A surge in fraudulent sales of non-fungible tokens (NFTs) has led to some insurers creating policies to protect buyers. However, with so much uncertainty of the digital tokens, and the ways in which potential scams can be carried out, the onus remains on buyers to do their due diligence before parting with any money.
NFTs are digital tokens, acting as a digital certificate of ownership for artwork and other memorabilia which only exist online.
The rise of any new technology will always bring new risks, and NFTs are no different. As popularity of the digital tokens has soared since 2020, criminals have been employing classic scams in a new environment.
New tech, old scams
The latest NFT fraud came in early February, when the “Big Daddy Ape Club,” an NFT thought to be associated with the celebrity-endorsed “Bored Ape Yacht Club” NFT, cost investors $1.3 million in total.
The buyers were not total novices to the NFT market and were aware of the usual processes of verification of digital artwork, which seemingly looked genuine at the time of buying. However, the group only realised that they had been scammed after failing to receive the minting of the artwork, which acts as proof of ownership.
The scam was a classic “bait and switch” scheme redesigned for a new technology, and while insurance for digital action houses exists, coverage for private buyers has been crucially missing. However, some insurance firms are now reacting to a new need in the market.
NFT coverage remains fairly niche in the insurance market, though there are now policies in place to protect investors who have been left empty-handed following an NFT purchase.
While this coverage does exist, insurers still see the NFT market as an environment which is not fully tamed. Speaking with Forbes, senior writer for insurancequotes.com Michael Giusti said the NFT space remains the “Wild West.”
Though investors are able to insure themselves ahead of an NFT purchase, the onus remains on them to perform due diligence on what they are buying, the artist, and where they buy it from.
Some handy steps to take before purchasing an NFT include:
- Ensure any NFT you purchase is being sold on a recognised and trusted website
- Check the URLs and metadata attached to the original, as these can be switched out for fraudulent addresses
- Research the seller as much as you can to ensure they are the original owner of the artwork, or that they do possess an authentic mint of the original piece of work
If you would like to discuss the risks attached to NFTs please contact: