What is a Rug Pull in Cryptocurrency?

A rug pull is a type of scam where the team of a cryptocurrency project suddenly exits the project, running away with investors’ funds.

Rug pulls occur particularly often on decentralized exchanges (DEX) and in the NFT world.  

DEXs allow users to trade cryptocurrencies without intermediaries; well-known examples include Uniswap, Balancer, and PancakeSwap. There is no central authority on these decentralized exchanges and users can trade anonymously. They’re primarily used to swap one cryptocurrency for another.

A typical rug pull scenario unfolds as follows. Malicious developers launch a new token and list it on a DEX. Investors can easily exchange more established tokens like ETH for this new token. Once enough investors’ funds accumulate in the liquidity pool (LP) for this seemingly legitimate token offering a high APY, developers quickly dump their holdings and drain their funds, and the new token’s value plummets to zero.

The year 2021 didn’t fall short of such scams. According to a report by Chainanalysis, this type of maneuver was the most popular one among the whole crypto fraud varieties in 2021, accounting for 37% of all scam revenue.

Rug Pull Example #1: Fake Project Forks on OlympusDao

Imposters exploited the popularity of meme coins among crypto traders by using a dog-themed logo inspired by the Greek god of Anubis depicted with a dog’s head. Developers presented the fake project AnubisDAO as a fork of the decentralized reserve currency OlympusDAO and launched the project’s ANKH token on the Copper platform. 

The developers used pseudonyms, and the project had neither a website nor a whitepaper. Nevertheless, $60M was raised in WETH, which disappeared from the project’s liquidity pools just twenty hours after the launch.

Rug Pull Example #2: Binance Smart Chain Forks

The Binance Smart Chain (BSC) saw multiple headline-worthy rug pulls. Meerkat Finance, a fork of the Yearn Finance protocol, was supposed to be a yield farming pool. After the launch, $31M in Binance token, BNB, disappeared from the project’s LP. It’s still not clear if this was a real rug pull case. However, the projects’ Twitter accounts disappeared along with the investors’ money which is a strong indicator that the project team was involved with the scam.  

Another BSC rug pull case is the TurtleDex project, whose developers ran away with $2.5 million that had been raised as 9,000 BNB. The team drained the funds from the Binance native DEXs Pancake Swap and ApeSwap and sent them to multiple wallets to sell on the Binance Exchange.

Other projects rug pulled on the BSC DEXs are Defi100, Uranium Finance, and Stablemagnet. Defi100 marketed itself as a synthetic index token based on the total market cap of the DeFi sector. 

Rug Pull Example #3: Squid Game

When the Netflix series Squid Game soared in popularity, imposters came up with a Squid coin idea. It was supposedly a play-to-earn cryptocurrency project that promised investors to participate in online games inspired by the hit series. It was launched on Pancake Swap. 

There were many warning signs for the potential investors, like an unprofessionally written whitepaper and a recently registered website. Nevertheless, the team exit scammed with over $3M investors’ funds after the Squid currency peaked at $2,861.

Rug Pull Example #4: Fake Uniswap V2 Fork

Uranium Finance claimed to be an automated market maker (AMM) protocol forked from Uniswap V2. Stablemagnet billed itself also as an AMM. They cost the investors $32M, $50M, and $27M, respectively.

Rug Pull Example #5: Avalanche Meme Coin Goes Bust

In November 2021, it was Avalanche’s turn to experience its largest rug pull. 

SDOG coin, issued by SnowdogDAO, was supposed to be the first-ever meme coin on Avalanche, and it was launched on the native DEX Trader Joe. Eight days after the initialization, SDOG’s value plunged to $1,500 after skyrocketing to $6,000. 

The SDOG case was a bit different than a typical rug pull; the developers promised the community a buyback of the coins, meaning the company would repurchase its own coins. 

This tactic reduces the number of tokens in circulation, and in theory, supports a deflationary token environment. The actual rug pull occurred while $40M worth of SDOG coins was transferred from Trader Joe to the project’s own AMM. 

The buyback failed because an account swapped $10M worth of SDOG for other cryptocurrencies in the meantime. This was only possible if the account had the “challenge keys” required by the project’s smart contract, hinting that the rug pull was an inside job. 

