Nft and money laundering

The legality of wash trading, on the other hand, has yet to be determined in the decentralized realm of nonfungible tokens (NFTs).

Despite the lack of legislation and classification for NFT, certain governments have stood against the practice. For example, Bithumb, a South Korean crypto exchange, was accused in 2018 of facilitating wash trading worth more than $250 million in phony volume.

On April 5, 2022, Bloomberg reported that NFT tracker CryptoSlam data showed that wash trading accounts for $18 billion, or 95% of overall trade volume on the NFT marketplace called LooksRare.

Even though crypto wash trading is prohibited in some jurisdictions, the decentralized structure of cryptocurrencies makes it difficult to track down the culprits.

Nft and money laundering

The Etherscan screenshot below shows a transaction in which that seller, using the address beginning 0x828, sold an NFT to the address beginning 0x084 for 0.4 Ethereum via an NFT marketplace.

Everything looks normal at first glance. However, the Chainalysis Reactor graph below shows that address 0x828 sent 0.45 Ethereum to that address 0x084 shortly before that sale.

This activity fits a pattern for Seller 1. The Reactor graph below shows similar relationships between Seller 1 and hundreds of other addresses to which they’ve sold NFTs.

Seller 1 is the address in the middle.
All other addresses on this graph received funds from Seller 1’s main address prior to buying an NFT from that address. So far though, Seller 1 doesn’t seem to have profited from their prolific wash trading.

Nft art and money laundering

The digital artwork market is divided into two groups: there is the traditional artwork market, like galleries and auction houses, where better known artists like Beeple sold an image for $69 million (Kastrenakes, 2021) at Sotheby’s; then there are the NFT specific exchanges like Opensea, where anyone can sell a NFT and the average price is $2,000 (Kharif, 2022). The traditional art market does not create any new risks for trademark holders, but the new marketplaces present challenges to trademark holders. The first lawsuits filed regarding NFTs were due to NFTs listed on Opensea.
Nike and Hermes are the largest brands currently fighting over trademark use in NFTs and a detailed analysis of the lawsuits can be found here (See Professional Pointer: Brand Management in the Metaverse, A Roadmap for Retailers and A New Frontier: Brand Protection Elevation in the Metaverse).

Nft money laundering reddit

Hackers have been able to steal millions of dollars from NFT exchanges and users with the most high-profile being the $1.7 million Opensea hack (Ians, 2022).

The recent crash of the cryptocurrency markets, causing an estimated loss of $300 billion, has cast doubt throughout NFT marketplaces and cryptocurrency more broadly (Yaffe-Bellany, et al 2022). Like a traditional stock market crash, this may be an opportunity for prices to be corrected, regulation to be implemented, and weaker companies to be forced out of the market. Stablecoins, which failed and caused a wider crash, were already the target of regulation that now seems more likely (Toomey, 2022).
While most currencies have stabilized and recovered some of their value, NFTs lag behind the recovery because investors are behaving conservatively (Farren, 2022).

Nft money laundering example

Blockchain data and analysis makes it easy to spot users who sell NFTs to addresses they’ve self-financed, so marketplaces may want to consider bans or other penalties for the worst offenders.

NFT money laundering activity is small but visible

Money laundering has long been an issue in the fine art world, and it’s not hard to see why. As one2019 articlefrom theNational Law Reviewpoints out, art pieces like paintings are easy to move, have relatively subjective prices, and may offer certain tax advantages. Criminals can therefore purchase art with illegally gained funds, sell them later, and poof — they have seemingly clean money with no connection to the original criminal activity.
This background, along with the pseudonymity of cryptocurrency, has many wondering if NFTs are vulnerable to similar abuses.

Nft crypto money laundering

Simply put, NFTs are non-transferable; that is, when someone acquires them, the original belongs to them and nobody else, even if others have similar copies. Like famous paintings like Picasso or Mona Lisa, there’s only one original NFT, and no duplicate can have equal or similar worth. This is possible as each NFT has a unique cryptographic key that defines it as the original.

