Thefts, Fraud and Lawsuits at the World’s Biggest NFT Marketplace

Chris Chapman owned one of the world’s most valuable cryptocurrencies: a unique digital image of a spikey-haired clown dressed in a spacesuit.

Mr. Chapman bought the nonfungible token last year, as the widely known series of digital collections called the Board App Yacht Club became a phenomenon. In December, it listed its board app for sale on OpenSea, the largest NFT marketplace, valued at about $ 1 million. Two months later, when he was ready to take his daughters to the zoo, Opency sent him a notice: The joke had sold for about $ 300,000.

A crypto scammer used a flaw in OpenSea’s system to buy a mockery at a significantly lower price than its value, Mr. said. Chapman, who runs a construction business in Texas. Last month, Opency offered him about $ 30,000 in compensation, he said, which he turned down in the hope of big pay negotiations.

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

Mr. Chapman is one of the many crypto enthusiasts who have raised questions about OpenSea, an eBay-like site where people can browse millions of NFTs, buy images and put them up for sale. Over the past 18 months, OpenSea has become the dominant NFT marketplace and one of the most-profile crypto start-ups. The company has raised more than $ 400 million from investors, valued at $ 13.3 billion, and hired executives from tech giants such as Meta and Lift.

But as Openness has evolved, it has struggled to prevent theft and fraud. The mistake that can easily get your claim denied is to fail. Chapman has been blamed for months of his maneuvering, forcing start-ups to pay NFT merchants more than $ 6 million.

Consumers also complain that OpenSea is slow to stop the sale of NFTs seized by hackers, which can make quick profits by flipping stolen items. And the art of stealing has spread to the site, angering artists who once viewed NFTs as a financial lifeline. The company is facing at least four lawsuits from traders, and one of its former executives was indicted earlier this month on insider trading-related charges involving NFTs.

OpenSea’s woes are compounded by the declining demand for NFTs amid declining cryptocurrency prices. NFT sales have fallen nearly 90 percent since September, according to industry data tracker NonFungible. OpenSea is also battling competition from new marketplaces created by established crypto companies such as Coinbase.

The company’s clashes with users reflect some of the central tensions of web3, a utopian vision of a more democratic Internet controlled by regular people rather than giant tech companies. Like many crypto platforms, OpenSea does not collect the names of most of its customers and advertises itself as a “self-service” gateway to a loosely controlled market. But users increasingly want the company to act like a traditional business by compensating victims of fraud and cracking down on theft.

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

“Like every tech company, there’s a period where you’re moving forward,” said Devin Finzer, 31, chief executive of OpenCy. “You’re trying to do everything you can to accommodate the brand new users coming into space.”

Openness was established four and a half years ago by Shri. Fincher, a graduate of Brown University whose previous start-up, a personal-finance application, was sold to financial technology company Credit Karma, and Alex Atallah, a former engineer at software firm Plantier. According to Forbes, he is now one of the richest crypto billionaires in the world.

Their business model is simple. OpenSea deducts 2.5% each time NFT is sold on its platform. Last year, business boomed as NFTs became a cultural stimulus and the value of Bitcoin and other cryptocurrencies skyrocketed.

Practically overnight, OpenSea went from a vague start-up to one of the most powerful intermediaries in the crypto industry, which soon led to problems.

“It would be difficult for any company to sustain and adjust to such an increase so quickly,” said Carrie Presley, who worked for OpenC for a few months last year. “It was very chaotic.”

Because OpenSea charges a fee for each NFT sale, some users argue that the company has a financial incentive not to block the sale of stolen goods. This year, Robert Armijo, a Nevada investor, sued Opency for failing to stop a hacker who had stolen many of his NFTs by selling them on one of the platforms. (Opency’s attorneys called the complaint “nonstarter” and said the company took immediate action to stop the sale of other stolen NFTs.)

In February, former tech executive Eli Shapira clicked on a link in which he said the hacker had been given access to a digital wallet where he stores his NFTs. The thief sold two of them to Mr. Shapira’s most valuable NFTs on the openings total more than $ 100,000.