Rug Pull Example #6: NFT Rug Pulls

Rug pulls can happen on centralized exchanges as well, as evidenced multiple times by NFT rug pulls. 

One of 2021’s most notorious scams was an NFT project called Evolved Apes. Thousands of investors piled their money into Evolved Apes, whose developer ran away with $2.7 million.

Another NFT rug pull incident was Baller Ape Club, a collection of 5,000 NFTs supposedly inspired by the famous Bored Ape Yacht Club collection. On the drop day, developers directed the potential investors to a fake link that repeatedly showed a warning pop-up with a transaction failed message, although the transactions were successful. In the end, $2M worth of SOL was stolen from the investors.

Iconics, an NFT project also launched on the Solana blockchain, had promised its investors to deliver 8,000 unique NFT artworks. Instead, collectors received a random collection of emojis. Developers ran away with $140K.

How to Avoid Rug Pulls

If you don’t want to fall victim to a rug pull event, take notice of these red flags before investing in the brand new red-hot project.

  • A DEX loophole is that audits are not obligatory for token listings. Nevertheless, legitimate projects undergo audits to convince their investors. Be wary of projects that avoid this process.
  • Can you research the individual members of the development team? Are they all anonymous or pseudonymous? Do your due diligence, and note that fake faces and fake names are common on team bios. 
  • Add skepticism if a price soars in value exceptionally fast without a fundamental cause.
  • Excessive promotion can be another warning sign.
  • Does the project have an official website, social channels, and whitepaper? If so, can you spot amateurishness in the presentation, such as rushed whitepaper typos?
  • Does the project have an active Discord or Telegram? How is its community?

Legitimate projects tend to have tens of millions of dollars in total liquidity, as well as some longevity that supports the project’s community. Look for the common elements in the cryptocurrency industry’s established projects, and try to find the same signs in upcoming projects.

Final Thoughts: Rug Pull Safety

Cryptocurrency rug pulls can trap both novice and experienced investors. Newbies are unaware of the risks behind the decentralized projects, and veterans fall prey to FOMO while seeking high-upside and hyped opportunities. 

It’s essential to know about different tools scammers use to exploit the cryptocurrency system and spot the projects built on a lie.  

lt Although blockchain is a secure, reliable, and stable technology by itself, don’t give the same sort of credibility you would to a project like Bitcoin or Ethereum to any new upstart just because it’s using the blockchain. 

Perceptual Hashing For NFT Verification

In providing accurate NFT verification services, neither humans nor computers are sufficient. However, using a technology called perceptual hashing, mountainous digital files can be reduced to perceivable attributes such as shapes, patterns, and colors that can easily be compared by both humans and computers.

By combining perceptual hashing with human verification, NFT verification services can easily and accurately identify forgeries. 

NFTs are an exciting application of blockchain technology and smart contracts that have attracted substantial attention from creatives and markets alike. However, as with anything of value, scammers will attempt to fool unsuspecting buyers into shelling out large sums of money for a forgery. 

This is where an ingenious technology called perceptual hashing becomes valuable. However, perceptual hashing alone isn’t enough to automate the job of verifying the authenticity of NFTs. In order to provide valuable NFT verification services, we need a combination of computer and human perception.

The following guide explores how a technique known as percentual hashing is used by NFT verification services to flag potential forgeries and bring them to the attention of humans.

What Makes NFTs valuable?

First, let’s take a moment to explain what it is we’re trying to protect in simple terms. 

NFT stands for “non-fungible token.” 

“Fungible” means, essentially, interchangeable. Take fiat currencies, for example. Every U.S. dollar is worth the same amount as every other U.S. dollar. U.S. dollars are fungible. All currencies are fungible, including cryptocurrencies. If you loan someone a $1 bill or 1 ETH, they can pay you back with any other $1 bill or 1 ETH. 

NFT’s are not interchangeable as each one is unique. 

A token is something that represents something else. For example, an arcade token represents a quarter. However, while the token has value to the holder, they can’t spend it at a convenience store. 

They first have to convert the token back into a fungible quarter. 

So an NFT is a crypto token that stands in place for a non-fungible asset.

How Do NFTs Track Asset Ownership?

