Last Updated on August 11, 2023 by cryptocreed
As we venture into 2023 and its opportunities, the NFT ecosystem continues to expand, bringing unprecedented possibilities for creators, collectors, and investors alike. However, alongside this growth comes an intensified need to address the critical aspect of NFT security.
In this article, we delve into the complexities of NFT security, exploring essential measures and best practices that can empower individuals to safeguard their digital treasures in the dynamic and ever-evolving NFT landscape.
So, let’s dive in!
Understanding NFT Vulnerabilities
NFTs have brought fresh and exciting opportunities to the digital world, opening doors once thought locked. These opportunities involve proving you own something unique and genuinely authentic, making different things work together smoothly, creating a sense of rarity, and more.
When NFTs were most popular, they were worth around $9.9 billion in total! This got many people really interested and eager to be part of it.
However, just like when you get a cool new toy, there are some things you need to watch out for. NFTs have their weak points that you should know about to avoid making mistakes. That’s why it’s important to understand these vulnerabilities or NFT security issues.
So, some of the most common NFT vulnerabilities are:
1. Vulnerabilities in Smart Contracts
NFTs rely on smart contracts for ownership tracking and trading. Yet, smart contracts can harbor vulnerabilities that hackers exploit through code flaws. Since these contracts are public, malicious actors may manipulate them, leading to token theft. Though NFT audits help reduce errors, they’re not foolproof or mandatory.
2. Marketplace Vulnerabilities
NFT marketplaces, crucial for buying and obtaining NFTs, come with risks such as data manipulation, unfair control, and NFT loss. These threats exist in both decentralized and centralized platforms.
Decentralized platforms lack governance but have their vulnerabilities.
Centralized platforms like OpenSea and Nifty Gateway are susceptible due to their private key control.
Further risks include “airdrop phishing attacks” involving malicious NFTs and the “pump-and-dump” tactic inflating NFT values.
4. Vulnerabilities in Off-Chain Storage
When it comes to items like documents and photos in the blockchain, they don’t always have to be stored directly in the main blockchain nodes. That’s where off-chain storage comes in, especially for things like NFT metadata.
When NFT metadata is stored directly on the blockchain, it’s protected once confirmed and can’t be easily tampered with. However, if the data is stored off-chain, it becomes more vulnerable to manipulation.
Additionally, since NFT metadata is accessible to the public, anyone can download it or get its URL link. This introduces a potential issue, as users might exploit this to create fake NFTs using the metadata or URL.
5. Complexity of Authentication
NFTs anonymously empower artists and avatars, offering a platform to showcase work without fear of critique. However, this anonymity can be exploited for illicit purposes, as many NFT markets lack stringent Know Your Customer (KYC) procedures. While no such cases have emerged so far, the potential for misuse remains a concern.
Best Practices for NFT Security
Whether you acquire NFTs by purchasing or receive them for free through methods like NFT giveaways or airdrops, it’s important to be aware of how to ensure their protection. In the following sections, we’ll outline the best practices for NFT security.
We’ll discussing the essential measures every user should implement:
Trustworthy Wallets and Reputable Marketplaces
First and (maybe) one of the most important practices is to opt for established crypto wallets with a track record of security and reliability. Hardware wallets like Ledger or Trezor are esteemed due to their strong security features.
Similarly, when engaging with NFT marketplaces, prioritize well-known platforms such as OpenSea or Rarible. Search for platforms that give paramount importance to security, uphold transparent policies, and employ formidable encryption technologies and other security measures before engaging in any transactions. Additionally, take a moment to verify the URL.
Use Strong Passwords and Activate Two-Factor Authentication (2FA)
Crafting a password that’s difficult for outsiders to guess, yet memorable for you is crucial. For this reason, we strongly advise utilizing robust password generators and ensuring the safety of your chosen password. While a password like “Qwign512!-waOAm” may not be as simple to recall as the typical “password123,” its complexity provides a higher level of security for your peace of mind.
Also, enable 2FA wherever possible to bolster the security of your NFT wallet and marketplace accounts. Exercise Caution with Links and Emails
Be cautious when encountering links from unverified sources, especially within emails or direct messages. Phishing attacks often rely on deceptive links that redirect you to counterfeit websites that steal sensitive information.
