As NFT Scams Rise, NFT Insurance Hits the Market

There is a popular NFT (non-fungible token) called the Bored Ape Yacht Club. It’s big enough that Paris Hilton told The Tonight Show host Jimmy Fallon last week that she has it. Fallon replied that he had some too. It was a real coming out on the mainstream media for the mysterious NFTs.

Yet just a week before that, on January 11, there was another NFT with a similar name, The Big Daddy Ape Club. In this case, investors were defrauded of approximately $1.13 million, according to a report in Decrypt. Did these people think they were getting the same chips as Hilton and Fallon?

Nobody knows.

In this case, investors paid the money, but the tokens were never minted. A classic bait and switch scam. Investors weren’t completely simplistic. They had seen a “verification” of the crew at the Big Daddy Ape Club, performed by a San Francisco-based decentralized identity verification company called Civic, Decrypt said.

Well, we hope Civic has a good insurance policy.

But what can investors do against NFT theft?

They can also take out insurance. In reaction to the scams, the insurance industry has created new policies to protect NFTS.

What are NFTs?

Non-fungible tokens (NFTs) are unique cryptographic tokens that prove ownership of an asset, whether in the physical or digital world. They are like a digital deed of a house or a verification certificate that one would receive when purchasing a painting.

Fungibles are goods that can be used interchangeably, such as tomatoes. If you need beefsteak tomatoes, you can get them at any store, because a bushel of beefsteak tomatoes is equal to any other bushel. Bitcoin is a fungible token. You can exchange it for any other Bitcoin.

NFTs run on the same blockchain technology as cryptocurrencies, but non-fungible tokens cannot be traded interchangeably due to their unique set of codes and numbers.

Buyer Beware

The crypto art industry reached a market capitalization of $2.3 billion this month across various platforms, according to Finacepr.com, up from $409 million on December 1, a 460% increase in only two months.

“NFT scams are becoming more common due to the increase in ownership and sophistication of technology, making it easier for scammers to target investors,” said Adam Morris, co-founder of NFT Club, an NFT educational site.

Scammers are adapting to changing technology and creating updated versions of old scams. A major danger is the complex world of copyright.

There has been an increase in replicas and fake assets designed to look like originals, Morris said.

Investors need to verify assets as scammers copy collections and try to sell counterfeit NFTs. Prominent NFT marketplaces have reported stories of rampant forgery and art theft. But even verification isn’t 100% guaranteed, as Big Daddy Ape Club investors have discovered.

While there are tools you can use to verify websites, the best recommendation is to stick with legitimate sites, such as the OpenSea NFT Marketplace.

Even so, scammers pose as support staff at OpenSea and Metamask, a crypto wallet site, or contact users on social media platforms Twitter and Discord. They want people to expose passphrases or send links to fake customer service websites.

NFTs can be insured

To protect NFTs and other digital assets, the insurance industry is developing new forms of coverage, specifically designed around the inherent risks of NFTs.

“It’s definitely the Wild West out there,” said Michael Giusti, senior writer at insurancequotes.com, an insurance marketplace in Austin, Texas. “Just because someone sells an NFT doesn’t mean they necessarily own the underlying asset…It would be like someone standing in front of their neighbor’s house with a counterfeit deed. That’s not just because someone paid money for this deed doesn’t mean he now owns the house.”

Giusti wrote a report on NFT insurance. In it, Sharon Henley, Vice President of Research and Development at Coincover, a crypto-asset insurer in the UK, said: “Like all other cryptocurrencies, tokens can be insured under certain circumstances. , for certain losses. It is possible to insure NFTs on different risk vectors.”

But investors should take action before buying an NFT.

“See NFT details, review metadata, review metadata URLs as well as JPEG URLs,” Henley said. “It’s easy to change URLs and think you’re buying an NFT that you’re not. … Make sure you’re buying NFTs from a site you trust … and do your due diligence again reasonable.”

Insurance QuotesNFT Insurance: Non-Fungible Tokens – InsuranceQuotes