Like currencies, NFTs have a value. However, as we explained, unlike currencies, NFTs are not interchangeable. Each NFT is, in essence, a contract that spells out who owns a particular digital token. The token represents the underlying asset. They can be tied to a physical object or they can represent a digital asset such as an image.

Let’s use cars as an example of how NFTs work. When a particular model of car is built, every car with the same features has the same price (in theory). However, as soon as you buy one of those cars, its value diverges from the value of all the other cars on the lot. They might be similar, but they’re not interchangeable. 

When you buy a car, you get a title. The title is obviously not the vehicle itself, it’s essentially a token denoting ownership of that specific vehicle. Each vehicle has its own unique vehicle identification number (VIN). A database of VINs matches titles to owners. You need that VIN so you can search the database of titles (tokens) for that specific car to see who owns it. 

When you sell the car, the title needs to be signed over to the new owner. The same is true with NFTs. When you sell an NFT, the change in ownership is immutably recorded on the blockchain.

NFTs can represent any type of unique asset. 

Digitally Verifying the Authenticity of NFTs

There’s a huge challenge with digital NFTs. Like cars, NFTs can cost tens or hundreds of thousands of dollars and more. Unlike cars, however, digital files can be copied an infinite number of times. The image itself doesn’t have an identification number on it. And if it did, that would easily be copied too. 

Without some way to verify the authenticity of a digital image, its value would be nil. 

Any serious collector of physical artworks needs a way to verify that a particular painting is not a forgery. For this, they hire a professional service that specializes in identifying forgeries. Likewise, serious NFT collectors also need a way to verify the authenticity of an NFT.

A scammer can easily create an account on an NFT marketplace using the same or similar name as the original artist, then make a copy of the image and list it as a new NFT. 

How can the potential buyer be sure that the NFT is authentic?

Comparing Original and Counterfeit NFTs

Theoretically, you could compare the NFT to a database of original NFTs. However, that would be a monumental task. For starters, you need to store a copy of every NFT for comparison. Then you would need to check every single bit and byte to make sure they match. 

But what if the nefarious seller changes the NFT ever so slightly by making it a tiny bit darker or lighter or smaller or larger or framed or cropped. In these cases, comparing the image to files in a database would be useless as they won’t match. A computer would fail miserably in identifying even a slightly changed copy. 

A person would be able to match the two images quite easily through human perception. The problem is, however, that it would take a human being eons to go through every NFT for comparison. 

Perceptual hashing for verification of NFTs

How do we solve this problem? By using a technique known as perceptual hashing.

Hashing simply refers to the process of recalculating something to reduce it to a particular set of basic properties and get rid of unnecessary data. 

A good example of this is private and public wallet keys. The private key is hundreds of characters long. The public key is a shorter version of the private key created through a complicated algorithm. (It’s near impossible to reverse the process and generate a private key from a public key. This intensive task would require the theoretical power of quantum computers, which don’t exist to the degree of sophistication needed to crack a blockchain.) 

Perceptual hashing is the process of using an algorithm to convert an image into a set of easily perceivable attributes — such as shapes, patterns, and colors — that can easily be compared. 

Human vs. Computer Perception

Perceptual hashing is a powerful tool for comparing images. In order to verify the authenticity of NFTs, however, we need the cooperation of humans and computers. The computer can easily compare highly similar images using perceptual hashing. However, if the image is sufficiently modified, the computer can only identify similarities between features in the original and the copy. It can’t make the call, so to speak.

If a computer using perceptual hashing determines that two images are identical it can flag the latter copy as a forgery without human intervention. If the computer sees no similarities between the two files, it can verify that an image is unique without human intervention. 

However, if the computer sees some similarities between two images, but can’t verify that one is a copy of the other, it can flag them as being similar. A human being can then very quickly look at the two files and verify whether they are unique or if one is a slightly revised knockoff of the other.

Various NFT Verification Schemes

Stock photography services have been using perceptual hashing to identify copies and near copies of their assets for many years. Google Images, for example, uses perceptual hashing to help users find copies and variants of an image on the internet. 

Perceptual hashing is also being used by services like YouTube to detect unlicensed use of videos and music. However, NFT collectors need more assurance than a Google search.

