Money laundering through NFTs, a growing sector: Chainalysis report
According to a report by Blockchain data platform Chainalysis, they found a small but growing portion of activity in NFT markets that could be attributed to money laundering.
“Although money laundering in physical art is difficult to quantify, we can make more reliable estimates of NFT-based money laundering due to the inherent transparency of Blockchain,” the report said Wednesday evening.
The value sent to NFT markets by illicit addresses jumped significantly in Q3 2021, surpassing $1 million worth of cryptocurrency.
The figure rose again in the fourth quarter, reaching just under $1.4 million.
“In both quarters, the vast majority of this activity came from addresses associated with scams sending funds to NFT marketplaces to make purchases,” the report said.
Both quarters also saw significant amounts of stolen funds sent to marketplaces.
“Perhaps most concerning, in the fourth quarter we saw approximately $284,000 worth of cryptocurrency sent to NFT markets from addresses at risk of sanctions,” the researchers said.
NFTs can store data on blockchains and that data can be associated with images, videos, audio, physical objects, memberships, and countless other use cases in development.
NFT’s popularity skyrocketed in 2021. Chainalysis tracked a low of $44.2 billion worth of cryptocurrency sent to ERC-721 and ERC-1155 contracts – the two types of Ethereum smart contracts associated with marketplaces and exchanges. NFT collections – up from just $106 million in 2020.
Some NFT sellers are also making a splash with the wash trade.
“Wash trading”, i.e. executing a trade in which the seller is on both sides of the trade in order to paint a misleading picture of an asset’s value and liquidity, is another area of concern for NFTs”.
Using Blockchain analysis, researchers identified 262 users who sold an NFT to a self-funded address more than 25 times.
The 110 profitable wash traders collectively made nearly $8.9 million in profits from this activity, eclipsing the $416,984 in losses incurred by the 152 unprofitable wash traders.
“Worse still, that $8.9 million most likely comes from sales to unsuspecting buyers who believe the NFT they are buying has increased in value, sold from one separate collector to another,” Chainalysis said.
“NFTs offer the potential for abuse. It is important that our industry consider all the ways this new asset class can change the way we link blockchain to the physical world,” the report states.
Over Rs 4,000 crore of illegal transactions through cryptocurrency exchanges have been uncovered by the Law Enforcement (ED) Directorate in India in the past year, according to reports in November this year last.
Serious concerns have now been raised about the misuse of digital coins on the Dark Web for terrorist acts and drug trafficking by militant organizations, as well as money laundering and hawala-based transactions – this which poses a serious threat to national security and a great challenge to the security agencies in India.