The number of NFT related frauds jumped five fold in the UK last year with the rise likely to continue according to legal experts.
Last year, NFTs were transformed from an obscure asset class sought after by a small circle of crypto enthusiasts into a red hot global market worth $41bn – on par with the traditional art market which saw trade volumes of $50bn in 2020.
The hype around NFTs opened up new opportunities for fraudsters with the number of reports to Action Fraud increasing five fold from two cases in 2020 to ten reports in 2021, according to law firm Pinsent Masons.
The true number of NFT related frauds is likely to be higher than reported according to Hinesh Shah, a senior associate forensic accountant at the firm, who expects cases the rise in the coming months.
“Widespread media coverage of the NFT boom, like the cryptocurrency boom, is attracting consumers who have very little investment experience and therefore aren’t taking basic steps such as checking if an NFT is actually an NFT,” said Shah.
“The profile that the NFT market has achieved means it is attracting more and more retail investors into this space,” he added. “Genuine stories about the windfall profits individuals have made on NFT investments makes the more outlandish claims made by fraudsters, to lure investors, seem credible.”
One of the simplest forms of NFT fraud is to sell fake assets to members of the public by making NFTs from artworks that they do not own the rights to use. Fraudsters can also artificially boost the value of an NFT by selling it to other accounts that they own to create a false purchase history.
Lydia Danon, a partner at the law firm Cooke, Young and Keidan suggested the situation could worsen as Brits face a cost of living crisis.
“In times of low interest rates, increasing inflation and energy costs, the opportunity to make a lot of money quickly is tantalising. There are relatively simple and low-cost ways for scammers to connect with their victims, whilst shielded by a cloak of anonymity,” she said.
Amid the rising tide of NFT related fraud cases London law courts are “fast becoming the jurisdiction of choice,” for these types of claims Jennifer Craven of Pinsent Masons said.
“English Courts have quickly answered complicated legal questions concerning whether digital tokens can be classified as property . They are also more willing to treat fraud cases urgently,” Craven said.