Being such a nascent technology, NFT authentication services are still in their infancy and a wide variety of proposals are being tested. For example: 

  • Pastel is a first-of-its-kind blockchain that uses perceptual hashing as part of its proprietary technology to find near-duplicate NFTs. Pastel’s Sense Protocol utilizes deep learning models using Tensorflow with Keras Applications to turn each NFT into an “NFT fingerprint vector” of over 10,000 numbers. Then, it determines a correlation between that fingerprint and all other NFT fingerprints on Pastel, other NFT marketplaces like OpenSea, and open databases like Google. Its relative rareness score is between 0% (the NFT is identical to another already registered NFT) to 100% (the NFT is completely unique). Pastel’s algorithms can be bolted onto any NFT marketplace. 
  • Mintable NFT marketplace offers reverse image searches for its own offerings using perceptual hashing.
  • Blockchains such as Stellar use various trust-building mechanisms. 
  • Adobe allows artists to embed the creator’s wallet address and social media information into their NFTs. 
  • And Twitter helps owners of popular NFTs (such as Bored Apes) verify that they are, indeed, the rightful owner.
  • Another NFT marketplace, Rarible, hand curates all artists and NFTs before they can be listed on the site.

Although it’s still early in the game, NFT collectors are already spending hundreds of thousands and even millions of dollars on NFTs. So there’s a fast-growing need for third-party NFT verification services. With such a demand, supply is sure to increase quickly.

Final Thoughts: NFT Verification as a Service

As you might imagine, NFT verification services are invaluable to serious buyers and sellers. 

However, the concept of NFT verification services is still in its infancy. As such, a variety of new schemes are being developed and implemented. 

No matter which of these developing schemes proves to be useful and becomes widely adopted, one thing is for certain: computer algorithms alone to compare NFT images is insufficient, so far. 

By combining perceptual hashing and human verification, we can provide a high level of trust for legitimate NFTs and easily weed out forgeries. 

The Top Celebrity NFT Owners

With entrepreneurs, rappers, DJs, and professional sports players leading the way, more and more celebrities are joining in the NFT craze than ever.

Some launch their own NFT collections; some collect NFTs from other creators; some directly invest in NFT ventures. Some do all.

This guide will dive into the portfolios of the top celebrity NFT owners who have collected dazzling JPEGs from the most extravagant collections.

Let’s explore: which celebrity has the largest NFT portfolio so far? What projects are most popular? 

To explain, we compiled a celebrity NFT owner list based on DappRadar’s October and November reports.

Gary Vaynerchuk

Entrepreneur Gary Vee has been an NFT ambassador from its early days. Recently, he launched his own Veefriends NFT project that provides the owners three-year access to a multi-day conference called Veecon. Around 74% of his NFT wealth comes from his own collection. He kept 1016 Veefriends NFTs which have approximately $69M in market value.

He’s been collecting NFTs from other collections as well. As of writing, Gary Vee’s NFT portfolio is allegedly worth more than $90M. 

Some attention-grabbing pieces from his portfolio are:

  • 60 CryptoPunks. Cryptopunks is the revolutionary NFT collection launched in 2017 that started the crypto art movement. Cryptopunks collection represents one of the first examples of the non-fungibility concept on Ethereum. The most valuable editions in Vee’s collection are CryptoPunk #2424 and #2140.
  • 7 Bored Ape Yacht Club (BAYC). BAYC is a collection of 10,000 ape NFTs. It’s one of the most exclusive NFT collections. In recent months owning a BAYC NFT has become a status symbol in the crypto world. It serves as a digital identity that provides the owner access to exclusive membership club activities, like the collaborative graffiti board bathroom.
  • Three Meebits. It is another prominent collection by Larva Labs, the studio that made the legendary Cryptopunks.

Snoop Dogg

The famous rapper Snoop Dogg is one of the most influential NFT celebrities. He was an early promoter of Dogecoin; he partnered with the Sandbox Game on new land offerings; he collaborated with Chris Torres to launch the NyanDogg collection.

Last September, he revealed that he is actually the human behind the anonymous Cozomo de’ Medici, a popular NFT collector Twitter account that had launched in August. He said he wanted to separate his NFT business from other activities.

Here are some of the most valuable NFT assets he owns under the pseudonym Cozomo de’ Medici. The entire collection is valued at around $14M.

