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By Collins K.O - February 3, 2022
One of the biggest arguments popular crypto opponents have against decentralization and anonymity in Bitcoin and other cryptocurrencies is the potential for scammers and money launderers to hijack the feature and exploit it for their operations. Now, this is extending to NFTs.
Chainalysis’s February report reveals a growing trend of wash trading and money laundering in the NFT space. Wash trading is an illegal method of inflating an item, stock, or token market valuation by actively taking part in both the buyer’s and the seller’s side of the transaction.
Once peculiar to crypto token projects during the early stages of development, wash traders in the NFT ecosystem use the same old tactic of creating self-funded customer accounts to buy their NFTs and create an artificial sense of value that lures any future unsuspecting buyers. The investigations by Chainalysis trace up to $8.9 million as profits gotten from wash trading in 2021, with a single wash trader linked to almost 100 self-financed NFT addresses.
While over 58.1% of notorious NFT washers remain in losses, the activities of the rest 41.9% account for 100% of all profits recorded. Chainalysis reports that this could be more when other NFT-supported blockchains like Algorand, WAX, FLOW, Ronin, and Solana are factored in.
In 2020, when the global lockdown spurred the use of NFTs, proponents swore it was the end of traditional gallery auctions, as we knew them. While NFTs appear to have decentralized traditional galleries and limited in-person visits, they did little to curb the ugly trend of money laundering that has been associated with it over the years. Over the last six months, close to $2.4 million have been reportedly traced to suspicious wallets and sanctioned accounts like Chatex, according to Chainalysis.
While this figure represents a paltry 0.02% of $8.6 billion total money laundering cases linked to Altcoins, stablecoins, and DeFis, they present a growing worry for an infant industry seeking to build trust from new investors, Chainalysis reports.
Already popular NFT hosting platforms, OpenSea and Rarible have had their fair share of hacker attacks.
But the $44.2 billion industry is still excusably young and, given the underlying brilliance and transparency in blockchain technology, it should not be difficult for hosting platforms to track down suspicious addresses and restrict their access. This might be the first law the crypto industry will have to agree upon in the interest of investors’ safety and security on the platform.
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The original article written by Collins K.O and posted on ZyCrypto.com.
Article reposted on Markethive by Jeffrey Sloe
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