Main conclusions
The sharp increase in the value of the NFT market has led to an increase in the number of scammers looking to defraud buyers with fake NFTs.
The authenticity and originality of NFTs can be verified using tools such as blockchain explorers, digital certificates of authenticity, and reverse image searches.
Some third-party platforms may offer guarantees regarding NFT authentication, but it's always best to do your own research.
Today, the non-fungible token (NFT) market is worth billions of dollars, and while all NFTs are unique, some may very well be fakes created by scammers. To protect themselves, buyers need to better understand what NFT authentication is and how it works.
NFT sales totaled $24.3 billion in the first nine months of 2022, according to a Reuters report. The amount of money the NFT market is now attracting shows how popular and important this type of digital asset has become among many cryptocurrency users. Indeed, interest in NFTs is so high that the famous British auction house Christie's sold an NFT of the artist Beeple in March 2021 for $69 million.
An NFT, or non-fungible token, is a type of cryptographic token on the blockchain that is a unique asset. These can be completely digital assets or tokenized versions of real assets.
Fungibility means the ability to replace an item with an identical one. For example, if your friend owes you $10 in cash, it doesn't matter which $10 bill he gives you—they're fungible. It's the same with cryptocurrency. BUSD tokens, for example, are as fungible as dollar bills.
NFTs are not fungible because each one has its own unique identifier. This means that NFTs can serve as proof of authenticity and ownership in the digital world. For example, digital art and collectibles can be sold as NFTs, allowing creators to monetize their work and buyers to prove ownership of something that might otherwise be digitally copied.
Buyers should be careful, however, as the sharp rise in the value of the NFT market has led to an increase in scammers looking to defraud buyers and prey on their lack of knowledge or attention to detail. The existence of unoriginal or fake NFTs can confuse buyers and cause them to spend money on something that is actually worth nothing.
In this article, we'll explain how counterfeits are created in a space where each NFT is, by definition, unique. We'll also cover what NFT authentication means, how that authentication can be accomplished, and how users can best protect themselves from being scammed.
What is a fake NFT and why authentication is critical
You might think that if each NFT has its own ID, you can buy it confident that it is one of a kind. But here's the problem: authenticity. While all NFTs are truly unique, there's nothing stopping scammers from digitally copying someone else's work, releasing it as an NFT, and then selling it claiming it's an official release.
However, this NFT will be fake. The work was stolen and released by a fraudster trying to profit from someone else's work, without any approval from the person who created the original. This is why NFT authentication is essential for anyone considering purchasing an NFT.
What is NFT authentication
NFT authentication is the process by which the validity of an NFT is verified. Two key factors to keep in mind are authenticity and originality.
The issue of authenticity is making sure that the NFT is actually associated with the person who claims to have created it, and that ownership can be traced back to its intended source. The question of originality is to verify that the work itself is unique and not a copy of any existing work. This may be especially important given that the value of many NFTs comes from their rarity.
How does NFT authentication work?
A person who bought an NFT Beeple for $69 million at Christie's would rely on the auction house to confirm the authenticity of the work, most likely through direct communication with the artist. Likewise, some NFT marketplaces take it upon themselves to guarantee the authenticity of works sold on their platforms. This clearly demonstrates how best to approach the NFT authentication process and what buyers should do.
The first tool to consider is a blockchain explorer. Each blockchain has its own explorer, which is essentially a website where you can view transactions, wallet information, and token data. Using this tool and examining publicly available data can help confirm the ownership and provenance of the NFT. In terms of authentication, you can check if the NFT was actually released as part of a specific collection, for example.
Another tool is an NFT digital certificate of authenticity. It contains information about the NFT, such as the token ID number, the collection serial number, and the digital signature of the creator. Please note that not all NFTs have such a certificate, but it can provide extremely valuable data that can be verified against the information published by the creator.
Both of the above tools are used to confirm the authenticity and origin of an NFT. Regarding originality and rarity, reverse image search is used. For example, with Google Images you can search by images rather than words. Search results show all matching images, including copies, and provide details such as upload date and other key data. The goal here is to confirm that the work has not been duplicated or copied from an existing image or issued NFT.
Learn more about common NFT scams and security tips from Binance.
How Users Can Best Protect Themselves in the World of NFTs
Always remember that if something looks too good to be true, then you should be on your guard as it is most likely a scam. For example, if someone is selling NFT CryptoPunks for 1 ETH, but on a trusted cryptocurrency site like CoinMarketCap the average price per collection is over 60 ETH, you should be wary.
Also, before you buy an NFT, be sure to check if and how it has been authenticated. If the authentication was performed by a centralized third party, you need to decide how much you trust that platform.
But if possible, it's always best to verify the authenticity and originality of any NFT using tools like blockchain explorers, digital certificates of authenticity, and reverse image searches. Also, be sure to cross-reference all of this data with information obtained from the official channels of the NFT creator. This will allow you to clear up any doubts you may have.
The main thing is to remember that counterfeits exist and always verify the authenticity of NFTs as much as possible to ensure your safety. Never take anything at face value and always be willing to do your own research (DYOR). Having the right mindset and awareness means you can engage in NFT trading with much more confidence and understanding.
Denial of responsibility. NFTs are a new and still emerging asset class. The information in this article should not be considered investment or financial advice. Always do your own research before deciding to buy, sell or trade NFTs.