NFT mania is here, and so are the scammers

NFT mania is here, and so are the scammers

The artist Derek Laufman woke up last weekend to a couple emails from his followers, who had a question for him. They wanted to know if he’d started selling NFTs — non-fungible tokens — of his art. But it wasn’t just email. People had DMed him on Instagram and Twitter, too. “I just replied, that’s 100 percent not me,” Laufman says when I reach him by video call.

On Rarible, a site where people can purchase NFTs, a verified profile had appeared that alleged to be from him — which means that someone took the time to impersonate him all the way through the platform’s verification process. “I was basically kind of annoyed that somebody had, quote, unquote, verified me as on that platform,” Laufman says. “I dealt with having my art stolen for years. And I’m sort of numb to that. But when somebody is claiming to be you … that kind of, you know, pisses me off.”

After a few people reported the theft and impersonation and Laufman fired off a few messages on Twitter about the situation, Rarible took the profile down. But not before one of his fans had bought an NFT of the work.

This is 100% NOT me. I thought the point of NFT was that the artwork and artists needed to be verified? Apparently super easy to scam people. What a joke that platform is. https://t.co/FrBy4zuhQy — Derek Laufman (@laufman) March 13, 2021

While you’ve probably heard of NFTs by now, you’ve probably heard more about digital art selling for exorbitant sums than about the creators who are getting ripped off.

Which is a shame. The promise of NFTs is pretty easy to grasp: if you’re a digital creator, they represent a way to make money off of work that might not otherwise be salable. You can earn royalties from future sales of work in perpetuity — and it can be built right into the object itself. But the reality of NFTs is different, and grimmer.

What’s an NFT? NFTs allow you to buy and sell ownership of unique digital items and keep track of who owns them using the blockchain. NFT stands for “non-fungible token,” and it can technically contain anything digital, including drawings, animated GIFs, songs, or items in video games. An NFT can either be one-of-a-kind, like a real-life painting, or one copy of many, like trading cards, but the blockchain keeps track of who has ownership of the file. NFTs have been making headlines lately, some selling for millions of dollars, with high-profile memes like Nyan Cat and the “deal with it” sunglasses being put up for auction. There’s also a lot of discussion about the massive electricity use and environmental impacts of NFTs. If you (understandably) still have questions, you can read through our NFT FAQ.

Artists like Laufman have have had their work minted as NFTs and listed for sale without their permission; and as in that case, platforms that host stolen art only seem to moderate if the artist finds out and posts about it on social media. Tales From The Loop author Simon Stålenhag found his art on Marble Cards, another NFT site, and Giphy has warned that people are turning user-created GIFs from its site into NFTs. Because the NFT system doesn’t require people to actually own the copyright to something to mint it, it’s a market ripe for fraud.

NFTs are unique digital widgets that are typically part of the Ethereum blockchain and can be used to identify the owner of a piece of digital art. Any digital object can become an NFT, as long as it’s been “minted,” or put on the blockchain as a token. They’re sort of like trading cards, if the card was digital and pointed to the URL of a JPEG. And because these tokens are represented on a blockchain — which is predicated on burning cheap electricity to solve mathematical puzzles, which when solved pay out some amount of cryptocurrency — there is an as yet unspecified negative environmental cost associated with transacting them.

The whole system is predicated on the understanding that the people minting NFTs are who they say they are. Would you buy a GIF of Nyan Cat for $560,000, for example, if the creator of the meme wasn’t the person who was selling it as an NFT online? Because anything can be tokenized on the blockchain — where, by the way, the record is immutable — anything can end up as a NFT, even if the creator of an artwork isn’t the person selling it online for Ethereum.

non fungible tokens (NFTs) have no inherent value and not even technologically innovative — they require the pre-existing system of violence and control to enforce a belief in the value of what is ultimately a glorified checksum — Chelsea E. Manning (@xychelsea) March 16, 2021

While it’s unclear whether the problem is widespread, many artists have started checking sites like OpenSea and Rarible to see if their work has been minted without their permission. “I’d seen a few posts going around of people who’d had their art stolen,” says Devin Elle Kurtz, an artist and visual developer, when I reach her by phone. So Kurtz decided to look around to see if her own work had been taken. “And I was like, you know, it probably hasn’t. You know… it’s probably fine.” As the narrator of this story, I can say: it wasn’t fine.

“I searched my name and sure enough it came up,” Kurtz says. “One of the first results was my art on this Marble Cards website.” The piece in question was around five years old, from her DeviantArt account, and it had made it to the front page of the website. “The person who turned it into an NFT had, like, put their handle all over it,” Kurtz added. “Like, all over the frame, they’d like put their watermark on it with their Twitter handle.” Which is very weird!

