There’s a popular NFT (non-fungible token) called the Bored Ape Yacht Club. It’s a big enough deal that Paris Hilton last week told the host of The Tonight Show Starring Jimmy Fallon that she owned some. Fallon replied he owned some too. It was a real coming out on mainstream media for the mysterious NFTs.
Yet, just one week before that, on Jan. 11, there was another NFT with a similar name, The Big Daddy Ape Club. In that case, the investors were scammed out of approximately $1.13 million, according to a report in Decrypt. Did those people think they were getting the same tokens as Hilton and Fallon?
No one knows.
In this case, the investors paid the money, but the tokens were never minted. A classic bait-and-switch scam. The investors weren’t completely unsophisticated. They had seen a “verification” of the crew at the Big Daddy Ape Club, done by a San Francisco-based, decentralized-identity-verification company called Civic, said Decrypt.
Well, we hope Civic has a good insurance policy.
But, what can investors do about NFT theft?
They can get insurance, as well. In reaction to the scams, the insurance industry has created new policies for protecting NFTS.
What are NFTs?
Non-Fungible Tokens (NFTs) are unique crypto tokens that prove ownership of an asset, either in the physical or digital world. They’re like a digital deed to a house or a certificate of verification one would receive when buying a painting.
Fungibles are goods that can be used interchangeably, such as tomatoes. If you need beefsteak tomatoes, you can get them from any store, because one bushel of beefsteak tomatoes is equal to any other bushel. Bitcoin is a fungible token. You can exchange it for any other Bitcoin.
NFTs work on the same blockchain technology as cryptocurrencies, but non-fungible tokens can’t be traded interchangeably because of their unique set of codes and numbers.
The crypto art industry hit a market cap $2.3 billion this month across different platforms, according Finacepr.com, up from $409 million on Dec. 1, a 460% surge in just two months.
“NFT scams are becoming increasingly common in line with increased ownership and the sophistication of technology making it easier for scammers to target investors,” said Adam Morris, co-founder of NFT Club, an NFT educational site.
The scammers adapt to the changing technology and create updated versions of old grifts. A major danger is the complex world of copyright.
There’s been a surge in replica and fake assets made to look like originals, said Morris
Investors need to verify the assets because scammers copy collections and try to sell counterfeit NFTs. Prominent NFT marketplaces have reported tales of rampant counterfeiting and art theft. But even verification isn’t 100% guaranteed as the Big Daddy Ape Club investors found out.
While there are tools you can use to verify websites, the best recommendation is to stay on legitimate sites, such as NFT marketplace OpenSea.
Even so, scammers impersonate support staff at OpenSea and Metamask, a crypto wallet site, or contact users on the social media platforms Twitter and Discord. They want people to expose security phrases or send links to fake customer service websites.
NFTs Can Be Insured
To protect NFTs and other digital assets, the insurance industry is developing new forms of coverage, specifically designed around the risks inherent in NFTs.
“It’s definitely the Wild West out there,” said Michael Giusti
senior writer at insurancequotes.com, an Austin, Texas, insurance marketplace. “Just because someone sells an NFT doesn’t mean they necessarily owned the underlying asset … It would be like someone standing in front of their neighbor’s house with a counterfeit deed. Just because someone paid money for that deed doesn’t mean they now own the house.”
Giusti wrote a report about insuring NFTs. In it, Sharon Henley, vice president of research and development at Coincover, a crypto asset insurer in the United Kingdom, said, “Just like any other cryptocurrencies, tokens can be insured under certain circumstances, for certain losses. It’s possible to insure NFTs across different risk vectors.”
But investors need to take steps before they buy an NFT.
“Check out the details of the NFTs, review the metadata, look at the URLs of the metadata as well as the URLs for the JPEGs,” said Henley. “It’s easy to switch out URLS and think you are purchasing an NFT that you are not. … Ensure that you purchase NFTs on a trusted site … and again do your due diligence.”