Non-Fungible Tokens have been identified in an Elliptic report as a mechanism for money laundering.
According to a recent report by Elliptic, a blockchain analysis firm based in London, over 17 million Ethereum transactions between Q4 2017 and Q1 2022 were linked to both illicit and licit activities. The report states that 22 NFT marketplaces, four NFT-based games or metaverses, and two NFT swap services were studied.
Nearly $8.1 million was said to have flowed into NFT services from thefts, scams, phishing, or ponzi schemes, according to the same report.
NFTs can be laundered in three ways:
Purushottam Anand, the founder of Crypto Legal, says that NFTs are not better at money laundering than other banking/financial channels or even physical artworks like paintings. Despite the fact that all NFT transactions are traceable and recorded on the blockchain, there is no objective and definitive method to value NFTs because they are a new asset class. Because the crypto market is so volatile, there is no objective and definite method to value NFTs. This makes them susceptible to money laundering by certain individuals and groups,‖ he said.
According to Elliptic’s research, over 60,000 Ethereum wallets related to the smart contracts of the 10 most traded NFTs were observed to be reinforcing the aforementioned tendencies. “Ethereum wallets of top NFTs, which symbolize assets with the highest values, are therefore attractive for criminals seeking to justify their funds,” the report said. “Because wallets with illicit funds tend to send only a small amount of money to NFT contracts, the opposite is true.”
What else is there?
A Chainalysis report on crypto crime for 2022 noted a 30 percent jump in money laundering activity from 2020 to 2021, based on blockchain data.
Regulators are still investigating the risks of cryptocurrencies, particularly NFTs, and how to regulate the market. The US Treasury warned in February 2022 that the rapid expansion of NFTs might provide new opportunities for money laundering.
Elliptic’s NFTs and Financial Crime research, published on Wednesday, reported that between July 2021 and July 2022, over 100.6 million in NFT-related losses were recorded.
How can you avoid becoming involved in money laundering?
Non-fungible tokens (NFTs) are attracting significant interest, across the world without any geographical boundaries, for what some NFT industry experts call ‘lucrative’ investment opportunities. According to Abhijit Shukla, CEO of Tarality, a crypto and NFT Multi Functionality Platform, players in this industry should take note of other legal and practical barriers, particularly those related to enforceability, ownership, and intellectual property rights.
Some have also focused on the regulation dilemma, saying that NFTs may be traded in India without restriction or regulation, but the Foreign Exchange Management Act (FEMA) governs all international economic transactions in India. According to Shukla, there are no KYC/AML (know your customer/anti-money laundering) regulations for NFTs, which means that cryptocurrencies must comply with KYC/AML procedures as directed by the RBI to track users.
Is purchasing authentic NFTs possible?
Before purchasing NFTs, NFT collectors should conduct extensive research. Vijay Pravin Maharajan, Founder and CEO of bitsCrunch, suggests that they examine deals carefully and check out community and social media channels of NFT collections.
Vijay also noted that bitsCrunch, a popular and safe analytic platform that provides reliable data on authentic NFT collections, can also help collectors make informed investing decisions. In addition, Twitter has released a verification mechanism for NFT profile pictures. This will help to reduce imposters pretending to be the original owner of an NFT.