Brand Protection & NFTs: Scams, Fakes & How to Mitigate Risks
 

Brand Protection & NFTs: Scams, Fakes & How to Mitigate Risks

Emerging threats • Online Counterfeiting

The NFT market poses an opportunity for brands, but also hidden risks, with counterfeiters and scammers targeting platforms and rights owners. Find out the key threats and how brand protection teams can mitigate them.  

The market for NFTs has exploded recently, with more than $2bn spent in the first quarter of 2021. Global brands are capitalizing on this fertile new ground — the NBA is one organization to have taken advantage of the market so far, creating video clips for fans to collect. 

As with most emerging opportunities, there are associated threats that brand protection teams should be aware of. The NFT market is no different, as counterfeiters and scammers target nascent platforms and regulations that are some way off being able to fully protect brands and rights owners. 

Read this blog to learn: 

  • What exactly are NFTs and how are they created, stored, and traded? 
  • How copyright and ownership laws work with NFTs 
  • How infringers are targeting consumers with fakes, scams, and other tactics 
  • How brand protection teams can mitigate threats 

What is an NFT? 

An NFT (non-fungible token) is a unique token created in relation to a specific digital asset, like an image, music track or video clip. People commonly, and mistakenly, think of the asset as the NFT. However, it is the token that is the NFT. 

What are NFTs used for? 

NFTs are well suited to digital collectibles, such as video clips, music tracks, or in-game items. The accuracy and traceability of ownership is the key attraction here. They are also being tried out for unique physical items, but how applicable they are to real world items remains to be seen. 

How are NFTs linked to blockchain? 

The NFT is stored on a blockchain. There are different blockchains, but the most popular for NFTs is Ethereum. Once on the blockchain, the NFT can be validated, and changes of ownership updated and tracked. This is how the value is passed from owner to owner and anyone can trace the provenance of an asset with certainty. 

How do you create an NFT? 

To create an NFT, the creator goes through a process called minting. This process requires the creator to have a wallet with crypto currency in it (e.g. Ethereum), so that the newly created NFT can be linked to the wallet. This establishes the wallet owner as both the original creator and the first owner of the NFT. 

The crypto currency is used to pay the gas fee necessary for minting. This fee is required to successfully complete the transaction on the blockchain and goes to the miners who provide the computing power (gas) behind the network. 

How are NFT’s stored? 

The digital asset is stored either on-chain or off-chain. Some NFTs encode the content in the blockchain data (on-chain) or describe an algorithm for generating an image from the transaction hash. However, the most common storage is off-chain. This means that the NFT resides on the blockchain but the asset itself must be hosted on a server elsewhere with a link to it in the NFT. 

How are NFTs purchased? 

The creation, sale, and trade of NFTs take place on platforms like Rarible and OpenSea. Users of those platforms can mint their own NFTs, buy, sell and trade them. 

Brand Protection Considerations for NFTs 

Upon creation, copyright will subsist as it does ordinarily, dependent on jurisdiction. When the NFT is minted, the copyright owner does not necessarily give away the copyright with the NFT. The two exist separately unless they include assignment of copyright with the NFT. This means that the owner of the copyright can be recognised from the blockchain record and credited with any royalties that may come from exploitation of the work later. 

The NFT and the asset are often separate things, as off-chain storage is the most common method for storing NFTs. This means that the copyright work may still be accessible to the public and able to be copied easily, infringing copyright when the copy is made. This is an important consideration for NFT creators as the creation does not automatically protect the work in any way. 

What are counterfeit NFTs? 

If a brand mints its own NFTs then it is likely that others will look to issue further identical NFTs in order to confuse consumers. Given that this is likely to happen most in the collectibles space, it will be important to consider how consumers can gain confidence that they are buying the real thing. 

Consider including an embedded watermark/fingerprint and a verification technology for consumers to check. This is a typical consideration for any content creator. Alternatively, issuing information about the number of NFTs that have been officially minted and sold could give consumers information to recognise flooding of the market for limited edition NFTs. 

A brand may not produce its own NFTs, in which case an infringer could create a work that infringes copyright and then mint an NFT, offering it for sale. In this case, the rights owner may wish to ask the trading platform to remove the NFT from sale, as an infringement. 

Platforms like Rarible do state that they do abide by laws such as copyright, money laundering and fraud. In this instance, they will remove the NFT from their platform but the NFT will still exist on the blockchain and could be traded elsewhere. 

The additional question in this scenario is whether platforms like Rarible, could be encouraged to employ proper due diligence methods before allowing the creator to mint the NFT. For example, using image matching technology to determine if known works were copied. 

Impersonation 

In early 2021, Banksy-style NFTs sold for $900,000. Given Banksy’s anonymity, buyers were not sure if this was the real Banksy or someone impersonating him. It turned out of be the latter. Domain names were registered such as banksynft.com and banksynfts.com, creating the possibility for further scams in the future. 

As mentioned, the content and NFT are held separately and access to the content is not necessarily limited to the owner of the NFT.  

This should be a consideration when thinking about the long-term value of the NFT. If it is very easy to copy the content and anyone can obtain it then it may not be as valuable on resale. Retaining value really relies on creating a strong collectibles market, with value lying in scarcity. 

Fake NFT stores 

Copying legitimate NFT trading platforms like Rarible, buyers may be tricked into giving their personal information and potentially funds to a platform that looks exactly like a well-known and legitimate platform. 

Replica NFT stores 

Similar to the fake NFT stores, new stores could be created which are pure scams. They will have been set up to look like the next trading platform, but provide no functionality and harvest personal information and perhaps funds. 

How can brand protection technology support NFTs? 

The emerging world of NFTs is an important aspect to be considered for many brand protection strategies. Whether minting and selling official NFTs or continuing to protect copyright assets, it is important that technology helps to combat new threats by: 

  • Monitoring for domains that appear to be NFT trading/minting platforms which may be used to scam users and ensure discovery of URLs within that domain which may be offering NFTs infringing on the brand 
  • Monitoring for domains that are purporting to be official NFT stores for the brand 
  • Scraping legitimate platforms to find fake NFTs or otherwise infringing works that have been minted and make use of our imaging technology to detect any substantial copying of protected works 
  • Tracking legitimate NFT content to determine if there is widescale distribution that would erode value 
  • It’s also important for brand protection teams to build relationships with platforms to ensure they have effective takedown procedures in place, and are considering proactive measures to prevent the minting and sale of infringing NFTs. 

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