Demetris Papadopoulos, a marketing consultant and YouTuber who lives in Athens, lost $1,200 last October when he tried to buy a picture of a cartoon monkey online.
But unlike others who’ve lost money in attempts to buy pieces of “cryptoart”, he videoed his failed transaction. “This could be a day where my life will change and I’ll be able to hopefully flip [these NFTs] for hundreds and thousands of dollars,” he tells his audience, watching him try to get his mitts on the artwork. “I’m shaking. I have to mint this. I have to get in.”
Excitement was building on the project’s Discord page (crypto is all over the social site, with many NFT projects maintaining busy servers with tens of thousands of users).
I’d say probably 70% of NFT people are out to scam
The rocket emoji (what else?) count was climbing well over 700 in the seconds before the NFT, called Baller Ape Club, launched — the so-called public minting, or first-come, first-served sale.
But every time Papadopoulos clicked “mint”, he got this message: “Your transaction failed.”
He thought it was because so many people were minting at the same time — but really it was a scam to keep people emptying their crypto wallets. In a panic, Papadopoulos checked Twitter to find the project’s page had vanished. “I was freaking out,” he says. Soon after, the Discord page also disappeared. The thieves had made off with some $2m.
It was another in a long line of NFT “rug pulls”, a term for when developers take the money and run. And yet, as is the case with a surprising number of NFT scam victims, the experience hasn’t put Papadopoulos off — already the next day he was able to see the positive side.
“I was part of history: not everyone has footage of a real-time scamming.”
It’s a frothy market for NFTs, with some worth hundreds of thousands, or even millions, of dollars. The industry’s standard bearer, a cartoon picture of an ape, costs around $300k.
But for every Bored Ape jpeg there are many more hastily drawn doodles by criminals to entice people into giving away their money.
The world of digital collectibles is riddled with a dazzling, seemingly never-ending number of big money scams. Rug pulls are common, making up nearly 40% of crypto scams and costing users about $2.8bn last year, up from just 1% the previous year, according to analytics house Chainalysis.
“I’d say probably 70% of NFT people are out to scam,” says Franck Bossi, a French YouTuber who has been running a channel called NFT WatchDog for over a year. Estimates vary, but they’re generally high. More than 80% of NFTs created for free on OpenSea, the biggest cryptoart marketplace, are fraud or spam, the company said in January.
“We’re probably at an all time high,” says YouTuber Giancarlo Chaux, who makes videos explaining NFTs.
In one of the largest hauls so far, scammers stole around $2.3m worth of Bored and Mutant Apes from the owner of the Manhattan: Chelsea art gallery (“All my apes gone”, read the memorable tweet, now deleted, from gallery owner Todd Kramer). The FBI recently caught two 20-year-olds who reportedly collected $1.1m from NFT buyers in January and then abandoned the project.
Crypto is not sunshine and rainbows; it’s not a very nice space if you don’t know what you’re doing
“Crypto is not sunshine and rainbows; it’s not a very nice space if you don’t know what you’re doing. It can go very badly for you very quickly,” says a London-based NFT creator, trader and TikToker who goes by the pseudonym CryptoMiles.
Rugs to riches: anatomy of an NFT heist
The curious do not lack for choice in NFT-land. You can buy monkeys and their numerous copycats; a picture of the underwhelming sandwich sold at Fyre Festival; a flying, sword-wielding baby; or Nelson Mandela’s original arrest warrant.
While many write the jpegs off as mythical thinking or — worse — a swindle, supporters say NFTs have potential that we don’t fully understand yet. They’re a way to own, and more importantly verify that you own, a piece of the internet. In the future, supporters say, house deeds and car titles will be NFTs held on the blockchain, the communally maintained electronic ledgers.
We’re not there yet, so in the meantime, people who go by pseudonyms on Twitter and Discord are losing their money on NFT projects with names like Smol Penis.
Less dramatic, but still harmful, are the so-called “soft rugs”: when creators abandon their projects before delivering. There’s not the same sudden cut and run of a rug pull but the people who bought these NFTs similarly end up out of pocket with almost no recourse to get their money back.
The scamming will probably get worse, too, when big social media sites like Facebook, Twitter and Instagram make it easier to buy NFTs
The industry has also been dogged by speculation that traders buy and sell the same asset to create the illusion of enhanced demand, known as wash trading.
The scamming will probably get worse, too, when big social media sites like Facebook, Twitter and Instagram make it easier to buy NFTs. Gaming and music are two other big industries poised to embrace digital assets.
The NFT launch
So how does a scam unfold? Any NFT comes with big marketing activity to create hype, and a “roadmap” of big promises for future development (for example, how the NFT will be integrated into games).
The NFT developers will sometimes reveal their identities or, if they’re scammers, create credible identities by stealing (for example) LinkedIn images and identities.
They make a good looking website, create hype, pay freelancers to do some images, and they post, post, post to make it all look good but they don’t give a shit
“People are getting scammed non-stop,” says Bossi, whose hobby is to reverse engineer NFT heists. “They make a good-looking website, create hype, pay freelancers to do some images, and they post, post, post to make it all look good but they don’t give a shit. They get people to believe and goodbye, it’s over.”
