How to Protect Yourself When Investing in NFTs

It’s no secret that NFTs are all the rage. In fact, according to Reuters, the market for NFTs surged to $2.5 billion during the first half of 2021. Now, compare this to the $13.7 million market during the first half of 2020, and it’s easy to see that investing in NFTs is growing in popularity.

While it’s understandable that everyone wants jump on the bandwagon and start investing in the new technology. Unfortunately, the increased popularity and demand for digital goods also brings more scams and more risks too. What does that mean? It is increasingly important to protect yourself when investing in NFTs. With that in mind, let’s look at some strategies you can use to do this.

What is an NFT?

Before looking at these strategies, let’s first recap what NFTs are. Basically, you can think of non-fungible tokens as digital goods. So, like most non-digital goods, the price is based on demand. Unlike cryptocurrencies (which investors use to purchase NFTs), non-fungible tokens do not have a standardized value. As such, they’re traded based on their current market value.

Specifically, NFTs are unique digital assets based on blockchain technology. These assets can represent anything from digital art to event tickets, academic titles, and even real estate. Being based on blockchain technology, however, does offer a significant benefit. It means you can’t change or replace these assets with something else. This, in turn, makes NFTs inherently safe. 

Avoid Getting Scammed When Investing in NFTs

Now that we’ve recapped what NFTs are, let’s look at how you can protect yourself when you are ready to invest. The first way to do this is doing everything you can to avoid being scammed. Here, there should be two guiding principles: be skeptical and use common sense. 

When it comes to being skeptical, the old adage rings true. So, if something seems too good to be true, it probably is. This sounds simpler than it really is because scammers’ tactics have become elaborate and intricate. As such, it’s often challenging to disguise fact from fiction. 

Now, when it comes to using common sense, you should apply the same rules to your NFT investments that you do to avoid many other scams. As such, you should, for instance:

  • Avoid talking to strangers over DMs on platforms like Twitter and Discord. In this way, you can avoid many of the scams out there. The best way to do this is by turning off your DMs on these platforms.
  • Avoid scam projects, fake minting sites, or fake accounts on platforms like Opensea, Twitter, and Discord. You’ll want to check the information about any project, site, or account extensively before trusting anyone. 
  • Never click on any promotional links in your DMs or emails. Also, avoid fake support scams. Here, if you get any promotional or support messages or emails, it’s crucial to first do some research to figure out if the messages are legit. 

Securely Storing NFTs

Another important strategy to protect yourself is properly storing your NFTs. Here, you have several options, with the most common ones being:

  • Software wallets. As the name suggests, a software wallet is an online application that allows you to store your NFTs safely and securely. One of the main benefits of software wallets is that they’re relatively easy to set up. They’re also quite accessible, as most options provide both web and mobile applications. Keep in mind, though, because software wallets are connected to the internet, they can be hacked. The most popular software wallets include Metamask and Trust Wallet. 
  • Interplanetary File System (IPFS). As an alternative to software wallets, you can use an IPFS-based NFT wallet. IPFS is a peer-to-peer protocol that allows you to store NFTs off-chain. In turn, this decreases the likelihood of it being hacked. At its core, IPFS changes the way content is distributed. When you add a new file to IPFS, it’s split into several smaller pieces. Each piece is then cryptographically hashed and given a unique fingerprint. As a result, no one can tamper with or change these files which means it’s more secure than a software wallet. One of the most popular IPFS wallets is Pinata. 
  • Hardware wallets. For the highest level of security, you should consider storing your NFTs in a hardware or cold wallet. These wallets are stored offline, which means that hackers can’t hack them. Two-factor authentication is also always enabled. This, in turn, further improves the security provided by these wallets. Here, some of the most popular options include Trezor and Ledger.  

No matter what option you choose, you must never share your recovery phrase with anyone. Doing so is like sharing your credit card details. When someone has your recovery phrase, they’ll thus have access to all the digital assets, including NFTs, stored in the wallet. So, ideally, you’ll want to write your recovery phrase on physical paper and store that safely. 

Hopefully, this post helped illustrate some things you can do to protect yourself when investing in NFTs. Stay tuned as we continue to explore NFTs and their impact on creators. 

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