People look at NFT artwork at the Tezos exhibition at Art Basel, Miami, Nov. 30, 2021. (AP Photo/Lynne Sladky)
The NFT (non-fungible token) art market is booming and some experts have described it as a bubble that’s flooded with fakes and rife with “mind-blowing” fraud.
NFT sales soared past $24.9 billion in 2021, compared to less than $95 million in 2020, according to market tracker DappRadar.
Usually paid for with cryptocurrencies, an NFT represents a digital item such as an image or video. “Non-fungible” means that it’s unique and can’t be replaced with something else. For example, “a bitcoin is fungible — trade one for another bitcoin, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible. If you traded it for a different card, you’d have something completely different.”
Here are seven things to know about how and why the bubble NFT art market is a “honey pot” for fraud.
The art world, in general, has to deal with fakes being passed off as priceless artworks, but due to the unregulated nature of NFTs, the digital art market has become flooded with fakes. One platform flagged 90,000 potential NFT fakes in just three months, the Thomson Reuters Foundation reported.
In September 2021, someone claiming to be a 17-year-old 3D digital artist sold $138,000 worth of fake NFTs and disappeared, The Block reported. The artist promised to deliver 8,000 NFTs focused on “quality art” in the form of 3D renders of figurines as well as around 14 artwork pieces. The artist collected around 1,000 Solana (SOL), worth around $138,000, which was split across multiple accounts, according to blockchain data. The artwork was never delivered and the artist deleted his account.
There is a major debate going on in the art world over NFTs. Some say they help artists get exposure and sell their work to a broader audience. Others say due to the potential for scams, NFTs hurt artists.
“Anyone can take someone else’s image and upload it as an NFT, hoping it’ll sell,” California-based artist RJ Palmer, told Thomson Reuters Foundation. His work is regularly turned into NFTs without his permission, he said. “The art never matters – it’s just gambling.”
But for Aaron Ferguson, an artist in Canada, selling NFTs of his photography has helped his career. He said he prefers the NFT scene to posting images free on Facebook or Instagram. Fraud and low-quality art have always been a problem in the art world, he said. “You can’t scapegoat NFTs.”
With NFTs being relatively new and the industry unregulated, each marketplace selling NFTs seems to operate under different rules. Nothing has been standardized.
“On some NFT marketplaces, anyone can upload any image, create an NFT linked to that art, and put it up for sale, all without showing proof they own the original image,” Thomson Reuters Foundation reported.
One marketplace, DeviantArt, has started scanning various blockchains for potential instances of fraud. So far, it has flagged more than 90,000 potentially fake NFTs since it started scanning in September.
The OpenSea platform has had to contend with scammers trying to sell fake NFTs. A spokesperson from OpenSea told Thomson Reuters Foundation, “it is against our policy to sell NFTs using plagiarized content, which we regularly enforce in various ways, including delisting and, in some instances, banning accounts.”
There have also been scams to steal actual NFTs. Artists have complained that while trying to contact OpenSea customer service they encountered scammers posing as OpenSea employees. In one case, an artist thinking he was dealing with OpenSea, shared his screen. Scammers were able to access the user’s keys and transferred hist crypto assets into a separate wallet, Verge reported.
Once someone purchases an NFT, the transaction is recorded on a blockchain, which is a public digital ledger. The transaction is marked with a unique digital signature, giving NFT art owners a kind of digital “rights.”
While NFT marketplaces are required to have a process for copyright owners to submit requests for the questionable NFT to be taken down, artists have complained the process is slow and marketplaces can be unresponsive.
Dealing with fraud through the marketplace “can be a lengthy and complicated process, and sellers’ accounts can be anonymous cryptocurrency wallet addresses that are hard to link to a real person,” Thomson Reuters Foundation reported.
Some in the art world complain that the NFT marketplace have very few gatekeepers to monitor transactions and to keep scammers out.
But there are ways to stop fakes. While it’s easy to create an NFT of someone else’s work, the blockchains that store the tokens are easily scanned and inspected, making it more likely to catch out art thieves, said Ferguson, the Canadian photographer.
Some marketplaces are trying to stem the flood of fakes. OpenSea has been requiring artists to submit a Digital Millennium Copyright request. This is a formal legal mechanism for copyright owners to request that their work be taken off a hosting platform. Still, artists want OpenSea and other marketplaces to be more proactive in ensuring artists’ work isn’t ripped off.
Some artists have stopped complaining to OpenSea and have started submitting their complaints directly to Google, which hosts the images on OpenSea’s auctions.
An OpenSea spokesperson said in a statement that the company is scaling its efforts “across customer support, trust and safety, and site integrity so we can move faster to protect and empower our community and creators.”
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
People look at NFT artwork at the Tezos exhibition during the VIP preview of Art Basel Miami Beach, Nov. 30, 2021, in Miami Beach, Fla. (AP Photo/Lynne Sladky)