Bossi estimates that some scamming attempts involve entire teams and that some scammers have spent as much as £100k to make their NFTs look legitimate.
The thieves might try to dupe online influencers into helping out. “I’m getting approached by scammers all the time asking me to promote their NFTs. I’m never going to do that,” says CryptoMiles.
Once they’ve collected enough money — a competent scammer can siphon $1m-plus — criminals will delete the NFT’s Discord page. If they’re feeling particularly mean, they’ll mark their departure with the fateful message: “got rugged”.
Thieves will also find targets by honing in on keywords in Discord chats, Bossi explains.
“People will post in an open chat saying, ‘oh I have a problem with my crypto wallet’. The scammer will find this, and that person will get a message saying ‘oh me too, here’s how I fixed it’, and they get sent a [phishing] link. They bullshit you. Boom, your wallet is emptied.”
‘An investment for my daughter’
Many NFT fans are aware of the risks and have developed ways for managing them.
Singsongmum is the pseudonym of a 44-year-old woman living in the UK who owns two World of Women NFTs, which are made by an artist living in Portugal.
For Singsongmum, who asked that we don’t reveal her identity, buying an NFT is akin to “buying a membership card to a community. Some are exceptional, some are rubbish.” She knows there’s a “toxic” side to NFTs — but she is willing to look past the dark corners.
Singsongmum didn’t get into NFTs to turn a fast buck. She likes the art and its creators and she hopes her purchases will gain value in the long run. “This is an attempt to give something to my daughter when she grows up,” she says. So far, she’s up 5-6x on her investment.
She has two reasons for shielding her identity online — one, she doesn’t want to annoy her friends with constant NFT posts.
Another reason is the feeling that her NFT hobby will attract abuse. “There’s a stigma,” she says, pointing as an example to the actor Idris Elba, who was mocked by some on Twitter for expressing an interest in NFTs.
She also feels that there is a lot of hypocrisy from those NFT bashers who cite the environmental toll of crypto (some of the major marketplaces for NFT art like MakersPlace, Nifty Gateway and SuperRare are on the Ethereum blockchain, which requires a hefty amount of “mined” energy to run).
“I haven’t eaten meat since I was 16. It angers me that people who sit with a steak in front of them can have any sort of comment on what other people do in the NFT world,” she says.
‘Don’t be stupid’
Annelise Stern, who runs a gallery in Paris, has two rules for buying NFTs (she owns 50): the creator’s identity must be known to her and it has to be a woman.
“A lot of people have prejudices against NFTs,” she says, pointing her finger at people in French media and art. Like Singsongmum, she’s not an NFT-flipper or speculator, but buys NFTs for her own pleasure, to support artists and to turn them into gifts for friends and family.
She’s relaxed about NFT heists. “There are also scammers in the [physical] art market and without the blockchain you probably have fewer tools to discover who they are.”
Stern is also critical of the people who’ve forgotten one of the core lessons of the internet — avoid doing business with anonymous people.
“I’ve met some people who were scammed. I’m sorry, but they’re stupid. You have to think as if you were in the real world. You cannot buy everything around you: do your research.”
How to spot a rug pull
So you’re saying my pixelated monkey collection isn't going to be worth millions in the future?
As enticing as it is to think you’re getting in on the next Bored Ape, a big number of NFTs are probably worthless.
If you’re a savvy scammer, and your ethics are out the window, you could do a rug pull every two weeks, NFT analysts say. Here are some of the key telltale signs an NFT is a scam:
- Unoriginal art that looks very like other art styles (the many ape-themed NFT hype vehicles, for example);
- No indication of an artist’s identity;
- Copy and pasted roadmaps used for other NFT projects;
- NFT founder engagement: are they doing Q&As on Discord? If not, that can be a bad sign;
- Are the NFT developers saying their NFT is going “to the moon” a lot? “Straight away I think bullshit when they do this,” says Bossi.
The worst place to get scammed, according to CryptoMiles, is in project chat groups on Telegram, the messaging app.
“If you go on there and say anything about an NFT, you’ll usually get a reply from someone whose username has 'Helpdesk' in the title. They can scam you and then just change their username — it’s an insane vulnerability. It only takes five seconds to change, it’s way too easy.” Telegram did not respond to Sifted’s request for comment.
‘I missed red flags’
“If [NFT developers] only talk about the price, that’s [also] a bad thing,” says Norwegian YouTuber Bjørnar Kibsgaard, who was scammed last year along with many others in one of the biggest NFT heists to date. The developer behind the NFT, called Evolved Apes, suddenly disappeared along with the project’s Twitter account, website, and at least $2.7m.
Kibsgaard invested after joining the project’s Discord group “to get the vibe”. Looking back, there were warning signs straight away, he says. For example, the anonymous developers behind the project were in the Discord chat asking if anyone had experience with blockchain.
“A red flag,” Kibsgaard says. “Can you show [us] the proof of concept? No. I should have moved on.”
Eanna Kelly is a contributing editor at Sifted. He tweets from @EannaKelly1