NFT security startup Tokenproof raises $5M to stop crypto scams

Tokenproof, a startup working to secure nonfungible tokens against theft and scams, said today that it raised $5 million in seed funding led by PennyJar Capital to make Web3 safer for NFT owners so that they can realize their value without fear.

Nonfungible tokens are a type of crypto asset on blockchains that represent the ownership of a particular digital or physical asset. These digital items can be anything from artwork, music, files or other virtual assets such as gaming items. Some of the world’s most coveted artwork NFT’s have reached hundreds of millions in value, such as Beeple’s Everydays: the First 5’000 Days, which sold at auction for $69 million in 2021.

In 2021, the NFT market skyrocketed to $41 billion in value, according to a report from blockchain analytics company Chainalysis, dwarfing the $100 million in digital collectible sales in 2020. Although the market has cooled somewhat in 2022, with sales falling 25% between the first and second quarters, this has still attracted a lot of brand attention to NFTs seeking to use them in their marketing.

Using NFTs can come with a number of risks as they come with certain technical hurdles. Using NFTs involves linking a user’s cryptocurrency wallet in order to buy, sell and trade them and they retain real-world value – although not all NFTs sell or trade for millions.

“Eliminating the unnecessary risk of connecting or carrying a digital wallet is crucial for mainstream use of NFTs,” said Alfonso Olvera, founder and chief executive of Tokenproof.

The company’s seed round has attracted some notable investors in the crypto space including billionaire Mark Cuban, co-founder of the metaverse game The Sandbox Sebastien Borget, Corazon Capital, 6th Man Ventures and Canonical Crypto.

Tokenproof protects NFT holders by generating a one-time verification of a user’s digital wallet by issuing proof of ownership credentials. This allows the user to keep their own wallet disconnected from interactions with third parties. Tokenproof then provides a QR code to authenticate with websites, retailer experiences and events in the real world or online – at no point do they expose their wallet for verification.

As a result, there is no chance that a scammer can get access to their wallet and steal their NFTs or other cryptocurrency tokens from them.

“We are dedicated to delivering the security and privacy users deserve while making it seamless for companies to unlock the possibilities of NFTs and connect with people in compelling and creative ways,” added Olvera.

A recent report from blockchain security company Elliptic said that thieves stole over $100 million worth of NFTs during the first half of 2022. Security compromises via social media surged during that period and thefts averaged over $300,000 per scam.

Actor Seth Green recently became the victim of a prominent theft when his Bored Apes Yacht Club #8398 NFT was stolen in a phishing-related incident in June. He termed the theft a “kidnapping” and the ape was returned by the scammer after he paid a ransom. The incident was important because he had intended to use the image of the NFT in an upcoming television show called “White Horse Tavern,” which would use the intellectual property rights for the ape’s image, which follow the current holder of the NFT.

The “kidnapping” meant that Green had to delay work on the television show until he could recover the NFT and regain rights to the image as it was the main character in the series.

Although most NFT holders don’t have this much collateral riding on their NFTs, they do find their holdings valuable and don’t want them stolen. This can be seen by brands as a blocker to adoption, as a result, Tokenproof believes that its technology will provide a necessary security barrier to help prevent people from becoming victims of scams.

“We believe NFTs will transform how brands connect with customers, but only with seamless on-ramping and greater security,” said Bryant Barr, co-founder of Penny Jar Capital.

Image: Tokenproof