In hours, Mr. Shapira contacted Opency to report the hack. But the company never took action, he said. Since then, he has used public data to track his NFTs seizure account and has seen hackers selling other images on OpenSea, perhaps out of more thefts.

“It’s very easy for these hackers to go there and open an account and immediately trade or sell whatever they steal,” he said. Shapira said. “All of these people need to increase security.”

Last month, after The New York Times asked Opency about the case, the company told Mr. Future sales of Shapira and stolen NFT stabilized.

Ann Fower-Willis, who oversees Opency’s customer-support efforts, said the company is working to improve response times when users report theft.

“It’s important to get fast,” she said. “This is something we are investing in today and will continue to invest heavily going forward.”

OpenCy has also seen an increase in plagiarism, as sellers convert traditional artwork into NFTs and then list images for sale without paying the original creator.

DeviantArt, a group of artists owned by web-development firm Wix, runs software that scans millions of NFTs every day to find stolen images from the works of its artists. The program has identified more than 290,000 cases of plagiarism on OpenSea and other NFT marketplaces.

“There’s almost no liability,” said Liat Carpel Gurvikz, DeviantArt’s chief marketing officer.

OpenSea offers a tool that lets people create NFTs with a few clicks, converting regular images into unique items whose authenticity is recorded on a public account called a blockchain. In January, the company said it would limit the number of NFT users can create with the tool. But after feedback from NFT fans, OpenSea Conversely Of course and in a tweet it said it would remove the cap, although many new creations turned out to be “certain works, fake collections and spam”.

“They’ve spoiled the idea of ​​what NFTs were supposed to be,” said Aja Trier, a Texas artist whose work has been copied and sold on OpenSea. “It slows down the market for my work.”

In May, OpenSea announced that it was using image-recognition technology to prosecute plagiarism. But the scanning service only compares newly uploaded images with other NFTs listed on OpenSea, making it unlikely to find stolen artwork from another website.

Shiva Rajaraman, former vice president of Meta and Spotify, who works on OpenSea’s product team, said the company hopes to expand its anti-piracy dragonet. “We will work in partnership with others to get that original work done,” he said.

Mr. Chapman, a former college basketball player, began experimenting with crypto last year. He bought the board app for a few hundred dollars, and later traded it for a monkey in astronaut gear as it evokes the history of the space age in his hometown of Houston. He started wearing a board app sweatshirt, and his mother-in-law bought him an app branded water bottle.

In September, Mr. Chapman listed his space app on OpenC, setting the price to 90 ether. Three months later, it raised the price to 269 Ether, or about $ 1.1 million, to match the skyscraper value of another board app, NFT. He was planning to sell NFT so that he could immediately buy another, less expensive space app and make any profit from the trade.

In February, the monkey was sold on the original list of 90 ethers, or about $ 300,000. Wise merchants used a flaw that allowed them to activate older sales listings on OpenSea.

On Feb. 18, Mr. Finzer announced that OpenC has updated its technology to prevent thieves from reactivating old listings. The company compensated some victims, asking them to sign non-disclosure agreements in exchange for payments.

Mr. Chapman said OpenC initially offered him a refund of only 2.5 percent of the fee when its space app was sold. Last month, he said, Opency increased its offer to 15 ethers or a little less than $ 30,000 at today’s prices, after his lawyer wrote a letter to the company. Opency declined to comment on his case.

Mr. Chapman is engaged for a large compensation. As the owner of Bored Ape NFT, he will be entitled to a large stake in ApeCoin, a cryptocurrency launched in March. Each of the Ape NFT owners received a piece of the coin worth more than $ 100,000 at the time.

Because he had lost his clown, Mr. Chapman missed his expected ApeCoin windfall, which he used to buy a house near his wife’s family outside downtown Houston.

“I have ApeCoin right now, and I have a down payment for my house,” he said. “Everything is gone.”

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