Theft, fraud and litigation in the world’s largest NFT market

Chris Chapman used to own one of the most valuable products in the world of cryptography: a unique digital image of a hairy monkey dressed in a space suit.

Sir. The non-fungible token that Chapman bought last year has become a phenomenon in a wide range of digital collections called the Bored Ape Yacht Club. In December, it launched its Bored Ape on OpenSea, the largest NFT market, with a price tag of around $ 1 million. Two months later, when her daughter was ready to take her to the zoo, OpenSea sent her a notice that the monkey had been sold for about $ 300,000.

A crypto-scammer took advantage of a bug in the OpenSea system to buy the monkey for much less than its value, he said. Chapman, who runs a Texas construction business. Last month, OpenSea offered him about $ 30,000 in compensation, he said, and refused to negotiate a higher fee.

The company has made “a lot of stupid and stupid mistakes,” Mr. Chapman, 35, said. “They don’t really know what they’re doing.”

Sir. Chapman is one of the many fans of cryptography who has raised questions about OpenSea, a site like eBay where people can browse millions of NFTs, buy images, and sell theirs. Over the past 18 months, OpenSea NFT has become a major market and high-end crypto start-up. The company has raised more than $ 400 million from investors, valued at a staggering $ 13.3 billion, and hired directors of technology giants like Meta and Lyft.

But as OpenSea has grown, it has struggled to prevent theft and fraud. Mr. it cost him the mistake. Chapman has caused his monkey claims for months, forcing him to pay more than $ 6 million from the beginning to NFT traders.

Customers also complain that OpenSea is blocking the sale of NFTs that have been seized by hackers, which could result in a quick return of stolen goods. And plagiarized art has proliferated on the site, angering artists who once saw NFTs as a financial salvation. The company has to face at least four lawsuits against traders, and one of its former directors has been indicted this month on charges related to internal trafficking involving the NFT.

OpenSea’s problems are piling up as demand for NFT cools as a result of a cryptocurrency price crash. NFT sales have been down about 90 percent since September, according to industry data from NonFungible. OpenSea is also facing competition from newer markets built by crypto companies like Coinbase.

The company’s clashes with users show some of the central tensions of the web3, a utopian view of a more democratic internet controlled by ordinary people than giant tech companies. Like many crypto platforms, OpenSea does not collect the names of most of its customers and advertises itself for a regulated market as a “self-service” portal. But more and more users want the company to behave like a traditional business, compensating victims of fraud and suppressing theft.

In all three interviews, OpenSea executives acknowledged the scale of the problems and said the company was taking steps to improve trust and security. New York-based OpenSea has hired more customer service staff to respond to all complaints within 24 hours. The company freezes lists of stolen NFTs and has a new screening process to prevent plagiarized content from circulating on the platform.

“Like any tech company, there’s a time where you’re catching on,” said Devin Finzer, 31-year-old OpenSea CEO. “You are trying to do everything you can to adapt to the new users coming into the space.”

OpenSea was founded four and a half years ago by Mr. Finzer, a graduate of Brown University, whose previous start, an application for personal finance, was sold to the financial technology company Credit Karma and Alex Atallah, a former engineer at the software company Palantir. They are now among the richest crypto-billionaires in the world, according to Forbes.

Their business model is simple. OpenSea reduces its NFT by 2.5 percent every time it sells on its platform. Last year, NFT became a cultural sensation for businesses and the value of Bitcoin and other cryptocurrencies rose.

Almost overnight, OpenSea went from a dark launch to one of the most powerful intermediaries in the crypto industry, which soon led to problems.

“It would be hard for any company to pivot and adjust that rise so quickly,” said Carrie Presley, who worked at OpenSea for a few months last year. “It was very chaotic.”

Because OpenSea charges a fee for each NFT sale, some users have an economic incentive not to reduce the sale of stolen goods. This year, Nevada investor Robert Armijo sued OpenSea for refusing to steal a hacker who stole several of his NFTs from selling one of them on the platform. (OpenSea’s lawyers called the complaint a “non-start” and the company immediately acted to stop selling the other stolen NFTs.)

