New York Times Investigation: Opensea is facing numerous lawsuits due to theft, fraud, and other actions

Original Title: “Thefts, Fraud and Lawsuits at the World's Biggest NFT Marketplace”

Original Author: David Yaffe-Bellany, The New York Times

Translation: Biscuit, Chain Catcher

OpenSea is one of the most prominent cryptocurrency startups, facing accusations of NFT theft and plagiarism.

The Bored Ape Yacht Club has developed into a phenomenon of digital collectibles. Chapman purchased this NFT last year. In December, he listed it for sale on the largest NFT marketplace, OpenSea, for about $1 million. Two months later, when he was preparing to take his daughters to the zoo, OpenSea sent him a notification: the NFT had been sold for about $300,000.

Chapman, who runs a construction business in Texas, said a cryptocurrency scammer exploited a flaw in OpenSea's system to purchase the Bored Ape NFT at a rock-bottom price. He said last month he rejected an offer of about $30,000 in compensation from OpenSea, hoping to negotiate for a larger settlement. The 35-year-old Chapman believes OpenSea made "a lot of stupid mistakes; they really don't know what they're doing."

Chapman is one of many crypto enthusiasts questioning OpenSea. OpenSea is a site similar to eBay, where people can browse millions of NFTs or engage in NFT trading activities. Over the past 18 months, OpenSea has become a major NFT marketplace and one of the most prominent crypto startups. The company has raised over $400 million from investors, reaching a staggering valuation of $13.3 billion, and has recruited executives from tech giants like Meta and Lyft.

As OpenSea has grown, it has struggled to prevent theft and fraud. The incident involving Chapman's Bored Ape NFT being sold incorrectly led to months of mutual accusations between OpenSea and its users, with the startup paying out over $6 million in compensation to all NFT traders.

Users have also complained that OpenSea is slow to respond to hacking attempts on NFT transactions, allowing hackers to profit quickly from unrestricted trading of stolen goods. Meanwhile, the proliferation of plagiarized works on the site has angered artists who once viewed NFTs as a financial lifeline. The company is facing at least four lawsuits from traders, and this month, a former executive was sued for insider trading involving NFTs.

As cryptocurrency prices plummet and demand for NFTs cools, OpenSea's troubles continue to mount. According to industry data tracking firm NonFungible, NFT trading volume has dropped by about 90% since September. At the same time, OpenSea is also facing competition from emerging NFT markets established by well-known crypto companies like Coinbase.

The conflicts between OpenSea and its users illustrate some of the core contradictions of Web3, which, even when controlled by ordinary people rather than large tech companies, remains just a utopian vision. Like many crypto platforms, OpenSea does not collect the names of most of its users and promotes itself as a "self-service" portal to a decentralized marketplace. However, users increasingly expect this decentralized company to compensate victims and combat theft like traditional businesses.

OpenSea executives acknowledge the seriousness of the issues and state that the company is taking steps to improve user trust and security. The New York-based OpenSea has hired more customer service staff, aiming to ensure that the company can respond to all user complaints within 24 hours. Meanwhile, the company has frozen all NFTs on the stolen list and launched a new screening process to prevent plagiarized content from spreading on the platform.

"Like every tech company, there was a time when you were catching up," said 31-year-old OpenSea CEO Devin Finzer, "you are doing everything you can to adapt to the new users coming into the space."

Alex Atallah (left) and Devin Finzer founded OpenSea. Photo from Getty Images

Four and a half years ago, OpenSea was founded by Finzer, a Brown University graduate, and Alex Atallah. Finzer's previous personal finance app was acquired by fintech company Credit Karma. Atallah worked as a software engineer at Palantir. According to Forbes, they are now among the world's richest crypto billionaires.

OpenSea's business model is simple. The company takes a 2.5% commission every time a user sells an NFT on its platform. Last year, as NFTs became a cultural craze, the platform's business surged. Almost overnight, OpenSea transformed from an obscure startup into one of the most powerful intermediaries in the crypto industry, which quickly led to many problems.

"It’s hard for any company to adjust and adapt to such rapid growth," said Carrie Presley, who worked at OpenSea for a few months last year. "That period was very chaotic."

Because OpenSea charges fees on every NFT transaction, some users believe the company has a responsibility to combat the trading of stolen NFTs on its platform. This year, Nevada investor Robert Armijo sued OpenSea for failing to prevent his stolen NFT from being sold on the platform. (OpenSea's lawyers called the complaint "meritless" and stated that the company would take swift action to stop other stolen NFTs from being sold.)

