I interviewed Amine Oubrahim, founder of Nomad Media Club on how to spot and avoid NFT scams. As you might expect, most of the advice is common sense, but given the unregulated and unregulated nature of NFT markets in general, the topic is worth discussing.
Oubrahim says the most important factor is the NFT Transmitters team page. It is essential to verify the people behind the project, as this indicates whether it is a serious business or not, as well as the probability of the so-called carpet. This is difficult, as a few of the most successful NFT projects had anonymous founders (BAYC), setting a dangerous precedent for later projects, as one of the value propositions of “crypto” is to engage in free trade without controls, regulations or identity. Oubrahim goes on to compare buying NFTs is as risky as investing in a pre-seed round of a startup, that return expectations should be reasonable.
I have $2 million in Ether.
I am creating an NFT part.
I use my $2 million to buy my own NFT.
I still have my $2 million in ETH, and I also have an NFT coin that is worth $2 million based on price history.
I sell my #NFT someone for just $200,000, or 90% off!
Now I have $2.2 million in ETH.
— Nikhil D Prince 🇮🇳 (@NikhilDPrince) April 10, 2021
Another reason the team is anonymous is to engage in the wash trade which is very common in NFT markets. Most exchanges do not require KYC to trade, and anyone can create as many accounts and addresses as they want. If a coordinated pump from an NFT can result in a “big fool” buying, the project makes a profit because their only cost base is the initial mint.
Oubrahim says transparency is needed as it will allow the market to mature and reduce the number of scams to near zero. Some exchanges require KYC to mint the NFT, which is a positive step forward. As the space grows, NFT markets are starting to look more like traditional investing with reasonable expectations of return, instead of multiplying your investment by 10x in hours.
Given the current market conditions, Oubrahim asks if an NFT buyer is looking for insane returns in a day, he should ask himself, “Who are they going to get this money from?” This question highlights the zero-sum and unsustainable nature of the digital currency and NFT markets to date. To limit expectations, he goes on to state that investors should consider buying NFT “like Kickstarter on steroids,” which is an appropriate comparison given the level of risk and return expectations.
Decreasing overall NFT trading volume, along with users being more vigilant in spotting scams, pushed the market towards utility. As teams need to be more creative in delivering value to NFTs, the model is moving away from anonymous trading and exit scams towards a stronger relationship between the issuing team and its buyers. That was the whole original premise of Bitcoin, to remove trusted third parties from the exchange of value.
Oubrahim strongly believes that utility NFTs provide entrepreneurs with the “opportunity to target different niches” and that “the market is big enough for everyone”, inferring that creators with a high barrier to entry in the previous Internet model now have the opportunity to engage, create, and strengthen the relationship with their fans, customers and users.
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