This is only Cozomo de’ Medici’s collection. We know that Snoop Dogg has also invested in BAYCs. He shared in a tweet that he acquired them through the NFT broker firm Moonpay.

Alexis Ohanian 

Another NFT frontrunner is Reddit co-founder Alexis Ohanian. His NFT collection includes 6 Cryptopunks, 2 BAYCs, 10 Meebits, and many others. The most valuable NFT in the portfolio is Cryptopunk #8115.

Ohanian gifted his wife Serena Williams a look-a-like punk (Cryptopunk #2950). He wore its image as a badge on his collar while visiting the 2021 MET Gala. 

All six punks in Ohanian’s portfolio are black female punks with headbands. The entire Cryptopunks collection has 3,840 female punks.

He also invested in the Cool Cats project with 7 NFTs. Cool Cats is a collection of randomly generated NFTs on the Ethereum blockchain. Owners are free to do anything with them under a non-exclusive license.

In addition, Ohanian minted 13 pairs of NFT sneakers and 4 Daypacks from the 10KFT collection. The 10KFT NFT collection allows NFT owners to create customized sneaker designs featuring their NFTs. But only a few exclusive NFT collections are accepted, such as BAYC, Cool Cats, and CrypToadz.

Steve Aoki

The most precious piece of DJ Steve Aoki’ NFT collection is BAYC #118, followed by Cryptopunk #8705. He has 794 NFTs in total. Other notable items from the collections are:

  • Swaggy Sea Lion from Gary Vee’s Veefriends collection.
  • Three M1 Mutant Serum NFTs, which had been airdropped to all BAYC owners. Its market value is around 9ETH.
  • Cool Cat #3350.
  • 5 CloneX NFTs. CloneX is an NFT collection co-created by the famous Japanese contemporary artist Takashi Murakami and RTFKT. RTFKT is a leading brand that delivers next-gen gaming sneakers and collectibles. It’s been acquired by Nike very recently.

Marshmello

Another celebrity who invested in Cryptopunks, BAYC, and Veefriends collections is DJ Marshmello. His portfolio has 120 NFTs with around $1M market value, including 11 NFTs from the Cryptoadz collection by Gremplin.

The most valuable three NFTs from his collection are:

  • Cryptopunk #8274
  • BAYC #4808
  • BAYC #9231

Post Malone

Among the top NFT celebrity owners, musician Post Malone might be the only one who doesn’t have any Cryptopunks. Instead, he has two BAYCs, #9039 and #961, totally valued at more than $532K. He also invested in the Wolf Game, Swampverse, and Sisters collections.  

Jay-Z

Rapper Jay Z owns the Cryptopunk #6095 and one Portrait and one Sneaker from the RTFKT Cryptopunks project. RTFKT Cryptopunks project functions in a similar vein as the 10KFT NFT collection in that it’s only open to punk owners. 10,000 unique sneakers were created via the corresponding punk from the original Cryptopunks project.

Beeple

The artist Beeple is one of the most valuable crypto art creators today. He made the headlines in 2021 after he sold the Everydays: The First 5000 Days collection for $69M in an auction at Christie’s. 

His NFT portfolio, which consists of works other than his own, isn’t modest either. He gave back to the NFT ecosystem by investing more than $400M in various artists on the Rarible platform. Additionally, he’s some pieces from the Veefriends, Cryptocubes, and Meebits collections.

Mark Cuban

Billionaire entrepreneur Mark Cuban also collected a large number of NFT artworks from the Rarible platform. His NFT portfolio is worth around $467M, with BAYC # 1597 and FEWO Crypto Brick being the most precious pieces. The latter is a collaboration between the RTFKT studios and the well-known NFT artist Fewocious.

Other notable celebrity NFT collectors include the NBA star Stephen Curry and the Rapper Ja Rule. The most valuable asset in Curry’s portfolio is the #7990 BAYC. Ja Rule has the #3512 from the Mutant Ape Yacht Club collection.

Final Thoughts: Celebrities Are Loving NFTs

The influx of multifaceted musicians, entrepreneurs, artists, and professional sports players into the NFT space has been welcomed by open arms by all NFT holders. 

