NFT fans lose millions in video game property sales

Why it matters: The creator of the most popular NFTs available has been in the news again for all the wrong reasons. Yuga Labs, creator of Bored Ape Yacht Club, recently made the Otherdeed set available for purchase. It announced NFTs as a way to provide users with the ability to gain ground in the upcoming cryptocurrency-based MMORPG. Unfortunately, many fans walked away with nothing but disappointment, high transaction fees, and stolen funds.

Yuga Labs has sold other NFTs through Opensea. The group sold (or at least tried to sell) tokens to claim properties and resources in the upcoming Yuga metaverse, Otherside. The NFT drop made about $310 million in just a few hours.

Unfortunately for Yuga Labs, the sale generated a lot more traffic than expected on the Ethereum blockchain. This increase in traffic has resulted in Ethereum gas fees of up to $14,000 for some users and transaction failures for others. Gas fee is a fee that is passed on to users to offset the computational power needed to process Ethereum transactions.

To make matters worse, some of those who suffered from failed purchases kept paying for energy. According to Crypto Briefing, users paid $165 million in gas fees during the sale due to another company’s poorly developed smart contract code.

Smart contracts are a feature of Ethereum’s ERC-20 token and the daily bread of Ethereum-based applications. Contracts are small programs stored on the Ethereum blockchain that run automatically at a specific time. Contracts do not require any third party intervention or action. Instead, they initiate a procedure between two entities when all pre-defined criteria are met and the transaction is validated on the Ethereum network. In this case, poorly developed smart contracts and ill-defined execution standards have resulted in massive congestion and high transaction fees on the Ethereum network.

But what good NFT story is complete without fraudsters trying to get their share of the action? In addition to technical challenges and obscene transaction fees, some NFT collectors have been lured and exploited by phishing attacks via scam sites offering gas refunds and additional NFT coinage opportunities. Several scammers required users to sign up and connect their wallets to redeem the entirety of the gas and gain access to another land lottery list, leaving their assets vulnerable to unintended access.

The attack resulted in millions of dollars being stolen from NFT and sent to the scammers’ wallets. ZachXBTAn alleged “rug pull” cryptocurrency scam survivor and an investigator of on-chain transactions has identified several fraudulent wallet locations and addresses, and one of them appears to have racked up unsuspecting users with more than $5 million.

Yuga Labs said this week that it has begun refunding gas fees to users who initiate failed transactions due to network conditions caused by the NFT event. While this move may breathe new life into some potential investors, users who have fallen victim to the phishing scam have not been so lucky (and any money they lost).

This hack is by no means the first targeting NFTs or the Bored Ape Yacht Club itself. In April, the company’s social media accounts were hacked and filled with fraudulent links to ground-strike events. The hack resulted in millions of dollars in NFTs being transferred from users’ wallets to hackers’ wallets.

The volatility and potential for quick financial gains make NFTs and cryptocurrencies an attractive option for those who may not understand the underlying technology. Unfortunately, this creates a target-rich environment for hackers looking for unsuspecting victims. With no third party involved, users have an increasing responsibility to remain vigilant and protect their information and assets.

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