Introduction
The funny thing about this blog post and the twitter space that I hosted last year is that I am, by no stretch of the imagination an expert in NFTs. As an entertainment lawyer I find that one of the biggest challenges has been protecting creatives intellectual property and proving ownership in their intellectual property. Therefore, the need to protect creative digital creations is of the utmost importance through blockchain technology. The introduction of NFTs has created a concrete way to prove ownership of digital pictures, videos, music, written works etc.
What is a NFT
A NFT is an acronym used for Non-Fungible Token, non-fungible simply means non-replaceable. If you are anything like me, then you are probably wondering why NFTs are irreplaceable unlike the guy in Beyonce’s song (to the left, to the left). Simply put, NFTs uses technology that certifies the authenticity and ownership of a token through a digital ledger of all its past transactions.
To understand NFTs you need to have a working understanding of blockchain which is a system of recording information in a way that makes it difficult (near impossible) to hack or cheat. It is essentially a digital ledger, however, unlike a bank, this digital ledger is a public record of transactions that you can verify without a subpoena. Without the blockchain technology you have no fungible tokens and assets since you cannot prove who the owner is.
What is an NFT? The best layman’s definition that I can come up with is that it is non-replaceable digital art which you can prove and protect ownership through a digital ledger.
Your Vulnerability of being Spoofed
I know right, what is ‘spoofed’? Jake Wengroff defines spoofing in the context of NFTs as “the process by which criminals create fake buy and sell orders in an attempt to create a false sense of supply and demand, thereby artificially influencing the price of the cryptocurrency. Spoofing is accomplished by creating the illusion of pessimism (or optimism) in the market, according to Investopedia, which in turn encourages trading activity.”
A common spoofing tactic is when a NTF trader places large buying or selling orders without the intention of selling them. This in turn tricks the market into believing that there are large transactions happening which motivates them to buy or sell. Another less common spoofing tactic is when a fraudster creates a replica of a common website in order to fool a user into logging in with their log in detail and credit card details.
The ‘Spoofer’ that got caught
In 2021 United States prosecutors caught and charged a Moroccan man for replicating a digital marketplace called OpenSea NFTs largest marketplace. The Morroccan man (“Soufiane Oulahyane”) fooled users into revealing their credentials to gain access to actual accounts on OpenSea.
OpenSea however, is no stranger to controversy as Prosecutors in May of this year won the first-ever digital insider-trading trial, against former OpenSea employee Nathaniel Chastain, who was convicted of trading on confidential information about which tokens were to be featured on the marketplace’s home page.
In the case of the Morroccan man Soufiane Oulahyane, he stole crypto currency from the wallet of a person in New York. He then went on to sell 39 of the victim’s NFTs on OpenSea.
Our View
Often times when it comes to digital artworks, we find that creatives do not have the resources to take action against everyone who infringes upon their copyright. NFTs use of the blockchain creates prima facie evidence for digital art creators in any ownership contention, in fact there most likely will not be any contention as the ownership details will be available for everyone to see.
Spoofing has thrown a bit of a curveball into the digital trading world as it has created ways to fake buy and sell orders and fake online platforms in an attempt to get your money. The whole world of digital trading has a lot of people concerned about scams and fraudulent activities, and hearing stories about spoofing will most likely deter people from trading in NFTs.
Though we may not have answers on the best way to trade and if trading in NFTs is worth it, however we do believe that NFTs have made the digital trading world better. We are of the view that the onus is on us to create safety measures to ensure that we do not fall victim to spoofing.
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