Many NFT-holding celebrities tend to acquire pieces from iconic NFT collections such as the BAYC, Cool Cats, and Crypto Punks, but we’re also seeing many celebrities invest in individual artists’ works. In recent months, owning a BAYC or Punk evolved from being something that just crypto people collected to a status symbol for celebrities and athletes. 

We’re eager to follow the celebrity movement into NFTs and explore what’s next on the horizon. 

How Are NFTs Authenticated?

The NFT concept is new to most; the term “non-fungible token” skyrocketed into the mainstream from relative obscurity within an esoteric group of cryptocurrency aficionados. 

The script changed in early 2021: NFT collectors suddenly started spending thousands to sometimes millions of dollars to buy various JPEGs and GIFs on the Internet. 

With so much money flowing into the evolving NFT marketplace, there is a dire need for NFT verification services. 

How do I know that the NFT I’m buying is legit, instead of some shoddy reproduction created by some scammer? 

The following guide explores how NFTs are authenticated.  We’ll talk about a handful of mechanisms being implemented to protect NFT collectors. We’ll debate the question of which of these schemes will see mass adoption as the NFT market matures.

The NFT space is still in its infancy and a variety of NFT authentication methods are being used, each of which offers specific advantages to the end-user. 

What Aspects of an NFT Need to be Authenticated?

The first question we need to ask is what exactly is it that we need to authenticate about an NFT

There are basically two factors to consider:

  1. Authenticity — Who created the NFT and who currently owns it?
  2. Originality/rarity — Is the work the first of its kind and unique or are there similar/derivative works?

First, and most importantly, collectors need to verify the source of the NFT and its rightful owner. 

Next, because the value of an NFT is partially based on rarity, we need to verify that the artwork being minted is not a copy or derivative of previously existing work. If the artist is minting several copies or slightly revised versions of a work, then its value is questionable. 

Moreover, since anyone can copy an image file and mint it as an NFT, one must be able to prove the creation is tied to a particular creator, or the most valuable component of NFTs, the provable scarcity and provenance, goes out the window.

In the case of physical art, there is a master and there are often prints (or copies) of the original work. 

The master holds the most value. 

Next, artist-signed prints have value to some collectors. 

However, unsigned prints have very little value. They can easily be copied so they have no inherent rarity.

The same might be true for digital art. The master NFT holds the most value. Limited edition copies minted by the artist might also have value to some collectors. Copies not minted by the artist floating around the internet are essentially valueless since they can be replicated an infinite number of times.

How is the Authenticity of an NFT Verified?

In the case of verifying that an NFT was minted by the original artist and not a scammer, we rely on the public record. Records of NFTs minted on decentralized blockchains are immutable, which means the record can’t be changed by anyone– at least not without a prohibitively expensive effort, but that’s a rabbit hole we’ll jump into another time. 

Thus we need only look at the record for a particular NFT to determine when it was minted as well as its ownership history. 

This is easier said than done, however; many art collectors will outsource this step to a trusted third party. 

For example, an artist by the pseudonym “Beeple” sold a work of art called “Everydays – The First 5000 Days,” for $69 million. The NFT was offered by Christie’s auction house. Collectors can rest assured that high-end auctioneers such as Christie’s have done their due diligence to be sure that the NFT being auctioned is authentic– a sort of authentication by proxy.

Most NFTs, however, are sold on centralized NFT marketplaces such as OpenSea, Rarible, Mintable, and others. 

Each NFT marketplace handles NFT authentication differently.

NFT Marketplaces and NFT Authentication 

Many NFT marketplaces offer some level of NFT authentication service, but not all of them. 

Marketplaces that do offer this service approach NFT authentication from a variety of angles: 

  • OpenSea, the largest NFT marketplace, offers no assurances that an NFT is original. The buyer must do their own research. 
  • Mintable, SuperRare, and Foundation only sell work by hand-curated artists. 
  • Nifty Gateway offers both hand-curated and post-verified NFTs. 
  • Rarible vets artists and performs what is known as a “reverse image search” to identify copies and near copies of the work. 

This list represents a small handful of NFT marketplaces and their NFT verification protocol; new NFT marketplaces are popping up daily and each has its own system for verifying (or not) the NFTs being sold or auctioned on their sites.

How is the Rarity of an NFT Authenticated?

Verifying the uniqueness of an image is far more difficult than identifying the authenticity and owner of an NFT. 

