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June 27, 2022

NFT Money Laundering - Wash Trading and Illegal Dealings

NFTs have taken the world by storm in the past few years, and they show no signs of slowing down. However, not everything has been positive since there have been illicit activities linked to NFTs such as money laundering and wash trading. What exactly can these illegal transactions do and how are they done? Let’s find out.

What is Money Laundering with NFTs?

Chatex

NFT money laundering doesn’t seem to be as big an issue as wash trading, but perhaps this is because it is flying under the radar. Money laundering can happen with any type of art. Physical art is the most common way to do it besides real estate, but NFTs are not exempt.

Money laundering with NFTs is done similarly to traditional art, where the person in question would purchase the piece (art or NFT) with the “dirty money”, and then have the art change hands once more with a secondary sale.

Doing this “washes” the money, because the money the innocent secondary buyer uses to purchase the piece from the criminal is clean, so it “cleans” the money and traces of illegal connections.

You don’t have to purchase an art piece to change hands like that in the NFT world; you can simply create your own collection. Since NFTs are still largely unregulated and many creators are not doxxed (meaning, their identities are not made known), it can be difficult to crack down on money laundering. 

NFT money laundering can be associated with criminal organizations, scammers and more (we’re looking at you, Chatex). Aside from the illegal monetary dealings, a major downside to money laundering in the NFT world is it hurts the people’s trust.

If used well, NFTs can be revolutionary and helpful for charities and worthy causes around the world, bringing people together in like-minded communities. It would be a shame if the actions of a few hurt the benefits of the many.

What is NFT Wash Trading?

Wash trading is a term that means the seller of an NFT is doing something to inflate a token’s value. This can happen with stocks and crypto as well.

The purpose of wash trading is to make money. The original owner would be both the buyer and the seller. They would “sell” the NFT to their own other account and then “buy” it at the high price they set. Again, because of the lack of identity confirmation and anonymity that surrounds the space, it’s easier to do with NFTs.

Wash trading will make the NFT they hold seem more valuable than it really is, so a person could make money off of real future sales (not to themselves). An employee of one of the largest NFT marketplaces was accused of wash trading recently. NFT Drops is a great place to get the latest info about a project, which could help you avoid wash trading schemes. 

What’s really crazy about NFT wash trading is that it isn’t considered illegal in some jurisdictions and it skirts the lines because there is no official regulatory body as of now.

In order to catch money launderers and wash traders at their game, you would need to look into who owns the wallets, what exchanges they are using, etc.. This can be difficult. though, because of anonymity. 

FAQ

• Is NFT used for money laundering?

Yes, NFTs can be used for money laundering even if that is not their main purpose. NFTs were created to protect artists against fraud and to tokenize pieces, but some criminals have zeroed in on them as an opportunity to cleanse their ill-gotten gains.

• Are NFT transactions anonymous?

Yes, NFT transactions are largely anonymous. Because of the decentralization and the use of a digital wallet, the seller or buyer don’t have to know who you are. This isn’t to say that it’s completely anonymous, but it does offer a layer of privacy. 

• Is NFT wash trading illegal?

No, NFT wash trading isn’t illegal in some places. This is because certain laws haven’t been laid down classifying what NFTs are: a commodity or security. Before clear rules and regulations are laid out in the crypto NFT world, illegal activities will be more common.

Conclusion

NFTs are amazing digital assets. They can be a force of good, create passionate communities of like-minded individuals, and offer creators a platform to mint their projects. Unfortunately, not everything is rainbow and roses in a world where big money can be made — NFTs are susceptible to money laundering and wash trading. 

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