In February, OpenSea's former tech lead Eli Shapira clicked on a link, allowing hackers to gain access to his digital wallet where he stored NFTs. The hackers sold Shapira's two most valuable NFTs on OpenSea for over $100,000.

Within hours, Shapira contacted OpenSea and reported the hack. But the company never took action, he said. Since then, he has been using blockchain explorers to track his NFTs and has seen hackers selling other NFTs on OpenSea that may have come from other thefts.

"These hackers can easily go there, open an account, and immediately trade or sell anything they steal," Shapira said, "all users need to strengthen their security measures."

Last month, after The New York Times inquired about the case, OpenSea responded to Shapira and froze the trading of the stolen NFTs.

Anne Fauvre-Willis, who oversees OpenSea's customer support, stated that the company has been working to shorten response times when users report theft. "Speeding up is important," she said, "this is something we are investing in today and will continue to invest heavily in the future."

The number of NFT plagiarism cases on OpenSea has also surged, as sellers convert traditional artworks into NFTs and sell them without compensating the original creators.

DeviantArt, an artist collaboration community under web development company Wix, runs software that scans millions of NFTs daily to detect copies of its artists' works. The community has found over 290,000 instances of plagiarism on OpenSea and other NFT marketplaces.

"There is almost no accountability," said DeviantArt's Chief Marketing Officer Liat Karpel Gurwicz.

OpenSea provides a tool that allows users to create NFTs with just a few clicks, converting regular images into unique NFT projects, with authenticity recorded on a public blockchain. In January, the company announced it would limit the number of NFTs users could create with the tool. However, after strong opposition from NFT fans, OpenSea reversed its decision and stated in a tweet that it would lift the cap, although many new creations have proven to be "plagiarized works, fake collectibles, and spam."

"They have conflated the concepts of NFTs and piracy," said Texas artist Aja Trier, whose work has been copied and sold on OpenSea, "this behavior dilutes the market for my work."

In May, OpenSea announced it was using image recognition technology to combat plagiarism. However, the scanning service is limited to comparing newly uploaded NFTs with those listed on OpenSea, making it unlikely to detect NFTs that plagiarize artworks from other sites.

Shiva Rajaraman, a former vice president at Meta and Spotify who works on OpenSea's product team, stated that the company hopes to expand its anti-plagiarism detection efforts, "We will partner with others to obtain original works," he said.

Former college basketball player Chapman began experimenting with cryptocurrency last year. He spent a few hundred dollars to buy a Bored Ape NFT, which he later exchanged for another Bored Ape NFT dressed in astronaut gear because it reminded him of Houston's space age history. He then started wearing Bored Ape sweatshirts, and his mother-in-law bought him a Bored Ape-branded water bottle.

A Bored Ape in astronaut gear

In September last year, Chapman listed this Bored Ape NFT on OpenSea with a price of 90 ETH. Three months later, he raised the price to 269 ETH, about $1.1 million. At that time, the value of Bored Ape NFTs was skyrocketing. Chapman planned to sell the NFT at a suitable price to immediately buy another lower-value Bored Ape NFT and make a profit from the transaction.

In February, the NFT was eventually sold for 90 ETH, about $300,000. Savvy arbitrageurs exploited a flaw in OpenSea that allowed them to trade NFTs at expired listing prices.

On February 18, Finzer announced that OpenSea had updated its technology to prevent thieves from reactivating expired listing lists. The company compensated some victims and required them to sign non-disclosure agreements.

Chapman said OpenSea initially only refunded him the 2.5% fee from the sale of the Bored Ape. Last month, after his lawyer wrote to OpenSea, the company raised the offer to 15 ETH, which, even at today's ETH price, is slightly below $30,000. OpenSea declined to comment on Chapman's case.

Chapman insists on a larger compensation. As an owner of a Bored Ape NFT, he was entitled to an airdrop of ApeCoin, a cryptocurrency launched in March. At that time, each Bored Ape NFT owner received ApeCoin tokens worth over $100,000.

Due to Chapman's unexpected loss of the Bored Ape NFT, he missed out on the windfall of ApeCoin, which he had planned to use to buy a house near his wife's home in the suburbs of Houston.

"I could have received the ApeCoin airdrop and used it for a down payment on my house," he said, "and now it's all gone."