However, while NFTs are similar to selling and buying physical paintings and other traditional artworks, there are quite a number of differences.

First, it’s relatively easier to create an NFT, and anything can be sold as such.
Paintings, GIFs, pictures, videos, music, tweets, and so many other stuffs are now sold as NFTs.

Nft money laundering twitter

What is Money Laundering?

For many traders, there is no doubting the beauty of NFTs and what they can do. Whether it be the artwork itself, or its increasingly useful applications using blockchain technology, NFTs are part of a new era ushering in new ways to easily, safely, and securely to everyday things, such as verifying ownership, digitally.

However, as with all good things, comes people who take advantage of it and use it for immoral and unethical reasons, and in this case, we are talking about money laundering.

Money laundering is when a large sum of money is raised through illegal activities such as drug trafficking, and putting it through a legal business transaction to establish a legitimate source.

Nft money laundering explained

That means understanding the nature and purpose of NFTs, as well as how to remain aware of the potential for abuses from a compliance perspective.

Appeals and Risks of NFTs

So, what exactly is an NFT, and why should NFT money laundering matter? The underlying technology and programming language used to create NFTs are the same as those used to create cryptocurrencies such as Bitcoin and Ethereum. But that’s about all they have in common. Physical (fiat) money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. One US dollar is always worth another US dollar; one Bitcoin is always equal to another Bitcoin.

An NFT, on the other hand, is a digital asset with “one-of-a-kind” status.

Every NFT created has its very own unique digital signature.

Nft money laundering risk

Defendants executed a $1 million NFT fraud scheme in January 2022, and were preparing to execute a second prior to their arrests

Date: March 24, 2022

Contact:[email protected]

Damian Williams, the United States Attorney for the Southern District of New York, Thomas Fattorusso, Special Agent in Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (IRS-CI), Ricky J. Patel, the Acting Special Agent-in-Charge of the New York Field Office of the Department of Homeland Security (HS), and Daniel B. Brubaker, Inspector-in-Charge of the New York Office of the U.S.

Nft money laundering cases

Over the past year, we have continued to witness an explosion of interest—and prices—in non-fungible tokens (“NFTs”). Although the intricacies of NFTs can be somewhat complex, they are essentially a form of digital artwork that can be bought and sold under a cloak of anonymity provided by blockchain technology. That anonymity, especially when paired with a relatively new technology, fosters an environment ripe for money laundering.

The Association of Certified Fraud Examiners (“ACFE”) defines money laundering as “disguising the existence, nature, source, control, beneficial ownership, location, and disposition of property derived from criminal activity.”

Because of their artistic nature, NFTs have a very subjective value.

Nft money laundering uk

That is why we at bitsCrunch are so passionate about creating and improving our tools to keep the NFT market safe, and pushing the knowledge and benefits of the blockchain to move towards a better future!

About bitsCrunch

bitsCrunch is the Guardian of the NFT ecosystem. It offers buyers and sellers potential tools like Scour, Crunch DaVinci, and Liquify, to identify digital wash trading, asset forgery, the true value of assets, and respectively. Yes, bitsCrunch’s securing services can be integrated in any of the NFT marketplaces with a sense of protecting the authenticity and provenance of the artists and the NFT assets.

Money laundering is a serious concern in the NFT space. Art has historically been used by some as a way to launder money (Behr, 2021) and cryptocurrency has enabled this practice to greatly expand due to the lack of financial controls on cryptocurrencies. There is even overt money laundering in the form of “washing” services.

NFT laundering works by minting or buying an NFT, then trading it back and forth with involved parties, artificially inflating the value, until it can be sold for a high price of fresh cryptocurrency. Grifters—who are generally described as bad-faith actors who operate in the gray area of misrepresentation, just shy of the fraud required for being a scammer—will also artificially inflate prices of their NFTs through in-group exchanges.

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