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One of the most covered topics so far in 2021 has been non-fungible tokens, or NFTs. In this Fraud Talk podcast episode, ACFE Senior Research Specialist Mason Wilder, CFE, talks to OSINT researcher extraordinaire and artist Kirby Plessas to cover what NFTs are and the fraud implications of their rapid emergence into the public consciousness.

In the excerpt below from the full transcript of episode 107 of Fraud Talk, Plessas describes how this new, fast-moving technology creates a ripe opportunity for fraudsters. Download the full transcript of “An Introduction to Non-Fungible Tokens (NFTs) and Fraud” in PDF form or listen to the episode at the bottom of this post.

Mason: Can you talk about how, if you're noticing parallels or seeing the same kind of thing about how fast things are moving with the NFTs and how when there's a market like this or when there's a technology like this that's moving so fast, how that creates vulnerabilities for incorporating that into fraud scheme prompts or fraud schemes directly tied to the technology.

Kirby: Sure. NFTs really started years ago, a couple of years ago, 2017, 2018, but just this year have they really picked up speed. I would say the fall of 2020 is when the hype started, but it really came to this fever pitch in January, February, and now March. What happens when you see something create a fever pitch like that is a lot of people, especially when there's a lot of money involved, a lot of people want to jump in.

That's where the opportunity come for fraudsters to either create their own NFT companies and then maybe load up with Ethereum, get people to maybe preload into the marketplace that they create and then close it down as an exit scam, for example, or pretend to be the guide to help somebody create an NFT, for example, to create some… They can contact these artists and say, "Hey, I'll help you create these NFTs," and maybe at that point, they do create the NFTs but then they take a larger percentage than is warranted, or maybe they even hijack and take over the NFT account.

That could be something where even just password sharing of different things, when one website gets breached, somebody else can maybe get into your NFT account because you're sharing passwords, and just hijack accounts like that. There are so many different opportunities. When something becomes the hype, that's when the fraudsters are forced to jump on it. Definitely, NFT is the hype right now.

Mason: Yes. This is certainly just my opinion, but based on that some of the sampling of headlines that I've seen so far, I feel like some of the people throwing massive amounts of money into this arena just don't fully understand the technology because even after having done a somewhat significant amount of research, I'm still like I don't totally understand it. It feels like it's the hot thing. People with a bunch of money lying around are just like — fear missing out, "Let me just throw some money at this while hot." That generally, they're going to be lots of people willing to try and scam their way into some of that money.

Kirby: Absolutely. You find that not only people throwing their money in and buying these but a lot of people throwing their NFT art in, creating artwork. Again, you mentioned the headline where Jack Dorsey of Twitter sold the first tweet, right? Every person who wants to create something, they can load anything. The New Yorker who sold his fart. You can load anything as an NFT. Then what I think is going to happen, what I think is happening right now is you have these big-name celebrities who have a lot of PR behind them throwing stuff as NFTs, selling them for huge money, but you have to remember that they didn't just load it as an NFT and having to sell. There was a PR machine behind it to create this hype.

Now, a lot of people are loading stuff as NFTs and they don't have that PR machine. That's where I think a lot of people…

Will they lose out? Most of the artists are going to lose a little bit of time and a little bit of money on those gas fees, but it's when the scammers come in and figure out a way to be the middleman or to create their own NFT market, like we said, with an exit scam or that sort of thing, that's where the real losses are going to start to happen, I think.