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Web 3 Explored – How Did We Arrive And Are Digital Experiences Evolving Faster Than We Can Secure Them?

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here is no doubt about it, digital technologies have rapidly modernized the way we create, and innovate. With an internet connection and a swift click of a button, we can now access our friends, family, and work colleagues, without bounds or borders.  In fact, if we took a step back, most of us would be amazed by how far our technology has evolved throughout the years.

Let’s rewind back to 2007, when Apple released the 1st generation of iPhone; a device that would revolutionize the way we communicate, for years to come. In that same year, tech giant Amazon would release its first e-reader, the Amazon Kindle, which all but transformed mobile reading experiences. In 2009, the first peer-to-peer digital currency, known as Bitcoin, came on the scene, which would soon allow us a new way to buy, sell and transfer value, all without the need for a central banking system. In leveraging blockchain technologies, Bitcoin would soon give rise to alternative digital currencies, further expanding decentralized experiences and transaction opportunities.

Fast forward to 2014 when Gavin Wood, the founder of cryptocurrency ‘Ethereum’, coined the term Web3 (or Web 3.0). Web3 would soon become known as the next generation of the internet, where connected devices would further the connection between the physical and digital realms.  Facebook (now Meta) accelerated this transition to Web3 experience in 2019 and 2020, with their release of the Oculus Quest and Quest 2 Virtual Reality (VR) headsets. What was once a high-tech and relatively expensive gadget largely built for the tech community, was becoming more accessible for the everyday consumer.

Enter 2020, when the world was on the brink of a Pandemic. With growing health and safety concerns, many businesses were forced to send hundreds if not thousands of employees to work from home; thus, leading employers to incorporate innovative outlets that would encourage collaboration and sharing. From telephone calls, and traditional video conferencing to ‘Metaverse’ meetings on VR headsets, the computer connection became another extension of our lives.

Coinciding with the ongoing digital shift in work, leisure, and shopping from home, has been the emergence of digital assets, namely NFTs (Non-Fungible Tokens). The original premise for NFTs was to take a traditional physical asset and transform them into digital representations. What originally began as a platform for trading digital artworks, has continued to expand its NFT offerings. To date, paintings, real estate, clothing, and digital collectibles, are all being offered as investable, with some items selling in the Millions of Dollars ($USD). Furthermore, there’s no sign that this marketplace is drying up anytime soon. In 2021 alone, the Global Market for Non-Fungible Tokens was an estimated $15.70 Billion 1. Based on forecasts, this value is expected to reach close to 122.43 Billion ($USD) by 2028 1.

While not every industry vertical and business leader has been quick to the NFT and crypto table, private equity investors and sports teams are taking note in capitalizing on missed opportunities. Below we will explore who is ‘playing ball’ in the NFT space, and how investors are accelerating these ventures.

Digital Memorabilia – Professional Sports are going all in on new collectibles

Despite the crypto craze and uncertainties regarding the long-term value, sports teams, players, and partnering investors are striking while the iron is hot. Recent estimates demonstrate that there is a lot of playing field when it comes to monetizing digital collectibles. For 2021, NFT sports collectibles were estimated at $1.4 Billion (USD); Based on the forecast, this number is expected to rise to a whooping $92 Billion (USD) by 2032 2

Let’s have a look at some notable investments, made in the NFT – pro sports collectible space, and examine how they are shaking up traditional keepsakes.

