If you Google “NFT scams,” the results will likely lead you down a rabbit hole filled with, in some cases, actual cartoon rabbits.

Non-fungible tokens (NFTs) have exploded into a multibillion-dollar sector of the crypto industry in the last 12 months alone. Top collector’s items, such as rare pieces from theCool CatsandBored Ape Yacht Clubcollections, trade for upwards of $30,000 or more.

If five- and six-figure price tags seem like a lot for a JPEG, NFT creators have a one-word answer for you: utility. Because NFTs create an indelible digital record of your ownership on the blockchain (aka the same tech on which crypto is minted), owning a digitally tokenized piece of art can also serve as your membership ticket to exclusive online clubs, gaming communities, Discord chat rooms and interactive experiences.

At least, that is, in theory. But in practice, NFTs are still new and a little messy. While blockchain enthusiasts consider them an exciting signal that mainstream crypto adoption is on its way, NFTs create some pretty lucrative opportunities for scammers due to the pure volume of money exchanging hands.

Ahead, we dive into what the most common NFT scams are, how to avoid them and why they’re becoming so frequent.

To buy your first NFT, you’ll need to sign up for a wallet that transacts on theEthereum blockchain.MetaMaskis perhaps the most popular Ethereum wallet for NFT collectors. However,MetaMask users were recently targeted in a phishing scaminvolving phony advertisements that asked for users’ private wallet keys or 12-word security seed phrases (a big red flag). There are also fake malicious pop-ups operating via Discord, Telegram and other public forums that link to normal-looking login pages, such as MetaMask or other popular websites.

If a bad actor gets a hold of your private information through a phishing attempt, they can drain all of the crypto in your digital wallet.

As a general rule of thumb, you will only need your seed phrase when creating a hardware backup of your crypto wallet or when recovering your wallet. Never enter information into the MetaMask pop-up, or any other pop-up while you’re at it. Always go directly to the verified website for any crypto transactions, never using links, pop-ups or your email to enter your information. Write your seed phrase down on paper, and never give it out to anyone – don’teven store a photoof it in your phone.

Because NFT sales happen virtually, and all marketing is done on social media, it’s easy to get catfished. Popular NFT communities commonly hire influencers and celebrities to promote them, making it difficult to tell which ones are real or not.

If you ever receive a direct message from someone who claims to be a founder, celebrity or influencer, don’t respond. It’s commonly known etiquette in the NFT world that C-level staff will never DM you unless you send them a message first or you come to a specific agreement in a public Twitter thread or Discord channel. It’s kind of like when you were young and your parents told you never to give information to a telemarketer who called your house. The same thing applies in the NFT world – if someone DMs you first, don’t click links or reveal any secrets.

Pump-and-dump schemes are unfortunately becoming somewhat predictable in the crypto and NFT worlds. The term refers to when a group of people buys up a bunch of NFTs or currency and artificially drives demand way up. Once they are successful, the schemers cash out when prices are high and leave those who weren’t in on it behind with worthless assets.

Similarly, you may also have heard of “paper money” in reference to NFT projects that aren’t technically scams but have limited liquidity thanks to a handful of aggressive buyers.

“When you have 5,000 NFTs that are being controlled by 20 of the top collectors and none of them have any pressure whatsoever to sell, essentially anyone who wants to buy into that collection has to buy in at a very high floor price,” said a pseudonymous NFT collector known asWhale Shark, who owns over 400,000 NFTs. If you’re buying NFTs as an investment, odds are better when the project has more buyers and therefore more liquidity.

Check the history and wallet records of whatever project you’re interested in. This is where blockchain’s transparency comes in super handy. On OpenSea or any NFT marketplace, view the number of transactions and buyers for the NFT collection. WithEtherScan, you can see all incoming or outgoing transactions that happen on the Ethereum blockchain.

Also, follow the project on Twitter and join its Discord channel. For a project to have good liquidity and/or lasting community or artistic value, there should be a good number of engaged investors and collectors, plus an active community where people talk, engage and share information.

Bidding scams happen mostly in the secondary market after you’ve purchased your NFT and you want to resell it to the highest bidder. Once you list your NFT for sale, bidders might switch up the cryptocurrency used without telling you. Instead of receiving 5 ETH (roughly $15,000 to $20,000) for your favorite NFT, you could get $5.

Double-check the currency used and never accept a lower bid than what you want.

It’s worth remembering that minting a piece of artwork as an NFT is not the same as having intellectual property (IP) ownership of it. Thanks to OpenSea’s beginner-friendly software, anyone can turn any photo or image into an NFT whether or not they own the rights to that IP. Scammers and bad actors could easily steal an artist’s work and open a fake OpenSea account where they list counterfeit artwork for auction. This would make your NFT essentially valueless once the community finds out what that scammer is up to – and there’s no way to get your money back.

