It is clear that NFTs are subject to money laundering | Finance & Finance

NFTs, or non-fungible tokens, really became popular in multiple markets in 2021. This recent boom has brought blockchain technology to art, music, sports and many other sectors. However, a classic concern of cryptocurrency critics now hangs over the new type of digital asset: its use for illicit activities, such as money laundering.

NFTs can be used for money laundering (Image: Clint Patterson / Unsplash)

NFTs can be used for money laundering (Image: Clint Patterson / Unsplash)

Experts heard by TechCrunch reported that NFTs could become a financial instrument for criminals. Although there are no reports of money laundering with non-fungible tokens, it is unlikely to stay that way for a long time.

Known washing techniques apply to NFTs

Asaf Meir, co-founder of the crypto market security firm Solidus Labs, said that common practices already carried out with digital assets can be replicated with NFTs. A practical example would be for an individual or organization to sell a token and, through secondary accounts, buy their own product. This tactic can be reproduced several times to create a series of artificial records that would justify the price appreciation.

The expert said that this type of money laundering is very difficult to identify. “The most complicated thing about crypto markets is that they are retail oriented first, so there can be several different accounts with multiple addresses doing various things in collusion – sometimes mixed or unmixed with institutional accounts for different beneficiary owners,” he said. Meir.

Art has always been used for money laundering

The NFTs market naturally already moves a lot of money, mainly in digital art. A single asset was sold for more than $ 69 million in the second week of March, a collage by artist Beeple went up for auction and ended up becoming the most expensive non-fungible token so far. Meanwhile, Jack Dorsey, Twitter’s CEO, registered the social network’s first publication as an NFT and sold it for $ 2.9 million.

Jesse Spiro, the head of government affairs at blockchain analyst firm Chainalysis explained to the TechCrunch: “One of the ways to identify money laundering based on the (traditional) art trade is to call an appraiser to suggest a fair market value for a piece, and then you are able to compare that price against that involved in the transaction and signal over-invoicing or under-invoicing ”.

The practice of money laundering with works of art is already well known in the market, and a problem to be tackled given the enormous added value of this type of product. Now, with NFT technology, digital works are undergoing a huge appreciation and prices are based exclusively on what some consumer is willing to pay, making “fair price” assessments impossible.

However, it is still possible to identify unusual activity in auctions when a bid deviates too much from the average. However, it is also plausible that some wealthy buyer simply makes a millionaire bid. Spiro pointed out that in the case of blockchain accounts, all transaction records are permanently recorded on the network, partially facilitating the tracking of tokens and transactions.

Even late, investigations never stop

A professional investor in the NFTs marketplace Dapper Labs, David Pakman, explains that just as it works with cryptocurrencies, money laundering with NFTs is also traceable and government regulations can assist in the process.

“National governments can impose laws on marketplaces and exchanges that force these institutions to collect and verify the identity of all their customers. Thus, any suspicious transaction above a certain amount would generate bureaucracy, ”said Pakman.

He also concludes that as much as these known money laundering techniques may delay investigations, there is nothing to stop the authorities from continuing, even if it takes time. “Everything is investigable retroactively. Even if it goes unpunished today, nothing will stop the FBI from tracking the culprit a year later, ”said Pakman.

With information: TechCrunch

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