Is OpenSea Safe?

OpenSea is the world’s largest non-fungible (NFT) trading platform. In 2022, the website reached over 1.5 million users – in 2019 the company had just 10,000 users, according to Dune Analytics. The market domination from OpenSea in the rapidly evolving NFT ecosystem has left the company with a valuation of $13.3 billion via CoinMarketCap. This success was recently overshadowed by a phishing hack, in which OpenSea users lost their valuable NFTs. These lost internet fortunes can never be recovered, raising questions on whether the platform is safe to operate on.

How is OpenSea Secured?

NFTs on OpenSea are secured on the Ethereum blockchain. It uses an ERC-721 standard, which is different from the altcoin ERC-20 standard in that it makes each token unique. To operate any sort of transaction, a signature validating an order is required. While OpenSea is secured, users can accidentally share their keys or be coaxed into phishing scams, which can result in loss of NFTs traded on the OpenSea platform. The platform even has a minting tool that allows you to list your own NFTs, and while it’s the largest marketplace, is it the right place for you to invest?

Risks of Investing on OpenSea

Investing in NFTs is a risky business, even taking hacks into account. Major volatility is the norm on OpenSea; in comparison to crypto markets, the rise and fall of NFTs are exponentially rapid. Volatility in the NFT sector comes from rug pulls, illiquidity risk and fear of missing out (FOMO) investing –– all of which have cost users the loss of their savings.

Rug pulls occur when influencers and teams back a project but disregard it after mint, filling their pockets and leaving the buyers with a useless image. For most projects to maintain value, utility and community must be built. If the team backing a project vanishes, holders are bound to see a decline in floor price. Some projects serve as exceptions to the rule, especially when the art alone holds significant value, such as with CryptoPunks. In those cases, the sentiment behind the collection –– like being one of the first ever to appear on the Ethereum blockchain –– makes the collection desirable.

The value of NFTs are ultimately ruled by public opinion –– little-to-no intrinsic value backs most NFT projects. If holders start selling, there is often a rush to liquidity, crashing floors nearly instantly. For example, when ETH starts pumping, NFT holders can feel underexposed to the coin and sell their holdings for more Ethereum.

Perhaps the most risky practice on OpenSea is FOMO-based investing when a rise in price attracts more buyers hoping to be part of the profit. There tends to be a top in projects that pump quickly, followed by a decline downwards at a similar or faster speed that it rose in. OpenSea is full of these examples.

Is OpenSea Safe?

OpenSea is backed by some of the most notable investors around, including Alexis Ohanian, Mark Cuban and Tim Ferriss. CEO Devin Finzer has been public with his vision for OpenSea, keeping users up to date through podcasts and on Twitter. OpenSea holds a lot of similarities to a Web2 company while also connecting users to the capabilities of Web3. While this sentiment could be seen as a centralization risk, it is also beneficial in that it is fully transparent and regulated. 

How to Invest in NFTs on OpenSea

To purchase NFTs on OpenSea, you need a software wallet. The most popular of software wallets is MetaMask, which can be downloaded as a chrome extension. Users are able to send Ethereum from their crypto exchange of choice to their MetaMask wallet. A good crypto exchange to buy Ether is Coinbase, and new users who sign up can get free crypto from Coinbase Learn. Once connected to OpenSea, you can trade NFTs.

OpenSea Hacks

A large-scale phishing hack occurred in February 2022, where $1.7 million worth of NFTs were stolen from users on OpenSea. While the initial rumors were of an OpenSea breach, Finzer put those stories to rest. Finzer tweeted in response to the hack, “As far as we can tell, this is a phishing attack. We don’t believe it’s connected to the OpenSea website. It appears 32 users thus far have signed a malicious payload from an attacker, and some of their NFTs were stolen. Importantly, rumors that this was a $200 million hack are false. The attacker has $1.7 million of ETH in his wallet from selling some of the stolen NFTs.” The moral of the story turned out to be the importance of user education and use of hardware wallets rather than the lack of security in OpenSea’s system.

In June of 2022, OpenSea warned its users that it could be attacked by insider emails after a vendor employee downloaded the firm’s entire email list. While nothing else has come of this breach of protocol, there’s no way to know if the phishing attacks simply haven’t happened yet.

Best Hardware Wallet for OpenSea

Owning a hardware wallet to safely store your NFTs is a great idea. The NFT space has displayed vulnerability to hacks, so having a set of keys that is unexposed to the internet is a great practice. 

Best Hardware Wallet: Ledger

Ledger is a hardware wallet that has provided many in the crypto space an extra sense of security that software wallets do not. Hardware wallets are external devices that store your private keys off the internet, which significantly reduces the chances of getting hacked. With its user-friendly interface and top-tier security, using Ledger will protect your assets to the highest degree possible.

Cryptocurrency Market Outlook

Ethereum has been moving sideways after a sell off in early 2022 and the depegging of Terra in the summer of 2022. However, NFTs such as the ones sold on OpenSea have an interesting relationship with the price of Ethereum. When Ethereum is priced lower, NFTs tend to be worth more ETH as they are worth less USD. This same relationship is seen when Ethereum is climbing at a rapid pace; more people want exposure to the currency and are quicker to liquify their NFT investments. A slow and stable trend upwards in ETH price tends to be the best environment for NFTs, but unfortunately, markets are often volatile.

Is OpenSea Trading a Safe Investment?

NFTs and crypto are likely to continue to remain at risk of being attacked. The tradeoff of foregoing a bank and maintaining your own set of keys requires you to keep a close eye on your assets. Thus, OpenSea provides a platform to trade NFTs but can’t keep them completely safe without owner vigilance. Owning a hardware wallet that stores your NFTs is the best way to ensure the safety of your investment, but even secured NFTs are known to get rugged. Use this NFT marketplace to buy, sell or create digital items, diversify your portfolio and even pick up on secondary sales from popular artists.

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