A human being should be able to easily identify a copy or modified version of an image merely by looking at it. When comparing a handful of images, it would be tricky to fool a diligent human. However, it would be impossible for a human to search for every copy or near copy of an image manually. 

Computer algorithms can help us with due diligence. 

Rarible, for example, performs a reverse search on images to identify copies and similar works. 

What is a Reverse Search?

With a traditional image search, the user searches for images labeled or tagged with a particular keyword or phrase. Google Images is the most commonly used example of this. 

However, Google also lets users do a reverse search to find images that are similar to the NFT in question. Search results also include information such as the date each image was posted online. Stock image sites such as Adobe Stock also use this reverse search method to identify similar images.

So how does a reverse image search for NFTs work? 

Perceptual Hashing for NFT authentication

In identifying similar images via computer, a technique known as perceptual hashing is employed. 

Humans perceive colors and shapes, not pixels. We can compare images instantaneously. However, computers can’t determine that two images are similar just by comparing the pixel data. An image can be slightly modified — resized, cropped, or adjusted in other ways — and we end up with a completely different list of pixels.

We can solve this problem with the process of perceptual hashing. 

Perceptual hashing 101

Hashing is the act of reducing a data set to a much smaller set of data that can more easily be compared. Perceptual hashing breaks an image down into perceivable traits such as shapes and colors. 

The hash file can then be compared with other hashed files to find similar patterns. 

A computer algorithm can identify similar images using perceptual hashing. However, the computer isn’t able to make the final call on originality. It can only bring similarities to the attention of a human. The human can then make the final call. 

It’s not a perfect process, but it does streamline the authentication process for the end decision maker greatly.

Pastel is pioneering a near-duplicate NFT detection strategy using a mix of deep learning models using Tensorflow with Keras Applications, which transform each NFT into a fixed list of over 10,000 numbers (the ‘NFT fingerprint vector’). Then, it assesses the correlation between an NFT fingerprint vector and all other existing fingerprints on Pastel and marketplaces like OpenSea, and open databases like Google. Finally, it churns out a relative rareness score between 0% (the NFT is identical to another) or 100% (it’s completely unique.)  

Final Thoughts On How NFTs are authenticated

As you might imagine, NFT verification services are invaluable to serious collectors. Presently, a variety of NFT verification schemes are being used by NFT marketplaces and art auction houses. 

The NFT authentication process may involve humans and computers.  

While humans are great at vetting artists, they’re not so great at manually searching for images that might be similar. And computer algorithms alone can’t make a final determination on an image’s rarity. 

The rarity of an NFT is relatively simple to verify by using a combination of perceptual hashing and human verification. 

However, for the casual collector of NFTs, simply going by a blue checkmark and the proper link on a popular marketplace like OpenSea might be enough– but as you can imagine, this exposes one to a great deal of risk. 

When it comes to peer-to-peer NFT trades, the ecosystem still has a long way to go to ensure a trustless, fair, and fool-proof system.

NFT Copyright: What Artists and Collectors Should Know

NFT art is soaring in popularity due to the blockchain’s ability to offer a multitude of features that appeal to both creators and collectors. 

Artists continue earning royalties for the same artwork from the sales in the secondary market, which isn’t possible in the traditional art scene. 

Collectors enjoy advantages that weren’t possible before blockchain technology, such as an undisputable artwork’s transaction history and provenance, scarcity, and liquidity. 

However, the NFT ownership concept is more complicated than meets the eye, and it often trips up many.

But what do I actually own? 

What if someone just screenshots your art? 

Can I sue someone if they print my NFT on a shirt?

The answer to all of these questions is a nebulous “it depends.”

When someone buys an art NFT, they don’t purchase the artwork itself but the token that represents it. 

Owning the token isn’t necessarily the same thing as owning the copyrights of the underlying asset, unless it was specified in the underlying contract. 

The following guide explores what NFT copyright is, and what both creators and collectors should know about their NFTs. 

Copyrights and intellectual property rights

Copyright is a bundle of rights that specify what’s ok and what isn’t, regarding things like reproducing and distributing copies of the work, preparing derivatives based on the original work, displaying the work in public, and performing the work publicly, as regulated by 17 U.S. Code § 106.

