What The NFT Revolution Means For ‘friendly Fraud’ – FinTech Magazine
They’ve been used to trade everything from iconic soccer goals to priceless royal heirlooms. Non-fungible tokens (NFTs) are no longer a niche gimmick sought after by crypto experts and trend-chasers – they’re a fast growing market worth tens of billions of dollars.
An NFT’s value lies in its ability to prove ownership of something intangible, like a digitised work of art or, indeed, a thrilling moment from a sports match that took place a half-century ago. This value makes them an increasingly highly traded commodity, with up to 50,000 bought and sold every week. But they are also an appealing target for cyber criminals.
While there have been some dramatic digital smash-and-grabs in recent months, high-profile hacks aren’t the only concern for NFT players. We’re noticing more and more cases of illegitimate chargeback claims, sometimes referred to as “friendly fraud”, as tokenised assets become increasingly mainstream.
Tackling this isn’t always easy, in part because NFTs are still an emerging trend in the payments space. But with the right knowledge and tools, businesses can take steps to keep themselves safe while exploring this exciting new frontier of digital commerce.
How to buy an NFT
To understand the potential threat posed by NFT-related friendly fraud, you must first understand how tokens are purchased.
Marketplaces such as OpenSea, Rarible, and Binance are where the majority of NFT trades take place, either in eBay-style auctions or at a fixed price. Once the sale has been finalised, the purchaser makes an entry on the blockchain – a secure decentralised electronic ledger – transferring funds to the seller, with the seller responding in kind to transfer ownership of the token.
Blockchain-based transactions are permanent and can’t be reversed by either party involved – nor by a central authority, such as a bank. In other words, if a deal goes sour, the buyer has little recourse.
Often, the currency used for NFT trades isn’t dollars, euros, yuan or any form of regular fiat money, but rather cryptocurrencies such as Ethereum. To complete a purchase using these digital coins, the buyer must hold them in a crypto wallet – and herein lies the problem.
When buying cryptocurrency to store in a wallet, most marketplaces accept conventional credit and debit cards. That means that, while the final NFT transaction isn’t subject to third-party reversals such as chargebacks, the purchasing of the cryptocurrency required to pay for it is.
Mixing old and new
All this means that while NFTs and crypto in general aren’t subject to chargebacks and friendly fraud, they do still involve traditional payment methods. That sets the stage for a confusing confluence of old practices and new technology — confusion that can be taken advantage of in the form of friendly fraud.
Imagine, for instance, that a buyer finds a piece of digital art they believe to be a good investment, and then uses their credit card to p