The Market for Counterfeit Non-fungible Tokens

Abstract

<p>Experiencing an exponential surge in popularity since 2021, non-fungible tokens (NFTs) have become widely regarded as an effective means of confirming the authenticity of digital assets thanks to the inherent transparency and immutability offered by blockchain technology. However, substantial media attention and growing empirical evidence confirm that this industry is facing a significant counterfeiting crisis. In this paper, we seek to understand the popularity of counterfeit NFTs, often referred to as “copymints,” by investigating their value determinants and the trading behaviors of investors. We collected a unique dataset on transactions of authentic NFTs and copymints from one of the largest blockchains in existence, Ethereum. Aggregate token-level analyses suggest that the value of copymints is positively associated with the price of authentic NFTs, especially for high-quality or investable copymints. We also find that investors who purchase both authentic NFTs and copymints play a pivotal role in shaping the copymint market. Micro investor-level analysis shows that these investors treat authentic NFTs and copymints as complementary products, which explains the positive price co-movement between authentic and counterfeit NFTs at the aggregate level. The underlying insight from our discoveries suggests that, within the NFT market, profit is often the primary motivator for investors who prioritize a token’s quality or investability over its authenticity when considering copymint purchases. We discuss the implications of our results for both NFT creators and marketplaces.<br></p>