Non-Fungible Tokens and Fraud: Still on the rise

Fraud and wash trading are some of the hindrances that NFTs are still going through, just like other popular technologies such the cryptocurrencies

Non-Fungible Tokens and Fraud: Still on the rise
Non-Fungible Tokens and Fraud: Still on the rise

Fraud via cryptocurrency hit a new high of $8.6 billion in 2021, up more than 30% from the previous year. Chainalysis, a New York-based blockchain analytics organization, has decided to concentrate its current study on the admittedly small but rapidly expanding percentage of Fraud through the acquisition and selling of NFT.

Remember that NFTs are a one-of-a-kind digital asset that is traded using cryptocurrencies. They may be used to purchase real or digital things, such as images, films, and so on, but unlike typical virtual currencies, the NFT is non-fungible and cannot be traded. This gives the possessor exclusive ownership of the well-known digital asset and the ability to influence its market value.

More than $44 billion in cryptocurrencies were delivered to NFT; as a result, money laundering, particularly wash trading, has long been connected with NFT markets. Wash trading, a market manipulation practice that involves artificially inflating the value of NFTs has gained traction.

How does Fraud occur in NFTs?

According to Chainalysis' data, The seller of NFT takes on the role of buyer here, using a cryptocurrency wallet that he controls to make it seem that his thing has worth. The ultimate aim is to make its NFT seem to have a more immense value than it has. One may believe that this technique is straightforward to adopt, given the enormous number of platforms that allow users to conduct transactions with only a primary login and without going through the identification process.

To illustrate this, Chainalysis tracked the wash trade by researching the example of NFTs acquired from self-funded addresses, which finally confirmed that certain NFT vendors had fabricated false transactions. This method would have resulted in 830 sales for the most productive wash trader. Chainalysis discovered 150 unproductive vendors who lost $416,984 in total. On the other hand, 110 malevolent actors, who were consequently the most lucrative, made a total profit of $ 8.9 million.

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Fraud is the most common criminal activity related to virtual currencies' illegal usage. For NFTs, the bleaching action is obvious. Paintings, for example, are an excellent method to generate tax advantages. Criminals acquire a painting using unlawful monies to sell it later for legal funds.

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