A key example of this is when NFT marketplaces control the buying and selling of NFTs that are associated with malicious activity. They do this by flagging NFTs.

What are flagged NFTs?

Flagged NFTs refer to those digital assets that have been marked due to suspicious activities or violations of platform policies.

Just like the conventional art market, the NFT market also suffers from copyright infringements and fraud. As a result, NFT platforms have mechanisms in place to flag or mark tokens that are believed to be associated with such illicit activities.

For instance, an NFT can be flagged if it is a counterfeit of another artist's work or if it's involved in a pump and dump scheme.

Platforms may employ various measures like community reporting, AI algorithms, or manual vetting to identify and flag such NFTs.

Once flagged, these NFTs may be removed from the marketplace or have their visibility reduced to protect potential buyers. It's crucial for both buyers and sellers in the NFT market to be aware of flagged NFTs as engaging with these can lead to financial loss or even legal consequences.

NFT thefts are commonplace. In 2022, blockchain analytics platform Elliptic said that more than $100 million of NFTs had been stolen in the previous year alone. NFTs are commonly stolen using phishing tactics involving NFT drainers.

How we made this

This explainer is written and maintained by The Block's editorial team, reviewed against primary sources and protocol documentation, and updated as the space changes. Where AI tools assist drafting, a human editor reviews and edits before publishing.