How risky are NFTs?

What is an NFT?

Before we go further, let’s establish what an NFT actually is. NFT stands for non-fungible token; if something is non-fungible, it’s demonstrably unique and one-of-a-kind. When you exchange money for one of these tokens, you’re buying a specific position on a blockchain (if you think of a blockchain as a big decentralized database, your “token” represents a line in that database).

Pieces of digital media can be linked or associated with specific points on a blockchain. For example, if you take a photo of your cat, you can have that photo “minted” as an NFT, which essentially involves paying a company to link your image to a unique spot on a blockchain.

You can then sell ownership of the cat photo to someone else. The buyer won’t be purchasing your photo, exactly, but rather the unique digital token that represents the blockchain position associated with that photo.

If this all sounds complicated, that’s because it is. And it’s made more so by the enormous amounts of misinformation and hyperbole currently circulating around NFTs and their potential value.

Why are people talking about NFTs now?

In the last year, NFTs exploded into public discourse, in large part because of the unusually high prices they were selling for. Large parts of the public had already heard of blockchain technology, thanks to the rise of cryptocurrency, so awareness of NFTs spread quickly.

While in theory you might buy a piece of NFT artwork because you like it visually, most people have begun to view these tokens as potential money-makers.

A speculative craze is now in full swing, as people buy NFTs and hope that they appreciate in value. As hype around an NFT grows, so too does the potential to flip it for profit. For many, these digital tokens are indistinguishable from speculative stocks.

The details of our survey

The hype around NFTs is very real, as exhibited by the results of our survey. We found that 47% of US respondents had some knowledge or awareness of this technology, and around half of that group had actually bought, sold or invested in NFTs previously.

However, 68% of respondents who were familiar with NFTs also admitted to being concerned about their potential security risks. Here are some of the key threats that worried them:

• 51% are concerned that their NFT could be stolen, without any way to recover it.
• 49% are worried about purchasing a fake NFT — for example, a piece of digital media minted without the creator’s permission, and sold through an unofficial NFT store.
• 48% fear that bad actors could impersonate famous NFT creators, selling fake works in their name.

These are all legitimate concerns; one of the major challenges with decentralized recording systems like blockchains is the lack of recourse for people who are scammed or robbed.

Are people right to be worried?

Judging by the results of the NordVPN survey, a large percentage of people who are aware of and even use NFTs are also worried about potential risks. And that’s not a bad thing, either, because those risks are very real.

In February 2022, a major NFT marketplace called OpenSea suffered a breach and lost 254 tokens — worth an estimated $1.7 million. And that’s just the latest in a long series of similar attacks and thefts.

Furthermore, many NFTs are now being sold as part of pump-and-dump schemes. These are scams where an individual or an organization promotes a collection of NFTs, boosting their value with celebrity endorsements and flashy advertising. Once the value spikes, the creators sell off the NFTs they’re holding and make a quick profit.

This sudden divestment depreciates the value of the NFT collection, so anyone who is slow to sell could potentially incur a serious loss.

A growing risk awareness

The fact that a large percentage of respondents had an awareness of the risks is actually encouraging. It’s not surprising, however, as many of those surveyed seemed to have a reasonable understanding of privacy and online security.

Almost half of those who had previously engaged with NFTs said they used private browsers to do so. Others utilized extra security measures like password managers (43%), file encryption software (37%), and VPNs (34%).

Should you be using extra security tools?

Whether you’re buying and selling NFTs or just checking your email, we always recommend implementing some additional cybersecurity measures when you’re online. If you want to boost your overall safety, try these useful tools.

• Password Managers. Passwords are a key part of the defenses keeping hackers and snoopers out of our private accounts. However, many people rely on simple, easy-to-guess login credentials, which could be bypassed by a cybercriminal in seconds. Instead, we suggest using a password manager. Services like NordPass can generate strong, hard-to-crack login details, giving you the protection that you need.
• Use Threat Protection. NordVPN’s Threat Protection will help you to protect your device from malware and viruses. Threat Protection blocks ads and trackers, and limits the threat of malware infection.
• VPNs. With a VPN on your device, you’ll be able to encrypt your data while it’s in transit, hiding your IP address and making unsecured Wi-Fi connections a lot safer. One NordVPN account can cover up to six devices, offering high-quality and continuous protection.