One of the most common arguments used by cryptocurrency opponents to oppose decentralization and anonymity in Bitcoin and other cryptocurrencies is the possibility of scammers and money launderers hijacking the feature and exploiting it for their operations. This is now being extended to NFTs.
According to Chainalysis’ February report, there is an increasing tendency of wash trading and money laundering in the NFT market. Wash trading is an illegal way of raising the market value of an object, stock, or token by actively participating in both the buyer’s and seller’s sides of the transaction.
Wash traders in the NFT ecosystem utilize the same old strategy of generating self-funded customer accounts to acquire their NFTs and generate an artificial sense of worth that lures any prospective naive customers that was once unique to crypto token projects in the early phases of development. According to Chainalysis’ findings, up to $8.9 million in gains can be obtained by wash trading in 2021, with a single wash trader linked to nearly 100 self-financed NFT addresses.
While over 58.1 percent of infamous NFT washers continue to lose money, the operations of the remaining 41.9 percent account for 100% of all earnings documented. According to Chainalysis, when other NFT-supported blockchains such as Algorand, WAX, FLOW, Ronin, and Solana are included, this figure might rise much higher.
When the global lockdown prompted the deployment of NFTs in 2020, supporters predicted the end of regular gallery auctions as we knew them. While NFTs appear to have decentralized traditional galleries and curtailed in-person visits, they have done little to stem the heinous tendency of money laundering that has been connected with them over the years. According to Chainalysis, about $2.4 million has been connected to suspicious wallets and sanctioned accounts like Chatex in the previous six months.
While this statistic represents only 0.02 percent of the $8.6 billion in overall money laundering instances tied to Altcoins, stablecoins, and DeFis, it represents a growing concern for an immature industry looking to gain the trust of new investors, according to Chainalysis.
Hackers have targeted the already popular NFT hosting services OpenSea and Rarible.
However, the $44.2 billion market is still in its infancy, and given the underlying brilliance and openness of blockchain technology, hosting platforms should have no trouble tracking down suspect addresses and restricting their access. This may be the first law that the crypto industry must agree on in order to ensure the safety and security of investors on the platform.