How to Protect Yourself From NFT Pump-and-dump Schemes?
Non-fungible tokens, also known as NFTs, are digital assets that are stored on a blockchain and have their own individual identifying codes and metadata that set them apart from one another.
NFT is a type of digital currency built on smart contract platforms such as Ethereum, Avalanche, and Solana. They are unique digital objects that are fun to own and can be traded for profit. Think of them as digital trading cards. They usually start out as something that only enthusiasts care about, but if you get your hands on something rare, they can be worth a lot in a day.
In contrast to cryptocurrencies, it is not possible to trade or swap them for equivalent value. This is in contrast to fungible tokens such as cryptocurrencies, which are indistinguishable from one another and so have the potential to act as a medium for monetary exchanges in the marketplace. The ERC-721 standard was the ancestor of the NFT.
The ERC-721 standard, which was developed by some of the same people who were responsible for the ERC-20 smart contract, specifies the basic interface—ownership details, security, and metadata—that is necessary for the trading and distribution of gaming tokens. This idea is expanded upon by the ERC-1155 standard, which brings transaction and storage costs for non-fungible tokens (NFTs) down to a more manageable level and allows various NFT kinds to be bundled together into a single contract.
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NFTs have the potential to be used in a variety of different scenarios.
For instance, they are the appropriate vehicle for virtually representing tangible assets such as real estate or artwork in the digital realm. NFTs, which are built on blockchain technology, has the potential to eliminate the need for intermediaries, connect artists directly with audiences, and even serve as a kind of identity management.
NFTs have the potential to eradicate the need for middlemen, thereby simplifying transactions and opening up new markets. Cryptocurrencies are fungible, much like traditional forms of money. This means that they may be sold or swapped for one another in the same way. As an illustration, the value of one bitcoin is always equivalent to the value of another bitcoin. A single unit of ether is always equivalent to another unit when compared side-by-side.
The fact that cryptocurrencies can be converted into other forms makes them an ideal candidate for use as a secure medium of exchange in the digital economy. Collectibles, such as digital artwork, sports cards, and rare items, make up a significant portion of the present market for non-fungible tokens (NFTs). NBA Top Shot is a platform that allows users to collect non-fungible tokenized NBA moments in the form of digital cards. This platform has received the most attention recently. There have been sales of some of these cards for millions and millions of dollars.
What Are NFT Pump and Dump Schemes?
A pump and dump fraud takes place when a significant quantity of bitcoin is purchased by a group in order to artificially inflate its price by artificially increasing demand.
Once the price has increased, the con artist will sell off their possessions and walk away, leaving others holding the bag for their losses. One instance of pump and dump occurred when members of the esports organization FaZe Clan, known for their power in the community, advocated a new cryptocurrency known as Save the Children. After investors poured money into the coin, however, its value began to decline almost immediately rapidly.
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How Can You Protect Yourself from NFT Pump and Dump Schemes?
Scammers that want to pull off pump-and-dump schemes might buy a large number of non-fungible tokens (NFTs) from a collection in order to artificially raise the price of the NFTs.
When naive investors witness the NFT collection suddenly growing in popularity and buy into the hype, they drive the price even higher than it already was. The perpetrators of the scheme will now rapidly sell off their NFTs for a profit, which will result in a precipitous drop in price. As a consequence of this, additional investors may be left holding an asset that has no value.
Again, before you purchase any NFT that piques your attention, be sure to perform the necessary research on it. The majority of NFTs will exhibit growth that is consistent throughout time. It’s possible that you’re dealing with a pump-and-dump scam if there’s an abrupt increase in the value or the number of transactions. Here are a few other steps you can take:
Keep Your Login Details to Yourself
Never let anyone else have access to the information on your cryptocurrency wallet.
If a hacker obtains knowledge of either your seed phrase or your private key, they will be able to enter your wallet and remove any NFTs or cryptocurrencies that you have stored inside. You should give some thought to keeping your credentials in a physical location, such as a hard disc.
Do Not Facilitate Messages That Appear Suspicious
You can avoid coming into contact with hackers by avoiding connecting with any messages, texts, emails, or websites that look dubious.
Phishing efforts are most likely being made at this time in an effort to steal your credentials and sensitive information or to download malicious software onto your device.
Carry out your own investigation.
Pay close attention to the URLs of the websites, retailers, and applications that you access. Look for a blue checkmark that verifies the seller’s identity next to the seller’s name, read online reviews, and investigate the seller’s social media as well as their listings. Investigate the history of transactions for an NFT by looking at the timeline. Check the pricing on other markets to see if they are comparable to the one you are looking at.
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