How Scalping Bots Exploit NFT Sales
Scalping bots aren’t exactly new. Bots are known for snatching up limited-edition sneakers, concert tickets, and other hot commodities, which scalpers then resell on third-party sites for a profit. Scalpers have shifted their focus from fashion and entertainment to NFT auctions as NFTs have increased in popularity.
Scalpers control the pricing of NFTs through bots, ensuring a sale at a favorable price and a higher resale value. Bots have three primary effects on NFT prices:
- Driving NFT prices down
Bots submit bids on a significant number of NFTs below the asking price in this circumstance. The bot cancels a bid if it is accepted. When the NFT is relisted, the value of the NFT drops, allowing the bot operator to bid lower than the original asking price, resulting in a higher return when the NFT is resold on a secondary market.
Because both the NFTs and the related crypto assets to pay for them are locked up in escrow for up to 24 hours on platforms that do not use smart contracts — programs that assign ownership and govern the transferability of NFTs — this is especially problematic.
2. Driving NFT prices up
Scalpers may intentionally raise NFT prices by using bots to “sweep the floor,” i.e., purchase all NFTs that are currently for sale at the lowest price. This artificially raises the popularity and resale value of the NFT.
Customers can’t buy the NFT at the low price it was selling for previously. They have to pay more, often on a secondary market where they can’t see how low the original price actually was. This leads buyers to think the value of an NFT is greater than it is and they bid at the inflated price, allowing bot operators to collect a profit.
3. Fake bidding
Fake bids are used to inflate and deflate prices. Sellers frequently set fictitious bids on their own NFTs to create phony market movements. High bids might make prices appear to be much higher than they are. The sellers can then reject the bid, preventing the transaction from proceeding.
In another scenario, sellers may bid below market price on their own NFTs. Other investors who purchased at or above market price are alarmed by the possible losses and sell at a lower price than they paid. As a result, the price falls, allowing scammers to “sweep the floor” and resale the NFTs for a profit.
What other scams can NFT bots pull off?
Bots can be used to sell bogus projects that fraudsters establish in order to sell non-authentic NFTs for a profit, in addition to manipulating NFT prices. These are made by putting together a list of NFTs that don’t match policy IDs. When a customer goes to purchase a project, they may unintentionally purchase a phony. Because NFTs aren’t copyrighted, it’s possible that selling bogus projects isn’t even illegal.
Once someone has purchased a false project, there is no likelihood of getting a refund, and there is no resale value. As a result, verifying the legitimacy of an NFT before purchasing it is crucial. Matching the policy ID to the blockchain is one way to do this, although most users are utterly ignorant of this.
How can you stop scalping bots?
You can’t, to put it simply. You can, however, mitigate, deter, block, and dissuade them.
In conclusion, The NFT industry is rapidly growing, bridging the gap between web2 and web3 environments. Please be careful when investing in the NFT space.