I searched my name to make sure my art hadn’t been stolen and turned into NFTs, and sure thing, an obscure old piece from my DeviantArt is randomly on the front page of the marble cards NFT website? How is this allowed… pic.twitter.com/EE1jXLuQDL — Devin - Artbook Kickstarter Soon! (@DevinElleKurtz) March 12, 2021

“I don’t know who that person is, and they may not have known they were doing anything wrong,” Kurtz says. “Nothing against that individual if they didn’t realize that what they were doing might not be the greatest.” It was priced at 1.03 Ether, which as of publication time works out to $1,844.03; it’s still up, though Marble Cards removed the image at Kurtz’s request. But the NFT — the frame around the URL in the case of Marble Cards — will continue to exist forever, on the blockchain. (Marble Cards is unique in that it lets users mint and trade “frames” around artwork, rather than the artwork itself, theoretically avoiding copyright issues — though artists clearly disagree.)

Kurtz’s experience is emblematic of the big problem with NFTs, generally speaking: anyone can mint anything. All you need is an Ethereum wallet and some cash for “gas fees” — in other words, the cost of doing the transaction to put whatever you’re minting on the Ethereum blockchain.

On OpenSea and Rarible, two major NFT platforms, you don’t have to verify you own something before putting it on the blockchain. Verifying yourself on these platforms is also not difficult; Rarible’s process involves submitting social handles for verification but doesn’t seem to check whether you own those handles, as in Laufman’s case. OpenSea, on the other hand, has foregone verification entirely. Its recommendation for buyers is now, “Do your own research.” (Neither platform had responded to requests for comment at press time.)

From now on, creators no longer need to submit their collections for approval. All NFTs will appear in the public search.

For those of you currently waiting, the gray warning icons on your items are gone, and your collection will appear in the public search within a week. — OpenSea (@opensea) March 14, 2021

I spoke to the independent crypto journalist Amy Castor to get her opinion on this kind of NFT fraud. Castor recently wrote a story for her personal website about the biggest sale in NFT history — of the artist Beeple’s work, which the famed auction house Christie’s sold for $69 million — alleging that Metakovan, the pseudonymous buyer, bought the work to finance a pump-and-dump scheme with another token they own, B.20.

“Anybody can create an entity about anything and just sell it on a marketplace. There probably aren’t that many protections in place. But, I mean, the key thing is you’re not buying anything,” Castor says when I reach her by phone. “If you buy identity as a token, it’s just this coin. There’s really no intrinsic value to it, other than what somebody else is going to pay you for it,” she continues. “It’s all speculative at the end of the day.”

Fox Unveils NFT Company, Blockchain Creative Labs

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Leading American mass media company, Fox Corporation, is joining the crypto trend with an NFT business and “the first-ever animated series curated entirely on the blockchain.”

Fox Bets on NFT Technology

Fox is breaking into the NFT space.

On Monday, the CEO of the entertainment firm announced that Dan Harmon’s new TV series Krapopolis would be marketed and distributed through a new NFT company called Blockchain Creative Labs. Krapopolis will be a comedy set in Ancient Greece. The American broadcaster will launch a separate marketplace for selling digital items related to the show, such as characters, background arts, and GIFs, all of which will be available as NFTs.

Krapolis is the American broadcaster’s big bet into a blockchain-based business model for marketing new content. In a presentation to advertisers discussing the move, Fox CEO Charlie Collier suggested that NFTs would benefit the company and brands they work with. He said:

“And just as we’re doing this for our own animation, we will also help your brands connect directly with fans and enthusiasts through NFTs.”

He added that Fox would “take advertisers into the world of blockchain-powered tokens, including NFTs.”

The company’s share price was unhinged by the announcement; FOX shares were last trading at $36.77 on NASDAQ. Fox is yet to share the details of Blockchain Creative Labs such as the launch timeline and blockchain the NFTs will be deployed on. To date, Ethereum has been the platform of choice for NFT creators, though sidechains and other scaling solutions have emerged in hopes of bringing the technology to mass adoption.

NFTs have had a breakout year so far, punctuated by Beeple’s $69.34 million sale at Christie’s back in March. Christie’s is one of a handful of fine art institutions that’s helped the technology go mainstream (Sotheby’s, another famous auction house, has also organized its own NFT sales). Meanwhile, the world’s top cryptocurrency exchange, Binance, will soon launch an NFT marketplace, suggesting the market could have further room for growth.

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LUKSO’s Fabian Vogelsteller predicts NFT and ERC-20 uses will grow

Welcome to Forkast Forecasts 2021. In this series, leaders, innovators and other visionaries in crypto and blockchain-related fields tell Forkast.News what they see as the most noteworthy industry developments over the past 12 months and their predictions for the new year.

