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How to spot NFT scams 🚨

gm everyone,
this week I had the pleasure to record a podcast episode with Emilie Bellet, founder of Vestpod, and one of the questions she asked me was: “How much money do I need to invest to get started with NFTs?”
The stories that we hear nowadays are usually about how crazy expensive certain NFTs are.
Yet, most of the successful projects started out with a mint price of 0.05-0.1 ETH, which is about $150-300 per piece.
On top of that you will need to pay gas fees when you mint. When I got into NFTs, gas was consistently high and it was very normal to pay around $100 in transaction fees.
At the moment, you can catch times when gas is very low. Two days ago, I minted 3 new NFTs and paid only $30 in total in gas fees - also thanks to a gas-optimised smart contract.
So if you want to get the full experience, I would suggest to identify a few projects that resonate with you (Twitter is your best friend here), join the project Discords and budget around $700-1000 (£500-750) to start out with.
This will allow you to purchase about 2-3 different NFTs since you don’t want to put all of your eggs into one basket in the beginning.
From there, you could either start trading NFTs, i.e. sell the ones you have bought for profit and re-invest the money back into buying more NFTs. Or you decide to hold and invest more.
If you go on the NFT journey, keep in mind that collections do not always go up in value (i.e. your investment is at risk).
Sometimes the floor price might go up for some time, but then - after the initial hype - it can come down to mint level again. Sometimes they could go even a bit lower, and sometimes you might get unlucky and the project is a straight up rug (meaning you got scammed).
Just this week, there were a couple high profile rugs, so I decided to share in this week’s ‘Learning about web3’ section how you can identify potential scams early on - so you can avoid minting them and losing your hard-earned money.
Until next week, keep blooming!
Lu
Founder of Blooming Founders
Mantra of the Week
“It is more important to know where you are going than to get there quickly. Do not mistake activity for achievement.”
Interesting Reads
Joseph Flaherty from Founders Collective writes about Why “NFTs” are dull and NFT projects are magical
A step-by-step guide to finding product-market fit: Focus on ‘Jobs to be Done’, Not Your Product
Here’s why you need to develop thought leadership for your business: Content Marketing is Dying
Do you want to learn what makes good content and what you should do before starting your own newsletter? Learn more in: Differentiate your content. And more tips for makers who are “bad at marketing”
Content creation takes time and you want to know if your time and resources are well spent. Find out how to track your progress in Content Marketing Goals and KPIs You Should be Tracking
Learning About Web3
How to spot a rug
NFT scams are getting more and more sophisticated and if you are new to this space, it can be easy to fall for a rug pull.
Here are some things that I would consider red flags in a NFT project:
1) A lot of Twitter followers for a relatively new account
We all know how difficult it is to grow a Twitter following organically, so if you come across a project with a Twitter account created a month ago, yet it already boasts tens of thousands of followers, then they have most definitely bought their followers.
Can you really trust someone who thinks buying followers is a good idea?
2) Founders are not doxxed and are not actively engaging
It’s okay when the founders of an NFT project choose to stay anonymous, but if they do, they always are very active in Discord and engage with the community, or they have an active social media profile.
If you find a project, where the founders are anonymous and also can’t really be found active anywhere else, it’s very likely a rug.
3) Real vs Fake Engagement
Seeing people excited about a project can easily make you feel FOMO, however, if you feel that people are putting their faith blindly into a project and you just don’t get what they hype is about…. it’s likely not a project you should mint.
If you aren’t sure, ask a few questions to the community. The quality of the answers will tell you the quality of the people who are there. Bots usually don’t give very thoughtful answers. 😉
4) Quality of Imagery
NFTs are partly (or mostly) art and real projects put a lot effort into creating great art. Great projects will have a doxxed artist, whose work you can check out on social media. If they name someone as their artist whom you can’t find on Google, then that’s usually a red flag.
Sometimes you can also just see from the level of execution that it was likely a Fiverr or Upwork gig. This doesn’t have to be just profile picture NFTs, it would be the artwork of an entire game (that doesn’t really exist apart from a few visuals and a promo video).
5) General professionalism
Rug pulls are often created by teams who conduct scams again and again. It’s a rinse and repeat formula and as a result they don’t really spend much time cross-checking and proof-reading.
So if you see a lot of spelling mistakes and poor grammar on the website, on forms or in Discord announcements, it’s a big red flag and you should probably not mint.
6) Smart Contract Quality & Audit
If you have a friend who can read smart contracts, it’s always worthwhile to ask them to ask whether a project looks legit or not from a technical perspective.
Some scam projects have smart contracts that are not audited (a very clear and big red flag) and they just bank on the fact at most NFT buyers are non-technical and would never realise how dodgy the contract is.
If you don’t have a friend who can read smart contracts, you can simply ask in the community if someone else is able to. In most cases there will be someone, but do double-check if that individual comes across as trustworthy. They might also be planted by the scammers to tell everyone that the contract is fine, when it’s not.
That’s all for this week. If you liked this newsletter, please vote with a ‘Yes’ 👍 below!
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Lu Li
Lu Li @houseofli

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