Non-fungible tokens, more commonly known as NFTs are unique digital assets which are recorded on a blockchain, which proves the ownership of a digital or physical item. These items commonly range from digital artwork, music and videos to virtual land.
NFTs are non-fungible assets. In economics, a fungible asset is one that can be readily interchanged and that can be measured in units. Money and cryptocurrencies are examples of fungible assets, because any £10 can be exchanged with another currency of equal value. Alternatively, with cryptocurrencies, Ethereum and Bitcoin of equivalent value can be exchanged for one another. However, if something is non-fungible this means it has unique properties and it impossible to interchange this with something else, as it is one of a kind and its value cannot be exchanged. Examples are houses and paintings. Whilst you can take a photo of either, there will only ever be one original.
NFTs are not interchangeable, whereas cryptocurrency is. This means each NFT is distinct and cannot be copied or replaced by another NFT. The ownership of an NFT is recorded in the blockchain allowing the owner to transfer it, allowing NFTs to be sold and traded.
NFTs are most commonly used as digital art but can also be used as collectibles. Unlike normal digital art, which could be copies and replicated, NFT’s cannot be, as they have a digital certificate of ownership which can be bought and sold, acting as verifiable proof for the ownership of the NFT. However, it is important to note that the NFT does not generally give the buyer the actual artwork or it’s copyright, unless this is specifically stated.
Common NFT scams
Common NFT scams can include phishing scams, rug pulls, pump and dumps, and counterfeit NFTs.
In phishing scams, the scammer will send potential victims emails with links to fake websites that imitate or look similar to genuine NFT marketplaces or exchanges, where people may believe they are buying a unique NFT which will increase in value when that is not the case.
In rug pulls, a scammer will advertise a promote a new NFT project, creating hype to attract investors. Once the scammer receives enough funding they disappear with the funds, leaving investors with assets without any worth or value.
Fake/counterfeit NFTS: the fraudster will create NFTs and will pretend they have been made by a famous artist, leading victims to believe they are investing in something valuable. An example of this is when in 2021, hackers advertised a fake NFT on Banksy’s legitimate website, leading to a collector purchasing it on OpenSea for over £244,000. Whilst the hacker returned the funds to the victim, it is an example of how NFT scams can easily occur.
As many NFTs peaked in value during covid, as of 2023, it has been reported that many have lost their value and are worthless. However, this isn’t common knowledge, and scammers may lure people into purchasing fake NFTs under the guise that their value will rise again.
Are there any protections for consumers in the UK?
Under the FSMA definition from the Financial Services and Markets Act 2023 section 69, cryptoassets have been defined as: any cryptographically secured digital representation of value or contractual rights that can be transferred, stored or traded electronically, and that uses technology supporting the recording or storage of data (which may include distributed ledger technology).
However, earlier this year, on 29 April 2025, the UK government published draft legislation for crypto assets. This is contained within the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025.
The draft SI amends the Regulated Activities Order to add a new Chapter 2B (crypotassets). This defines two new classes of assets:
- Qualifying cryptoassets
- Qualifying stablecoins
Qualifying cryptoassets are any cryptoassets which are fungible and transferable and not subject to one of the exceptions in paragraph (3) of the article.
Qualifying stablecoins is a subset of qualifying cryptoassets which are referenced against a fiat currency, and purport to maintain a stable value in relation to that fiat currency, by holding or arranging for the holding of fiat currency or fiat currency and other assets.
Under the amendments, qualifying crypotassets and stablecoins would be classed as specified investments under the Financial Services and Markets Act 2000 (FSMA).
Furthermore, certain activities related to these assets would become ‘regulated activities’, meaning that individuals carrying on those activities would need to b authorised by the FCA to carry them out. However, NFTs would not fall within the definitions of a qualifying cryptoasset or stable coin due to it lacking fungibility. Therefore, whilst the act is not in motion yet, it is important to be aware that in the future, there may be a lack of specific legislation concerning NFTs. Whilst, the government and regulators are working to broaden the regulatory perimeter for crypotassets, NFTs will generally be excluded from this as they fail to be classed into the qualifying crypotassets, therefore the usual regulatory protections of the FCA and FCS may not apply, at least based on current legislative proposals.
An NFT could possibly fall under the act if it was linked to a real word asset or investment contract that provided the owner financial rights such as access to shares or dividends. But this is highly unlikely in nature, as NFTs are not made with this purpose in mind.
Ultimately, it is important for consumers to then consider how they can be protected via other types of law such as contract law and ensure that they understand what they are purchasing and selling and have contracts drawn up to reflect this. Especially since they are non-fungible assets it is difficult to place a universal value on them.
If an individual comes across NFTs or are interested in them, they should take precautions and view them as high risk, considering there are no consumer protections or schemes present for them at the moment. This should involve doing due diligence and ensuring you are fully informed as to what the NFT provides you with.
If you have fallen victim to an NFT scam – get in touch with us at Wealth Recovery Solicitors for a free consultation. Our friendly and supportive team are hand to assist you in recovering funds lost to this scam.