Why NFTs Are Like the Scam-Filled Internet of the Mid-’90s



As non-fungible tokens (NFTs) gain in popularity, so do scams that prey on investors interested in them. In this episode of “The Crypto Show” on motley fool live, recorded on February 9Fool.com contributors Travis Hoium and Jon Quast discuss how investors should be cautious as the new NFT space continues its rapid development.

Travis Houm: This comes to our Balloonsville NFT. Magic Eden is a secondary market in the Solarium ecosystem. They’ve released their own, what they call Launchpad, which is where you can mint NFTs, and Balloonsville NFTs was one of the projects that they did last week, and it was very clearly a rug pull, which is when they basically do the mint, the money goes to the developer’s wallet, and then the developer deletes everything and just disappears. Unfortunately, this is still commonplace in the NFT space. It’s just another reason why we say be very cautious. As much as there is really great and really disturbing stuff going on, there is also really bad stuff going on. We are in the mid 90’s on the internet. That’s where we are in space development. Magic Eden didn’t do the due diligence that I think everyone expected them to do, and the developers basically walked away. The same thing happened with Big Daddy Ape Club in January, I guess. There was another rug pull that happened in Solana. These are getting attention, and secondary markets specifically are trying to find ways to combat this. But given the hype in the system right now, it’s really hard to tell what’s real and what’s not.

Jon Quast: At least with Balloonsville, as I understand it, the people who coined the project, which is why they bought that initial Balloonsville NFT, one of 5,000 pieces, were at least able to keep the image they bought. With Big Daddy Ape Club, they didn’t even distribute the images to the people who bought that. He just sent the money and the pictures never showed up in the account and that was it. They disappeared. Now, Magic Eden is trying to get this right. They are trying to do what is called a reverse rug pull. Basically, they resurrect this project. They take it out of the hands of the original creators, they remake the thing. Everyone who bought the image from the beginning, it is as if they are giving it new funding, giving it a new life and trying to fulfill the original intention of the people who are no longer there.

Hello: Yes. They basically tried to give everyone their money back if they minted. You can do it after the fact, but we shouldn’t be at the point where this happens on a semi-regular basis. That’s really one of the challenges in space right now. There is no great solution for that. happens in Ethereal, happens in Solana. It happens everywhere in the NFT space, and there’s no big framework right now. But again, we saw this in the 90s. Think of the companies that went public [laughs] and they were just doing an initial public offering based on this “we have this many eyeballs”. There was no real business there. Now, we’re only looking at it in the NFT space. As this matures, I think this could become less of an issue, but definitely something to be very careful about at the moment.