The nonfungible token (NFT) space has been growing over the past few months as investors clamor to purchase digital assets such as art, music and video clips, and buyers seek to make a profit.
An NFT is a unique digital asset that represents ownership of real-world items. While NFTs use the same blockchain technology that powers cryptocurrencies, they are not a currency, Business Insider reported.
The surge in interest in NFTs now almost matches the level of interest in 2017 in initial coin offerings (ICOs), Tech Crunch reported.
Blockchain experts say all the activity makes NFTs susceptible to financial abuses such as money laundering.
In a recent blog post, crypto investor and popular crypto commentator Mr. Whale claimed that NFTs are becoming popular for their ability to facilitate money laundering and tax evasion for the wealthy, Coin Telegraph reported.
Large amounts of money are being thrown around in the space. In March, digital artist Mike Winkelmann’s “Everydays: The First 5000 Days” sold for a whopping $69 million. But with big money comes the potential for money laundering, said Mr. Whale.
“Behind the facade of a bunch of bored rich dudes buying digital artwork at insanely high prices lays a sinister and twisted money laundering scheme for crypto’s ultra-rich elites to make their illegal profits look legal,” he wrote in his blog.
Collectors are taking advantage of the anonymity and decentralization of NFTs to stash their illegal money, blockchain investor and journalist Isaiah McCall wrote in Medium.
“You’ll frequently see someone buy an NFT for $100,000 and a few days later sell it for $600. It’s shady,” noted McCall.
Here are things to know and crypto NFTs and money laundering.
Because art is so subjective, NFTs often do not face scrutiny from lawmakers and regulators, according to Mr. Whale. This is the primary reason why NFT artwork is being used as a vehicle for illicit financial flows for centuries, he added.
The process of laundering money through NFT transactions is simple, according to Mr. Whale.
Buying an NFT from oneself using illicit cash is an easy way to move money while simultaneously claiming the funds were used for a legitimate art purchase and avoiding taxes in the process, Coin Telegraph reported.
“If you have $1 million in illegal money, you would spend $1 million on your own NFT. You can do this yourself or use a trusted third-party account. Then you resell the trash for nothing and bank the profits,” explained McCall on his blog Yard Couch.
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Money laundering is already a major issue in the art world, and it has transferred to the world of NFTs.
“One of the ways to identify trade-based money laundering with [traditional] art is that [an appraiser] comes up with a fair market value for something, and you’re able to measure that fair market value against the pricing that’s involved [and flag] over-invoicing or under-invoicing, which is either selling that asset for less than it’s worth, or for more than it’s worth,” said Jesse Spiro, chief of government affairs at the blockchain analysis firm Chainalysis, in a Techcrunch report.
Photo credit: Angela Kotsell / iStock
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