As cryptocurrency use grows worldwide, online crime relating to these virtual assets is also on the rise. However, research suggests that NFTs are less often associated with illegal activities.
Cryptocurrencies regularly make headlines due to their extreme volatility and their use by criminals. The phenomenon is such that crypto-crime amounted to US$14bil (RM58.51bil) in 2021, according to the latest Crypto Crime Report from Chainalysis.
However, one blockchain-related innovation seems to be relatively unaffected by this digital threat. And that’s NFTs, these non-fungible tokens representing a digital file, secured by code on the blockchain.
While this technology may be coveted by cybercriminals, it remains fairly unprofitable. The Crypto Crime Report looked at two fraudulent uses of NFTs: wash trading and money laundering.
Wash trading involves creating the illusion of an imaginary demand for NFTs by artificially boosting trading volumes. Some Internet users sell and buy their own NFTs in the hope of pocketing a capital gain at the expense of other crypto-collectors. But this fraudulent technique does not always pay off.
The profits made from wash trading sometimes don't even cover the transaction fees that scammers have to pay to move their NFTs from one wallet to another, according to Chainalysis. Still, the technique has generated US$8.9mil (RM37.20mil) in revenue for a hundred or so savvier Internet users.
‘A drop in the bucket’
On the other hand, NFTs seem more conducive to money laundering. The reason? The ease with which these digital tokens can be passed from hand to hand. The precise identities of sellers and buyers, unless they choose to make them public, are technically impossible to find out.
NFT sales platforms often only display the addresses of cryptocurrency wallets from which the money to purchase the digital token originated. The source of the funds used is just as opaque... much to the delight of those wishing to launder money. According to Chainalysis, this fraudulent activity involved no less than US$1.4mil (RM5.84mil) in the last quarter of 2021.
Still, experts remain optimistic about the fight against this form of crypto-crime.
“All of this activity represents a drop in the bucket compared to the US$8.6bil (RM35.94bil) worth of cryptocurrency-based money laundering we tracked in all of 2021. Nevertheless, money laundering, and in particular transfers from sanctioned cryptocurrency businesses, represents a large risk to building trust in NFTs,” notes the Crypto Crime Report.
In spite of these abuses, more and more investors are entering the NFT market, especially younger ones. Many are interested in acquiring digital artworks or additional content for a video game like clothes or weapons... and all perfectly legally. – AFP Relaxnews