5 Ways to Tell if an NFT is Legit
A beginner’s guide to navigating NFT projects
As a founder in the NFT space I have heard a wide range of concerns about fraud in the crypto space. Whether it’s about the million dollar lost USBs in the garbage or Squid Game rug pulls there are a number of horror stories that make everyday consumers skeptical about entering the market. Even as a web3.0 founder and enthusiast I still am very skeptical about many of the products out there and tread with caution. But alas, not everything is a scam, and with great risk comes great reward. With that in mind I figured I would share some of my most helpful tips when deciding whether or not to invest in a crypto or NFT project.
What’s the utility?
Crypto applications can be very difficult to understand and often involve some level of base technical competence to fully grasp. However, before you invest in any crypto currency or product I highly recommend trying to determine what value the product actually delivers. Even if the value is just as digital art, it’s important to know what you are buying and understand what an NFT can or can’t do. NFTs in theory can do any number of things ranging from representation of ownership to rare assets or premium content, to access to exclusive communities. When administered by trusted parties, they can be a great way to represent an exchange or even display value in a video game or meta universe. With that said, many NFTs on the market do not offer this level of utility. If you are ok buying the picture or gif at the listed value in support of the creator, that is fine, but understand that the resale will be completely based on finding someone else who also recognizes the value. To determine utility I recommend researching the creator and seeing if the NFT is part of a greater effort or company mission.
What’s the sales history?
Another helpful trick when evaluating an NFT is to look at the sales or transaction history. Complex networks of “bots” and savvy investors exist to pump the value of certain crypto assets and projects with the sole purpose of selling off at the top price. As mentioned above the Squid Game rug pull is a prime example of how “hype” and this type of coordinated attack can scam many buyers into thinking an asset is more valid than it actually is. By viewing sales history you can tell quite a lot about the value of a crypto asset. Has it recently made massive leaps in price? Are high volumes of transactions occurring without due cause? All this information and more can be publicly viewed via the blockchain and while a lack of sales data or odd transaction trends will sometimes occur with legitimate products, more often than not they should be cause for further investigation. Money laundering is another common use case where wonky sales history and offbeat items could sell at unusual prices, so be aware.
Do the artists or investors have a track record in the space?
It seems like every celebrity under the sun has a new NFT project starting up. While many of these are no more than marketing stunts, a select handful of premiere celebrities and investors seem to be long on crypto and NFTmania. Gary V, Mark Cuban, and others have thrown their support behind NFT projects and seem to be vetting using traditional investment tools (such as evaluating the founding team and product merit). While their stamp of approval is by no means a guarantee that an NFT will maintain value, it is a good starting point when looking for credibility. Additionally brands such as Macallan Whiskey and the NBA are backing popular NFT projects which is potentially another signal of legitimacy. With that said, some brands and celebrities are putting very little diligence into their NFT projects and simply licensing their likeness for personal gain. Others such as “Rolex NFT” on OpenSeas simply use likeness and seemingly have no connection to the actual brand and do not offer a physical Rolex watch in conjunction with their NFTs. While scams like this may seem trivial, it is important to note many brands will be dipping their toes into the crypto space and to always validate before making a purchase that it is in fact a licensed NFT of the organization before trusting a vendor.
Does it have a future?
Similar to the earlier question on utility, I try to always think through the immediate and future potential of any crypto or NFT purchase I make. What will the product look like 5 years from now, and is the utility growing? Looking at investments like Ethereum or NBA Topshots it is easy to see how a trading card game or developer platform could grow and thus it’s assets would maintain and grow in value as well. When making a purchase in the crypto space it is most likely a speculative investment more often than not. Looking into company whitepapers and collateral for future guidance is a good first step into determining whether an NFT investment is right for you. While vision and the future are largely subjective, as is value, understanding what the NFT may do for you long term should factor into any decision you may make. NFTs are still very new technology but have promising potential, making sure that the creators have this potential in mind is a good step to determining the value of an NFT.
Are the communities real?
Fame Lady Squad was the most recent case of crypto virtue gone bad. While projects such as World of Women work to use crypto technology to support minority communities, others have taken advantage of the community’s goodwill. Exploitation of minority groups and goodwill is nothing new to the internet, however we must be on guard more than ever as increasingly sophisticated predators enter the market. Be wary of any social good NFT or currency without much traction or credibility when investing, and try and determine if their business model is sustainable or merely fluff. One good thing about community driven products is that they often offer Discord and other social platforms for users to connect on. Use this as an opportunity to sniff out unusual activity and talk to the founding team about their future plans and community motives. If a social network or company representative is not available I would be highly skeptical of any crypto project which focuses on community initiatives.
By using the tools listed above you can be better prepared to make your first NFT investment a smart one. For a low cost start to your journey consider using EDUcoin, the first NFT platform created to badge job skills and foster a new academic ecosystem. For more information visit educoinapp.com to start collecting.