Always verify the sender’s legitimacy before clicking any links, and under no circumstances should you share your wallet seed phrase or private keys. If you ever find yourself being asked for such information, exercise caution, as it might indicate a potential scam.
Regularly Update Software and Firmware
Crypto wallet developers frequently release software updates and firmware patches to address security vulnerabilities. Keeping your wallet’s software and firmware up to date is essential to maintain a strong defense against potential threats.
Conduct Thorough Research Before Investing
Before investing in an NFT project or participating in giveaways:
- Investigate the project’s background, team, and community engagement.
- Evaluate the expertise and reputation of team members.
- Review the roadmap and development plans for realism.
- Engage with the community to assess its health.
- Seek independent reviews and audits.
- Consider market reputation and sentiment.
Smart Contract Audits and NFT Projects
Smart contract audits are among the most trusted ways for both a user and a marketplace to find out if a project is trustworthy or not.
Smart contract audits play a vital role in ensuring the NFT security and reliability of NFT projects. These audits help identify potential vulnerabilities in the code that could lead to reputation damage or loss of assets.
Smart contract auditing involves several stages. First, auditors understand the project by studying its plans and talking to the developers. Once they grasp it, a “code freeze” is set, indicating stability for testing. Code is then checked for design and libraries and how well it’s tested. Automated checks fix obvious issues, with manual testing following to assess how the code works. Vulnerabilities are sought in a detailed review, and the code is tested in a real-world-like environment. Finally, auditors make a comprehensive report with feedback, ensuring the project meets technical and security standards.
Several reputable audit companies specialize in NFT audits (many extending their services to crypto projects) are:
- ConsenSys Diligence.
So, if you come across a report from these companies that highlights only a few issues, it’s unlikely that the project suffers from significant unreliability in terms of its smart contract code.
NFT Watermarking/Copyright Protection
NFT watermarking involves adding subtle marks like pictures or words directly onto a digital item. These marks are designed to be hidden and not disturb the art’s look. But they also show who really owns the NFT, proving it’s the real version made by the creator.
Watermarking helps with common problems like:
- Making NFTs without permission;
- Giving credit to the wrong person;
- Not having clear rules;
- Selling in secondary markets;
- Using art in new ways;
- Following laws from different countries.
Often, creators and NFT platforms work together to ensure the watermark is subtle enough not to ruin the art’s beauty but strong enough to show who owns it.
NFT Insurance Solutions
An NFT insurance helps if something bad happens, like if they get stolen, lost, or damaged, so you don’t lose your money.
But when it comes to ready-made insurance plans for NFTs, like the ones you can buy for physical things, few options are available. This is because there are a few complicated reasons behind it:
- Value Uncertainty – Unlike homes or cars, NFT values vary, complicating risk assessment.
- Intangible Nature – NFTs blend digital items and tokens, often without physical existence, posing diverse risks.
- Evolving Tech – Rapid changes hinder insurers from gauging NFT risks confidently.
NFT Marketplaces Security
Focusing on NFT security for users is paramount but considering it from a marketplace perspective is equally vital.
NFT marketplaces encounter familiar risks in regular online stores, yet blockchain adds complexity. While blockchain’s permanence heightens security, it poses risks in case of mishaps.
Notably, hacking poses a substantial threat. Lucrative NFTs lure hackers to exploit marketplace vulnerabilities, mainly targeting those storing private keys centrally.
Phishing attacks compound concerns, tricking users into revealing private keys. This enables unauthorized asset access.
Market manipulation also looms, impacting credibility and financial stability.
Defensive strategies for marketplaces entail 2FA, whitelisting, auditing, and multi-signature transactions.
Moreover, enhanced security is attainable with white-label NFT platforms that offer customization and built-in security features.
Additionally, watermarking, smart contract audits and other factors bolster security in NFT marketplaces.
Intriguing and promising as NFTs may be, they carry a potential threat if their security is not given due diligence and careful consideration. It’s imperative to recognize that understanding basic NFT security measures is not only essential for current NFT HODLers but also for those with a burgeoning interest in this domain.
Within this article, we have tried to provide a broad picture, shedding light on the potential risks and vulnerabilities of the NFT landscape.