Purchasing an NFT doesn’t transfer these rights to the buyer automatically. Unless an external agreement (17 U.S. Code § 204) is made between the artist and the purchaser,  the artist who created the original artwork remains the copyright holder.

The artist can transfer the copyright, grant a license for specific purposes, or limit the NFT’s use in some way. Agreements used for transferring rights must be coded in the smart contracts or expressed in written terms elsewhere.

Intellectual property (IP) is a broader concept that can refer to any product of the human intellect that the law protects from unauthorized use by others. Patents, copyrights, trademarks, and trade secrets all fall into the realm of IP.

Again, the only way an NFT buyer can retain IP rights is through an explicit agreement signed by the creator of the original artwork.

Standard license agreements for NFT ownership confer the rights to use, copy, display, resale, and gift NFTs. Granting a license of copyright and IP to the buyer through smart contracts or external agreements is also common. Some NFT projects permit commercial use, like CryptoKitties. 

CryptoKitty owners can use them to commercialize their own merchandise, given that they don’t earn more than $100K per year. Another well-known NFT project, Bored Ape Yacht Club, has generous IP terms similar to CryptoKitties. For example, owners are allowed to create characters around their apes or print them on their personal belongings.

Copyright Terms of NFT Marketplaces 

Although there’ll always be exceptions, we can say that in open marketplaces like Opensea and Rarible, artists license the NFTs to the buyer and not to the marketplace.

In marketplaces where only exclusive NFT collections are sold, the marketplace usually owns the NFTs and the related IP rights, like in the case of NBA Top Shot.

Curated marketplaces like Superrare, MakersPlace, and Nifty Gateway, artists are expected to grant licenses for display, distribution, and derivative rights, for promotional activities. Some marketplaces require artists not to mint multiple NFTs for the same artwork.

On Rarible and MakersPlace, artists can apply a custom license to their NFTs, in addition to platforms’ own standard agreements.

When an NFT is resold, the general practice is that any resale activity terminates the former owner’s rights and the current owner of that NFT becomes the new license holder.

NFT Copyright: What You Should Know as a Collector 

As a rule of thumb, NFT owners generally only have the copyrights to resale and gift their NFTs. Please don’t assume you can create derivatives of the underlying artworks and sell them for commercial purposes by default. 

Some projects may be cool with it, others may not. 

Some projects may give holders every possible right under the sun with their NFT, whereas others insist on keeping the project’s branding, and every NFT, held close. 

Always research the related platform’s license terms and conditions yourself if your intentions are beyond reselling the artwork in the secondary market. Otherwise, copyright infringement issues may arise.

It would help if you also bought only on platforms you trust. Always double-check if the artist verifies the related artwork as theirs. In May 2021, artist Xcopy, a famous figure in the crypto art community, tweeted about a fraud regarding his art on a new platform called Hen. 

This isn’t a rare event in the NFT world; always check if you’re buying an original work of art.

NFT Copyright: What you Should Know as an Artist

Artists should only mint their own creations. If the work is done in collaboration with others, their authorization is necessary.

It seems obvious, but in the Wild West vibe of early NFT marketplaces, it seems that you can get away with minting shoddy reproductions of other works. 

Remember how the blockchain tracks every transaction ever? While NFT copyright law is in its wobbly baby deer leg phases now, it’s not difficult to algorithmically track financial and copyright crimes. 

In the NFT world, many frauds take place. If you happen to discover your art is being sold as an NFT by someone else without your consent, you can claim copyright infringement against the sellers.

As stated above, unless you transfer the copyrights to buyers with an external agreement, you hold the copyrights of your work. However, if you did the NFT artwork initially under an employment contract, it might be regarded as work for hire, according to 17 U.S. Code § 101. In this case, the employer might hold the copyrights.

As a precaution against people with bad intentions, you can release your artwork as an NFT before sharing it with someone else.

Finally, like collectors, artists should also be wary of the platform they sell their art and terms and conditions regarding copyrights.  

Final Thoughts: Expect NFT Copyright Law to Evolve

Both collectors and artists should be aware that NFT technology is very new and many issues regarding IP rights are not completely clear. 

Understanding the underlying technology is necessary for both parties, along with the legal aspects. In case of conflicts, consulting lawyers for legal advice is inevitable.