The Cybersecurity Threats Related to NFT Trading

Birender Singh

Birender Singh

Non-Fungible Tokens, or NFTs, have been at the center of some eye-popping transactions, making people wonder about their importance and usefulness. To begin with, NFTs are a new class of crypto assets that are different from fungible tokens, which are the same as the face value. But in the case of NFTs, these values are variable and depend on several factors such as the number of a particular NFT created, the support of the community, when these tokens were created, etc.

On the positive side, NFTs provide better control over your digital assets and improve cyber assets’ liquidity. But, concerns over their security and vulnerabilities remain, especially with significant cyberattacks on NFT trading platforms such as OpenSea, where hackers recently stole more than 250 NFTs, leading to losses worth $1.7 million.

Case Example of Open Sea and Nifty Gateway

Since NFTs are at an initial stage of growth and people still understand their functionality and usability, they provide a perfect opportunity for malicious hackers to steal from the digital community.

The biggest issue is with the process of ownership and storage of NFTs. They are stored as hash images or just as web addresses as a medium via media. You will need an identifier to view your NFT on a platform run by a third party. So, an individual purchasing an NFT would not be purchasing the actual image but an identifier. Such an identifier can take the user to the Interplanetary File System (IPFS), which opens several possibilities for attacks.

This was precisely the case with OpenSea, where the Wyvern Protocol, which allocates signatures to NFT owners for trading on the platform, was duplicated to steal the assets.

NFTs trading platforms such as Nifty Gateway and Open Sea store the keys to all the digital assets. One can only imagine the havoc it can create when cyberattacks compromise such platforms. One such attack on Nifty occurred in March 2021 and exposed the risks involved. Though Nifty restored the victims’ money, it could not get back the NFTs.

Such platforms are always open to attacks from people looking to make some quick money through trading. As hundreds of thousands of people are using the system, an error from their end could leave the gates wide open for malicious hacking attacks. Following the recent attacks, both Nifty and OpenSea tightened their cybersecurity protocols and added multiple authentication layers.

NFT Vulnerability and Security Concerns

Although the popularity of NFTs is increasing day by day, hacking incidents make it essential to understand the NFT security issues. Let us find out more about the individual challenges, vulnerabilities, and security risks evident for NFTs in present times.

  • Challenges of Ownership: With the introduction of NFTs, the concept of asset ownership was redefined. But due to the limitation of storage capacities, it was impossible to store NFT images in the blockchain. Instead, it started storing an identifier of the hash of the image or the web address in the blockchain. The users have to use an identifier for accessing the NFT on 3rd party platforms. So if the 3rd party platform which is minting your NFT faces cyber-vulnerabilities or goes out of business, you will lose access to the NFT, and the NFT will lose its value.
  • Cyber Security and Identity Fraud: This is an issue that can happen to any online entity, especially when it has a specific monetary value. Possible cyber identity fraud is one of the significant cybersecurity issues noted with NFTs. An example of such a cryptocurrency threat has been evident in a scam involving high-volume email.
  • Marketplace Security Risks: Though NFTs are dependent on blockchain development, it depends on centralized platforms, where the platform helps the owners to interact with their assets. Nifty Gateway and Open Sea are some of the best examples of their kind. But, due to the fact of being dependent on a centralized platform (unlike BitCoin, which is decentralized), it faces the common security threats faced by any other centralized platforms like Brute attacks, identity thefts, phishing attacks, spam emails, malware attacks, etc.

How to Stay Safe While Dealing With NFTs

NFTs are based on smart contracts, whose security vulnerabilities could expose users to risks. In the present NFT scenario, the potential threat from intelligent contracts is quite considerable. There are also many counterfeit tokens doing the rounds on the internet.

Unscrupulous elements could also use the age-old method of sending emails to users, warning them about possible threats to their digital assets, and then asking the users to give their logins and passwords. Another potential harm is Phishing attacks that are carried out on the trading platforms themselves. Users have to educate themselves so that they do not step into the trap accidentally.

Users have to thoroughly check before buying NFTs and should preferably invest in cybersecurity measures before trading them on open platforms. To avoid being the victim of such targets, you can install required theft-proof protocols that provide tools to alert you whenever there is any movement in your NFTs.