The report published by Chainalysis cites two activities in which it detected illegal movements related to this type of digital assets. One is the so-called money laundering trade and the other is money laundering itself.
NFTs are products developed under blockchain technology which, as their name indicates, are not replaceable. Their purpose is to create tokens with a unique design, unlike traditional cryptocurrencies whose purpose is to serve as a unit of exchange and store of value.
These assets, which are generally bought and sold on specialized markets, serve to store data on the blockchain. Likewise, they grant the owner full ownership of the stored data or the means to which the token is associated.
Such data can be associated with various projects involving physical objects, video, images, video, audio, memberships, among others and are mostly built on the Ethereum and Solana blockchains. ETH and SOL that we remember it is possible to trade on platforms such as Bitcoin system.
NFTs have a high potential for abuse
The company reported tracking "a minimum of $ 44,2 billion worth of cryptocurrencies sent to ERC-721 and ERC-1155 contracts - the two types of Ethereum smart contracts associated with NFT markets and collections - up from just 106 million dollars in 2020 ".
Chainalysis notes that due to the recent popularity of NFTs, the potential of these assets for abuse and criminal activity is increasing and believes the industry should make NFT investments as safe as possible.
The two illicit ways of dealing with NFTs are laundering the NFT trade with the aim of artificially increasing its value, and money laundering, through the purchase of this type of digital asset.
Wash trading means that NFTs are bought by the sellers themselves to inflate their value. In this way they try to present on the market a misleading financial profile of the asset in terms of real value and liquidity.
It is possible to trace the so-called "wash trade"
This type of illegal activity has often been a source of concern for the cryptocurrency industry. Some cryptocurrency exchanges use this practice to make it appear that their cryptocurrency trading volumes are higher.
In the case of NFTs, fictitious sales of a given token attempt to trick users into appearing more valuable than they really are, by selling them over and over to wallets that the same vendor controls.
An unsuspecting buyer may believe the asset has passed from one collector to another and be deceived by the alleged value and interest the NFT has garnered in the market, explains Chainalysis.
These deceptive trading practices are relatively easy to perform because there are "NFT trading platforms that allow users to trade simply by linking their wallet to the platform, without the need to identify themselves".
But Chainalysis argues that with blockchain analysis, it can "track NFT wash trade by analyzing NFT sales to addresses that have been self-financed, which means that they were funded either by the sales address or by the address that initially. financed the sales address ".
