With the recent explosion in the popularity of NFTs (non-fungible tokens), there has been a corresponding increase in the number of scams and bad actors in space. As with any new and rapidly growing industry, it’s essential to be aware of the risks before you get involved.
This article will review the top 5 red flags to watch out for a while trading NFTs. By being aware of these scams, you avoid getting rugged.
1. Team is not Doxxed
Dox is a internet / crypto-jargon for persons who expose their genuine identity in the crypto world and choose to be recognized by the community.
Every NFT results from a robust and talented team – individuals that care deeply about the project and want it to be the best in the market. It is critical to assess the people behind the product in terms of abilities, expertise, and credentials; if something does not add up, do not engage further.
Of course, there have been successful NFT initiatives with undoxxed teams. You may wish to inquire about the team’s motives for refusing to divulge their identity. Stay away if their answer does not appear to be adequate.
2. Fake Followers and Accounts
There are bots and paid personnel who chat with the community to increase participation and enthusiasm for the project.
Even if the group is made up of “genuine people,” it is necessary to look through the interactions on posts to determine whether they are actual people or bots. Examine their social media pages and Discord for toxic/fake followers, and compare their online member ratio to the overall member count – any discrepancy should tell you not to invest. It is also critical to observe if at least a few persons are on the NFT social media account; otherwise, this might be a warning indicator.
3. Unrealistic Mint Price
The combination of enthusiasm and fear of missing out (FOMO) results in an exaggerated mint price. Actual community builders begin at a low cost and do not drain the market of all liquidity.
When a project permits its first mint-ers to keep their first NFTs, it not only increases the value of the NFT but also creates loyalty from its supporters through periods when the project may be inactive. During market downturns, projects that mint ridiculously high prices frequently struggle to get backing.
Many strategies, including some that are malicious, may be used during the pre-selling of an NFT project. A great example is someone holding the cheapest NFTs available to ensure that no one else can buy them. Another is punishing developers or banning users for listing below the initial price, establishing echo chambers where only particular perspectives are allowed to be heard, and publicizing popular projects or intellectual property (IP).
4. Unrealistic roadmap
It is critical to determine whether the developer’s vision is a reasonable estimate for the time frame specified, as well as whether there is expected usefulness for the product.
5. Artificial hype
Celebrities and social media influencers have quickly jumped on the NFT bandwagon, endorsing everything from sunglasses to virtual real estate. They have been paid handsomely to advertise items or make cameos in films and television series recently. While this may be an efficient marketing tactic, it can also build unwarranted enthusiasm about a product or service.
However, before purchasing an NFT recommended by your favourite celebrity, you should research whether the endorsement is genuine or a forgery. There have been instances of celebrities advocating NFTs without understanding what they are or influencers being paid to endorse NFTs without declaring their relationship to the project. As a result, even if an NFT is suggested by someone you trust, you should conduct your research before purchasing it.
As customers, you must be aware of this tendency and resist the fake frenzy generated by these endorsements. Instead, research to determine whether a product or service is appropriate for us.
The takeaways from this article are that you should research before buying NFTs and be aware of the warning signs. By studying and knowing what to look for, you can avoid scams and ensure you are getting a good investment.