Top Pro Sports – NFT Collectible Ventures

  • NBA Top Shot – A NFT marketplace started in 2020, in partnership between the NBA and Dapper Labs (creator of NFT venture ‘Crypto kitties’) allowing users to buy, collect, sell, and trade basketball video highlight reels of their favorite sports moments. The list of investors in this venture is ongoing, with recent funding in the amount of $305 million (USD); This most recent round was led by wealth management firm, Coatue, and included the likes of star Athletes including Michael Jordan, and Kevin Durant 3 . Even team owners got in on the investment, with Sacramento Kings owner Vivek Ranadive taking part in the action!
  • Autograph – Launching in 2021 and Inspired by both son Dillon and father Paul Rosenblatt, Autograph has risen to notoriety with collectible NFTs ranging from sports phenoms to music legends. With backing from Tom Brady, himself, Autograph has been able to attract top talent to their platform, providing offerings at the intersection of community and collectibles. In 2022, Autograph received $170 Million (USD) in series B funding through leading VC Firms Andreesen Horowitz, Kleiner Perkins, and San Francisco Based VC ‘01A’ 4 .
  • Sorare – Launching in early 2019, Sorare focuses on bringing the fantasy sports experience to the NFT community. While focused on European Football, Sorare has expanded its footprint into Major League Baseball as of early 2022. A notable series B investment round was received by Sorare in the amount of $680 Million (USD) and led by investment fund SoftBank Vision Fund 2.

Pro Sports – NFT Ventures to Watch

  • LPGA – While there has been initial NFT movement on the PGA front, the LPGA is preparing for this movement. Despite no confirmed signs, it’s apparent that the Ladies Professional Golf Association (LPGA) is exploring options in both NFTs and the Metaverse. As of June of 2022, the LPGA filed a trademark application for these spaces, with the United States Patent and Trademark Office, which can be viewed here: https://www.uspto.gov/patents/search (Trademark Nos: 97462083 and 976462042)
  • Crypto Country Club – Launching in 2021, a pair of Austin Entrepreneurs foster a community where members can buy, sell, and interact with one another through golf-inspired artwork. Crypto Country Club has a well-known PGA tour, Joel Dahmen, as its brand ambassador (while they refer to it as ‘Club Champ’)
  • Malbon Golf Buckets Club – Featuring exclusive golfer-inspired NFT art, Malbon Golf Buckets Club seeks to provide another form of rich ownership and lifestyle experience, typically afforded to the golf course members of Malbon Golf Club.

“Organizations that fail to evolve their digital security practices with rapidly evolving innovations are at a significant disadvantage, both from an IT and a competitive standpoint.” 

Looking ahead of the curve – the Risk of NFT ownership

Like trading cards, there may be both short- and long-term market volatility that comes with ownership of NFTs. But should the market value be the only risk, investors should be focusing on when hedging their bets on digital investments? Unfortunately, the answer is no, primarily because the transaction to acquire, sell and interact with NFTs occurs ‘online’ across an internet connection. With the rising values of these collectibles, malicious actors are seeking ways to cash in and cash out. Let’s look at some recent cyber news, as it relates to theft, fraud, and unintended mistakes in NFT land.

  • Fraudulent sale of NFT sells for $340,000 – In August 2021, a fraudulent actor lists and sells an NFT, featured by the world-renowned artist Banksy, in the amount of $340,000 5. In an interesting twist, however. the resulting media coverage by the BBC and others pressured the seller to return the buyer’s money in full.
  • Insider Trading– In September 2021, a senior employee of a well-known NFT marketplace was suspected of insider trading. It had appeared that they bought NFTs prior to the official launch, and subsequently sold them for a profit of close to $67,000 after launch  6 . Following this incident, the marketplace reportedly instituted security policies prohibiting the use of confidential and internal company information, for the use of NFT transactions.
  • Price Manipulation– In October 2021, an NFT character titled ‘CryptoPunk #9998’ sold for over $400,000. Unfortunately, it was soon determined that the buyer and seller were the same people. This NFT owner attempted to sell this NFT for over a billion dollars  7. While this may not be illegal at face value, this scenario represents the opportunity for price gouging in the marketplace.
  • Identity Theft – On or around March of 2021, well-known creator of Marvel’s Super Hero Adventures appeared as a seller on the secondary marketplace, Rarible. The comic creator went on to post on Twitter, that the ‘verified’ profile, was in fact not him 7 . This example demonstrates that fraudulent sellers may be posing as established figures, in an attempt to drive value to their NFT sales.
  • Actor loses his beloved Ape NFT – Actor, Seth Green became a recent victim of NFT theft. In May 2022, Green attempted to ‘mint’ an NFT on a phishing/fake site. Because Green had his cryptocurrency wallet linked to the site, the actor was able to make off with a total of 4 of his NFTs, including a well-known Bored Ape Yacht Club Character 8 .