Fabian Vogelsteller

Fabian Vogelsteller is founder and chief blockchain architect at LUKSO, an Ethereum virtual machine and proof-of-stake blockchain network focused on mainstream applications for fashion, gaming, design and social media.

In 2020, the start-up launched reversible initial coin offerings (ICOs) — a way to tokenize and invest in real-world assets. In a reversible ICO, buyers reserve tokens and buy them over time with the option to return still-reserved tokens at any time and receive their associated ether (ETH) back.

A former Ethereum developer, Vogelsteller proposed the ERC-20 token standard together with Vitalik Buterin in 2015. He also helped build the official Ethereum wallet, the Ethereum Mist browser and tools like web3.js, a JavaScript library for Ethereum.

See related article: In Conversation with Vitalik Buterin, Co-Founder of Ethereum: On Eth 2.0, Finance, and China

Biggest developments in 2020

Launch of the Ethereum 2.0 Beacon Chain: “It was really exciting to see this [stage of ethereum development] launch into the Beacon Chain launch. This is for sure the biggest technological innovation that happened in 2020 in the blockchain space, in my opinion.”

See related article: What’s next for Ethereum 2.0 after the Beacon Chain?

Decentralized finance (DeFi) taking off: “That is interesting to see because I created ERC-20 which created all of these tokens, and now seeing what comes out three years later — how this whole decentralized finance movement is actually moving to the next level, from just building simple tokens and doing something with them, we are now combining them in more complex protocols, and then making outcomes, something even more new and different, and that somehow relates to each other. It’s really exciting to see this and the experimentation that happens.”

See related article: DeFi explained: The guide to decentralized finance

How increasing regulations may affect technology: “This can sometimes go really wrong. The direction it’s taken in America is bad, I don’t think you want to now put everything under a securities rule and make it super complicated for any new thing to happen.”

See related article: Why blockchain and crypto regulations are ‘necessary evil’ for US and Europe

Why reversible ICOs can combat stifling regulations: “The technology can do so much more, and trying to apply old school laws to that is simply stifling. It’s not bringing it anywhere. I’d rather have the sandbox box model where you experiment, where things can happen and then we can see where it goes. And find solutions that actually regulate on-chain. For example, I created the reversible ICO, which is not just an ICO, but it’s an ICOs where people reserve tokens and buy them over time so that they can return the still reserved ones if they would think that the project didn’t work out, or they changed their mind and they need their ether back. So, that’s the way I think you can regulate. You literally give people safe-by-design systems and then it’s just safer than they could ever be. Any other paper regulation will only lead to year long processes and court laws and lawsuits that don’t bring anyone, anywhere money in the end anyway. So, it’s just a waste of time.”

See related article: Is DeFi’s breathtaking rise just like the ICO bubble?

On the ERC-725 standard for blockchain-based identity: “I’m proposing new standards. One is called ERC-725, which is a standard for on-chain accounts. If you have on-chain accounts then you can have a much better user experience, you can have an upgradable security, and you can do the same thing like any private key can do. This new way of interacting with the blockchain will allow these new people or this new audience to actually start to use it.”

Predictions for 2021

Decentralization as a tool: “My credo always is ‘decentralization as a tool, not as a requirement,’ because if we build things in the direction where they can decentralize — even if we put very centralized layers directly right in the middle — it will eventually go there once the technology’s ready. But we are not stifling it by trying to make it overly centralized.”

See related article: How DLT is fighting the information war in Syria and saving lives

Non-fungible tokens (NFTs) and non-financial use cases will increase: “I think we see a new kind of user coming in and they will move very strongly towards non-fungible tokens (NFTs) and non-financial use cases. [Current blockchain use cases are] far too financial-focused. This is a very narrow and niche audience that you find here. It’s mainly men, it’s people that have money or somehow are willing to trade, while the ordinary user is probably not only men and also not always interested in spending US$100 or US$500 into a random tryout or game. So, it’s a different kind of user [that will enter the space], but it brings in a new economy and I think it’s essential. This digital NFT economy is essential for creating this ‘Ready Player One’ world that’s going to happen and that needs certain infrastructure.”

See related article: How blockchain is painting a brighter future for art in a Covid world

Standards as the building blocks powering growth in the blockchain space: “In the end, it’s all about standards [such as ERC-20 and ERC-725]. It’s all about defining the basic pieces. So 2021, we will see the first big moves in this direction. 2022 it will be a very different audience in the blockchain space and it will be a very different size also. So we will probably see a lot of growth coming up.”

Governments and big players utilizing blockchain: “We are also seeing what you kind of could already see in the last year. We are seeing governments and the big players becoming more and more interested in blockchain and coming out with their own things. Like the Chinese government and the European government will have digital Euro and other governments and other big organizations will actually start to utilize blockchain.”

See related article: China’s 5 hottest blockchain developments in 2020