Cyber-Criminals Exploiting Non-Fungible Tokens (NFTs) for Money Laundering, New Data Reveals
Recent data from Chainalysis has uncovered a concerning trend in the world of non-fungible tokens (NFTs) – cyber-criminals are using these digital assets to launder millions of dollars.
NFTs are unique digital records stored on a blockchain, each representing a specific piece of digital content. These tokens have gained immense popularity in recent years, with their market value skyrocketing.
According to Chainalysis, $44.2 billion worth of cryptocurrency was sent to ERC-721 and ERC-1155 contracts in 2021, a significant increase from just $106 million in 2020.
Wash Trading and Fraudulent Activities
Despite the growing interest in NFTs, the market has also attracted fraudulent activities. Chainalysis identified a practice known as “wash trading,” where scammers manipulate the perceived value and liquidity of NFTs to deceive potential buyers.
Through wash trading, cyber-criminals were able to make $8.9 million in profits last year. This deceptive tactic involves a seller conducting trades with themselves to artificially inflate the value of their NFTs.
Chainalysis highlighted 110 profitable NFT wash trades in 2021, but noted that the actual volume of such illicit activities may be higher, as their analysis focused on Ethereum and wrapped Ethereum (wETH) transactions only.
The firm urged NFT marketplaces to take action against wash trading to maintain the integrity of the ecosystem and protect investors from purchasing artificially inflated tokens.
NFTs Used for Money Laundering
Another alarming trend revealed by Chainalysis was the use of NFTs for money laundering purposes. In the last two quarters of 2021, the firm tracked $2.4 million in funds flowing from scam-associated addresses and those linked to sanctions activities into NFT marketplaces.
This illicit use of NFTs raises concerns about the integrity of the digital asset market and the potential risks associated with investing in these tokens. Regulators may soon turn their attention to combating money laundering through NFTs to safeguard the interests of legitimate investors.
As the NFT market continues to expand, it is crucial for industry players to implement robust measures to prevent fraudulent activities and ensure a fair and transparent marketplace for all participants.