Steps to protect your digital investments – Web 3 and Beyond

Now you’re probably asking yourself, now that I know the potential risks of Web3 transactions, how can I better protect my portfolio of assets? We have outlined several steps you can take, to immediately better safeguard your assets:

  • Perform Investment Due Diligence: Before making any sort of investment in cryptocurrency or NFTs, ensure the legitimacy of the seller and source. This can reduce the risk of acquiring counterfeits. Whether you talk to fellow investors or read a company publication, it’s always best to cross-reference multiple sources. You may typically buy NFTs from either the original Minting Company or from a secondary marketplace. If buying from a community marketplace, you should typically favor more established platforms, those that have been in business for a least a year, and focus on fighting not only theft but scams from members/outsiders. A few noteworthy NFT marketplaces are https://opensea.io/ and https://rarible.com/ . As always, we recommend you perform your own diligence, before taking the plunge into NFTs.
  • Ensure you are visiting the authentic website – Whether you are buying, selling, or trading an NFT, you must ensure that you are visiting authentic websites. Like bank account websites, hackers have been known to create fake websites that almost mirror the original one, with attempts to steal users’ login/account information. It is always a good idea to verify the website’s authenticity by looking for the ‘Padlock’ icon in the web browser. By clicking, you will be shown a subpage, where you can scroll down and look for the ‘dates of validity’ for the ‘certificate’. This padlock or certificate represents that the website uses encryption.
  • If the offer is too good to be true, it probably is! – Seeing your latest Bored Ape Yacht Club character going for $2,000? While we recognize that markets can drastically fluctuate in the NFT space if the going value of all other minted NFTS is much higher, then you probably have yourself a bad investment; it’s either a counterfeit item or stolen from the legitimate owner. To help in verifying the NFT transaction, you can check the authenticity of the listing, by visiting https://etherscan.io/ .
  • Storage of NFTs in an ‘offline’ wallet – Otherwise known as cold storage, this physical storage device allows for the transfer and safe keeping of your valued (and potentially high dollar worth) NFTs. At a high level, the main difference between online wallets, like ‘Meta Mask’ for example, and ‘offline’ wallets is that online wallets require an internet connection to access. In addition, a password typically referred to as a ‘seed phrase’ prevents those not knowing the combination to access. While we typically remain vendor agnostic, here are a few cool ones to check out: Ledger & Trezor.
  • Vetting Third Party Ecosystem-If you are actively investing or considering investing in NFT companies in the future, Vendor Due Diligence is critically important to the success and security of your money. What would you say if your company’s offices were locked, but the night cleaning crew left the door open? This example is strictly to illustrate that attackers actively look for weaknesses (intentional or unintentional) in vendor physical, data protection, and even software/web development practices. The NFT company or you as an investor may have strong digital security measures in place, but these may be bypassed if vendors aren’t good stewards of your investments. This all starts by having a conversation with critical vendors that are supporting a minting venture or website launch; asking them how to interact, store, and access data. An extra few days or weeks of undergoing thorough vendor due diligence will potentially save you months-long headaches in the future.
  • If you’re selling an NFT, make sure your double check your list price– While this one sounds like a no-brainer, a simple extra ‘0’ or decimal can make the difference between a profit or loss of thousands, if not hundreds of thousands of dollars!

Article References: Global News Wire 1 , Sports Pro Media 2  , Ref: Sports Techie ¾. ,    BBC  5 , Reuters  6  , Inc 42  7 , The Crypto Times  8

The Valor Team looks forward to providing continual insights relevant to your industry.  For other tips and tricks in staying cyber informed, please visit our website at www.valor-cybersecurity.com

Authored By Jeff White, Chief Security Officer