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Last week, Todd Kramer, the owner of a New York art gallery, was robbed of $2.2 million in NFTs. The collector lost 15 NFTs, four of which were from the “Bord Ape Yacht Club”, to a phishing scam. With no centralized entity to turn to, Kramer posted an SOS to twitter.

The theft reminded investors of the possible pitfalls of a decentralized financial system.

Following his Twitter post, other NFT buyers and administrators from OpenSea, the largest NFT marketplace, came to his aid. In a controversial move, OpenSea froze some of the NFTs, making them unsellable. Kramer was eventually able to recover or buy back some of the lost pieces.

OpenSea’s intervention went against the fundamental tenet of the blockchain: decentralization. In response to critics, representatives of the company indicated that they merely froze the NFTs on their own website, but they could still be found across other blockchains.

The limits of NFTs

Although often used interchangeably to refer to the art itself, an NFT is not the digital artwork file that it represents - it’s a certificate of authenticity and ownership.

The Bank of America’s Global Research Center defines an NFT as “a blockchain-stored certificate of authenticity for unique digital or physical objects. The transaction and ownership information are verified through decentralization, recorded within the blockchain and seen as tamper-proof (immutable).”

Thus, owning an NFT is not the same as owning the underlying art piece although collectors may sell, trade, or transfer the asset.

Renno & Co, a digital law firm based in Canada, clarified that, “[collectors] can’t (unless they have written authorization from the artist): mint a copy of that NFT, make people pay to view the NFT, sell any derivative object incorporating the NFT or exploit the NFT in a commercial way.”

The NFT market - which took off after “CryptoKitties”, an Ethereum blockchain-based game, gained massive popularity in 2017 - reached $41 billion in value, according to Chainalysis’s 2021 NFT Market Report, that also likened participants in the NFT market to art collectors more than investors.

Staying safe on the decentralized web

For those experienced in trading digital assets, Kramer’s case could have been easily avoided. He should have stored his NFTs in an offline “cold” wallet, instead of an online “hot'' one.

A hot wallet is always connected to the internet, facilitating fast and easy transactions, but leaving it vulnerable to attacks by hackers; a cold wallet is a physical device that stores cryptocurrency offline - a more secure alternative.

OpenSea offered the following tips on their blog to stay safe and away from scams while using the decentralized web:

- Seek help from official channels only. Despite Kramer’s success in tweeting to get help in recovering his lost apes, using social media to ask for help can make a user a target of further scams.

- Make sure wallet extensions are official. Verify that a wallet browser extension comes from the provider’s website. Check to see if an app is legitimate before downloading by looking at its developer and reviews.

- A fundamental rule of evading danger on the internet, stay away from unknown or broken links, cold emails, and downloads from strangers.

- Create strong and unique passwords for every account and consider using two-factor authentication (2FA).

- Use a hardware (“cold”) wallet and an air-gapped computer to store crypto. An “air-gapped” computer system has no connections, physical nor wireless, to unsecured systems and networks.

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