Experts believe NFT fraud will continue to rise, thanks to its new found popularity.
Non-Fungible Token (NFT) fraud is growing in the UK, with 10 cases reported in 2021, an increase from just two in 2020, according to law firm Pinsent Masons.
However, it said the number of NFT related frauds is likely to be far higher than the numbers reported to the police.
Hinesh Shah, Senior Associate Forensic Accountant at Pinsent Masons, says he expects fraud relating to NFTs to grow rapidly in the coming months as the publicity surrounding them continues to attract inexperienced investors into the sector.
He said: “Genuine stories about the windfall profits individuals have made on NFT investments makes the more outlandish claims made by fraudsters, to lure investors, seem credible.
“Widespread media coverage of the NFT boom, like the cryptocurrency boom, is attracting consumers who have very little investment experience and therefore aren’t taking basic steps such as checking if an NFT is actually an NFT.”
One of the simplest forms of NFT fraud is to sell fake or non-existent NFTs to members of the public.
Some fraudsters are making NFTs from artwork they do not own the rights to, then selling onwards to buyers.
This is a major challenge for NFT platforms that don’t have the resources or personnel to cross reference NFTs with existing copyrighted artwork.
Other NFT fraudsters are artificially boosting the value of an NFT by selling it to themselves multiple times to create a false purchase history.
The fraudster can then use this as ”evidence“ of an NFT’s value to sell to an investor at an inflated price.
The anonymous, decentralised nature of the blockchain can make it difficult for investors to identify who is selling the NFT.
However, NFT fraud is not deemed a priority by many enforcement agencies. A lot of fraudsters are located overseas, providing another obstacle to track the fraud.
Mr Shah added: “The profile the NFT market has achieved means it is attracting more and more retail investors into this space. Because the market is so new, it’s inevitable that some people will fall victim to scams.”