In February, Eli Shapira, a former technology director, gave a hacker who clicked on a link access to his digital wallet that stores his NFTs. Thieves Mr. he sold two. Shapira’s most valuable NFTs in OpenSea total over $ 100,000 in total.

Within a few hours, Mr. Shapira contacted OpenSea to report the hack. But the company never took action, he said. Since then, he has used public data to track his NFT-captured account, and has seen hackers sell other images on OpenSea, possibly as a result of further theft.

“It’s very easy for these hackers to open an account there and immediately sell or sell what they stole,” he said. said Shapira. “All these guys need to increase their safety.”

Last month, after The New York Times asked OpenS about the case, the company replied that Mr. It froze future sales of Shapira and stolen NFTs.

Anne Fauvre-Willis, who oversees OpenSea’s customer support efforts, said the company was working to improve response times when users reported theft.

“It’s important to do it faster,” he said. “It’s something we’re investing in today, and we’re going to keep investing in it.”

OpenSea has also seen a rise in plagiarism, with vendors converting traditional artwork to NFT and then listing the images for sale without compensation to the original creator.

DeviantArt, a collective of artists owned by web development company Wix, runs software that scans millions of NFTs every day to detect plagiarized images from the work of its artists. The program has identified more than 290,000 cases of plagiarism in the OpenSea and NFT markets.

“There’s almost no responsibility,” said Liat Karpel Gurwicz, director of marketing for DeviantArt.

OpenSea provides a tool that allows people to create NFTs with just a few clicks, turning ordinary images into a single element whose authenticity is recorded in a public book called a blockchain. In January, the company said it would limit the number of NFTs that users could make with the tool. But after the reaction of NFT fans, OpenSea vice versa of course, and in a tweet he said he would remove the cap, even though many of his new creations were “plagiarized works, fake collections and spam.”

“They have basketed the concept of what NFTs should be,” said Aja Trier, a Texas artist whose works she has copied and sold on OpenSea. “It dilutes my job market.”

In May, OpenSea announced that it was using image recognition technology to combat plagiarism. But the scanning service compares newly uploaded images to other NFTs listed in OpenSea, and as a result it is unlikely to detect plagiarized artwork from other websites.

Shiva Rajaraman, former vice president of Meta and Spotify, who works on the OpenSea product group, said the company hoped to roll out its anti-plagiarism dragnet. “We will work in partnership with other people to achieve that original work,” he said.

Sir. Chapman, a former college basketball player, began experimenting with crypto last year. He bought a Bored Ape for hundreds of dollars, and later exchanged it for an astronaut-dressed monkey in Houston, his hometown, because he remembered the history of his hometown, the space age. Bored Ape started wearing a sweatshirt, and his mother-in-law bought him a bottle of monkey water.

In September, Mr. Chapman listed his space monkey in OpenSea, setting the price at 90 on Ether. Three months later, it raised the price to 269 Ether, or about $ 1.1 million, in line with the rising value of other Bored Ape NFTs. NFT intended to sell it in exchange for enough to immediately buy another space monkey and pocket the profits from the trade.

In February, the monkey was sold for the original 90’s Ether list, or about $ 300,000. Expert traders took advantage of a bug that allowed them to activate outdated sales lists in OpenSea.

In February. 18, Mr. Finzer announced that OpenSea had updated its technology to prevent thieves from reactivating old lists. The company paid compensation to some of the victims, asking them to sign ignorance agreements in exchange for the payments.

Sir. Chapman said OpenSea initially offered to return the 2.5 percent share it received when its space monkey was sold. Last month, he said, OpenSea raised its offer to 15 Ether, or just under $ 30,000 at today’s prices, after his lawyer wrote to the company. OpenSea declined to comment on his case.

Sir. Chapman is demanding a higher return. As the owner of a bored Ape NFT, he would be entitled to a large portion of ApeCoin, which was launched in March. Ate NFT owners then received a share of more than $ 100,000 in coins.

Because he lost the monkey, Mr. Chapman lost his planned earnings at ApeCoin, planning to buy a house next to his wife’s family outside downtown Houston.

“I could have ApeCoin right now and have a payment for my house,” he said. “It’s all gone.”

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