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Money Laundering in NFTs Rising: Chainalysis


Money laundering through the buying and selling of non-fungible tokens (NFTs) is a small but growing sector of criminal activity, according to blockchain analytics platform Chainalysis. The activity which is also commonly referred to as “wash trading” is a form of market manipulation where one investor simultaneously sells and buys the same asset to create false and misleading activity in a marketplace. Chainalysis has found “small but visible” money-laundering activity in NFTs, according to a report about its new study.

Chainalysis in a blog post announcing the results of the study reveals that it tracks wash trading by analysing sales of NFTs to addresses that were “self-financed” or sales that were funded either by the selling address, or the address that initially funded the selling address. This method yielded results that revealed hundreds of wash trades.

The most prolific wash trader Chainalysis identified was found to have made 830 sales to addresses they have self-financed. “We identified 262 users who have sold an NFT to a self-financed address more than 25 times,” Chainalysis said. The research firm found that more than half actually lost money, as gas fees racked up and their wash trading failed to generate interest from real buyers. However, a total of 110 of these users have collectively been able to earn a considerable $8.9 million (roughly Rs. 67 crore) in profit from this activity.

Chainalysis does not mention which specific NFT platforms it analysed as part of its study, but said that its findings only include NFTs bought with Ether and Wrapped Ether, not fiat.

Though the amount of potential NFT-based money laundering in 2021 is a “drop in the bucket” in comparison to cryptocurrency-based money laundering overall, Chainalysis said, it’s worth noting that the activity is on the rise.

“Money laundering, and in particular transfers from sanctioned cryptocurrency businesses, represents a large risk to building trust in NFTs, and should be monitored more closely by marketplaces, regulators, and law enforcement,” the firm wrote.

Speaking to CoinDesk, Chainalysis’ head of research, Kim Grauer, meanwhile, states, “It’s not a very good idea to get into crime in NFTs because it’s expensive. It’s hard to guarantee you’ll be profitable if you wash trade, and if you want to use [NFTs] to launder money, we can trace it, and you will be able to see who’s in possession of the NFT. There’s things that make the NFT space unattractive for crime.”


Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.





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