the BAYC collection but the name says something different, it’s probably a scam.
Scroll down and find the Contract tab. For established token collections, these contracts will be verified with a green check mark. If you see the check mark, you’re probably dealing with a legitimate collection. If you can read code, read the contracts to see if there’s anything unusual to find.
The Comments tab is a good place to see what other people think of an NFT collection. There are lots of knowledgeable people in the Web3 community, and they will often say if the project is a scam. The Comments section is also filled with lots of shillers, so don’t click on any links you see.
Use DappRadar’s NFT Explorer
We introduced our NFT Explorer recently at DappRadar. Firstly, it’s a great way to find new collections and discover NFTs at the best prices. But it’s also the best way to easily track the trading history of any NFT.
Take this Woman Ape Yacht Club NFT. Its last sale price is currently $129,490.30. But the collection’s floor price is $126.27. This immediately seems suspect. Fortunately, our NFT Explorer has a full trading history and it shows the following:
When you peer into each of these wallets, using DappRadar’s Portfolio tracker, you can see that they don’t look like the wallets of an NFT collector who spends hundreds of thousands of dollars on a brand new project.
Go to the Woman Ape Yacht Club page on our NFT Explorer and you will see that many have sold for lots of money. You’ll see that a suspiciously high number of the same wallets are the ones making these trades for exorbitant fees.
Add together all of these red flags and what you find is that you’re dealing with a scam.
DappRadar spotted this particular piece of dishonesty when we were selecting our weekly Top 10 NFTs. It’s unusual when we come across a new entry trading for such high prices. After doing our due diligence, we saw this was a classic case of wash trading.
Always be skeptical.
If you see a new collection, do not assume the people created it have your best interests at heart.
Most sectors of Web3 are largely unregulated. Unscrupulous actors take advantage of that.
If something is too good to be true, assume that it definitely is.