Before buying an NFT from any marketplace, do your research to make sure the artwork you are buying is from a verified account. Look for the blue check mark next to the artist’s profile picture on OpenSea or other NFT marketplaces. If there is none, find the artist on Twitter or through their website or other social media channels. Ask them directly if the artwork you want to buy is theirs, and if you have the right user profile. Also, see if the artist or NFT project has a Discord channel and ask others in the community.

Watch out for counterfeit blue checks. A true verified account shows a blue check on the border of the profile image, not on the inside. See this example from anNFT scam quiz(which we highly recommend you take) developed byCurious Addys' Trading Club. The second example is the correct one.

This is another ethical gray area, not so much a scam. NFTs can go missing once you purchase them. That’s because the contract that lives on the blockchain (the NFT) is different from the actual artwork. For example, say you were to upload an mp3 file of original music to a platform like OpenSea. When a collector is ready to buy it, they place a bid and pay you in ether, which will then create a record of ownership known as a smart contract.

The smart contract is what actually gets minted on the blockchain. But the file you uploaded (aka the content and the metadata) is separate. It sounds abstract, but remember that NFTs are just about the ownership of an asset, but the asset itself could be anything.

Therefore, if you store the artwork, house deed or other digital content that came along with the smart contract on a centralized platform, make sure it is a trustworthy one. And don’t buy an NFT that merely links to a URL with an image. Whatever page or artwork is stored on that URL can be changed any time without your permission, leaving you holding a token that essentially points to nothing.

If you buy an NFT, make sure you also take possession of the tangible or digital asset (in the form of a JPEG, mp3 or PDF file) outright.

New scams are always storming the NFT scene, which is why you can’t go it alone. The best way to avoid existing and new NFT scams is to stay informed, and that’s where finding fellow NFT enthusiasts becomes imperative.

Your NFT journey might start with self-education, saidDenise Schaefer, co-founder of the crypto education platformSurge. But eventually, you’ll hit a wall and get overwhelmed – and that’s when you’ll need to rely on more experienced collectors and creators you relate to.

“As I started researching by myself, going down the rabbit hole, there were two issues that quickly became apparent to me that I wanted to help fix,” Schaefer said.

If you’re new to NFTs and feel unsure where to begin, check out resources likeSurge, which has a free Discord channel for women and non-binary people who want to get started creating and collecting NFTs, orCurious Addys' Trading Club, a crypto community for newcomers.

“It's been amazing to see the speed at which things are growing,” Schaefer told CoinDesk. “We have a newsletter now, and we've created our Discord, which is a safe space for women.”

Inside the Surge Discord channel, you might encounter somebody who has never made a Metamask wallet before getting advice from somebody who's running a decentralized finance (DeFi) organization, Schaefer said.

“It's really great to have people of all levels helping each other in their journey,” said Schaefer.

“Essentially, NFTs right now are in the ICO [initial coin offering] stage,” saidNelson Merchan Jr., co-founder and CEO of blockchain PR firmLight Node Media. “Anybody can basically hire an artist to create a specific number of NFTs and then create a lot of hype with crypto influencers.”

This “hype” makes it difficult to discern who in the NFT space is a trustworthy creator and who is a bad actor, especially when so many NFT collectors and creators now use popular cartoon NFT profile pictures (PFPs) and anonymous names on Twitter.

And it’s not just crypto newbies who face risk: Merchan, a crypto investor since 2017, has owned NFTs from the popularPudgy Penguinscollection since it dropped in July 2021. Now facing what some outlets are calling a coup, Pudgy Penguins founders are under scrutiny from angry collectors who claim the project failed to deliver on its promise of creating an in-depth virtual game.

“People are [creating] these NFTs, and spending between $50,000 and $60,000 – sometimes even less – then making a million dollars in NFT sales if they really hit it right,” Merchan said. This leads to an issue of governance and transparency because once an NFT creator or community founder makes a $1 million promise, collectors naturally expect them to follow through.

“They're paying themselves very handsomely,” Merchan said. “But then the value of the NFT itself is going to basically zero. There's no trading, no game and barely a community. They have a sizable treasury fund, but an absolute failure of a project. And that is very worrisome.”

But are these types of projects the same thing as scams? Time will tell, Merchan said.

In addition to the ethical gray areas of NFTs, there are also a number of known NFT scams where the bad actors are very clear – and the losses quite real. So stay alert, make the most educated decisions you can and never invest more than you can afford to lose.