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After cryptocurrencies and their grave misuse for money laundering and hawala-based transactions, a new report has claimed that money laundering through the buying and selling of <a href="https://www.businessinsider.in/budget/news/from-cryptocurrencies-to-nfts-india-to-tax-all-virtual-digital-assets-at-30/articleshow/89268587.cms" data-type="tilCustomLink">NFTs</a> is a growing sector where cybercriminals use illicit funds to purchase <keyword id="902592" type="General" weightage="20" keywordseo="nfts" source="Orion">NFTs</keyword>. According to a report by Blockchain data platform Chainalysis, they found a small but growing portion of activity on NFT marketplaces that could be attributed to money laundering. "While money laundering in physical art is difficult to quantify, we can make more reliable estimates of NFT-based money laundering thanks to the inherent transparency of the Blockchain," the report said late on Wednesday. The value sent to NFT marketplaces by illicit addresses jumped significantly in the third quarter of 2021, crossing $1 million worth of cryptocurrency. The figure grew again in the fourth quarter, topping out at just under $1.4 million. "In both quarters, the vast majority of this activity came from scam-associated addresses sending funds to NFT marketplaces to make purchases," the report informed. Both quarters also saw significant amounts of stolen funds sent to marketplaces as well. "Perhaps most concerningly, in the fourth quarter, we saw roughly $284,000 worth of cryptocurrency sent to NFT marketplaces from addresses with sanctions risk," said the researchers. NFTs can store data on blockchains and that data can be associated with images, videos, audio, physical objects, memberships, and countless other developing use cases. NFT popularity skyrocketed in 2021. Chainalysis tracked a minimum $44.2 billion worth of cryptocurrency sent to ERC-721 and ERC-1155 contracts -- the two types of Ethereum smart contracts associated with NFT marketplaces and collections -- up from just $106 million in 2020. Some NFT sellers are making a killing with wash trading too. "Wash trading", meaning executing a transaction in which the seller is on both sides of the trade in order to paint a misleading picture of an asset's value and liquidity, is another area of concern for NFTs." Using Blockchain analysis, the researchers identified 262 users who have sold an NFT to a self-financed address more than 25 times. The 110 profitable wash traders have collectively made nearly $8.9 million in profit from this activity, dwarfing the $416,984 in losses made by the 152 unprofitable wash traders. "Even worse, that $8.9 million is most likely derived from sales to unsuspecting buyers who believe the NFT they're purchasing has been growing in value, sold from one distinct collector to another," said Chainalysis. "NFTs offer potential for abuse. It's important that as our industry considers all the ways this new asset class can change how we link the blockchain to the physical world," said the report. Over Rs 4,000 crore of illegal transactions via cryptocurrency exchanges were unearthed by the Enforcement Directorate (ED) in India in the last one year, reports claimed in November last year. Grave concerns have now been raised over the misuse of digital coins on the Dark Web for terror acts and drugs trafficking by militant organisations, and for money laundering and hawala-based transactions -- posing a serious threat to national security and a big challenge to the security agencies in India.

Money laundering through NFTs a growing sector: Chainalysis report

<ul class="summary-list"><li>The market for digital collectibles has exploded in 2021, and money is pouring in from all angles.</li><li>Experts say buyers should be aware of volatility, illiquidity, and fraud in the budding market.</li><li>Some think <keyword id="902592" type="PERSON" weightage="60" keywordseo="NFTS">NFTs</keyword> will only keep booming, while others think it's all just a bubble waiting to pop.</li></ul>The market for digital collectibles is booming - but that doesn't mean they're a safe investment. A digital artist known as Beeple <a href="https://www.businessinsider.com/art-auction-nft-beeple-top-selling-most-expensive-sale-millions-2021-3">sold a piece for an eye-watering $69 million</a> through Christie's on Thursday. Twitter founder and CEO Jack Dorsey is auctioning off his very first tweet, and bidding has reached <a href="https://v.cent.co/tweet/20?s=u_o">$2.5 million</a>. And <a href="https://www.businessinsider.com/nba-top-shot-virtual-highlights-for-sale-moments-blockchain-explained-2021-2">NBA Top Shot</a>, a marketplace for officially licensed basketball highlight clips, has seen more than a quarter-billion dollars change hands over the last 30 days, <a href="https://www.wsj.com/articles/nba-top-shot-nft-crypto-digital-collectibles-11615266042">minting multimillionaires</a> along the way.For the uninitiated, these assets are all examples of non-fungible tokens, or NFTs, which use the same blockchain technology that underpins cryptocurrencies like bitcoin to keep track of ownership and create scarcity. Purchasing an NFT typically means you have access to the same file anybody else can view or download, but you're also granted something like a digital deed of ownership to it. And although NFTs have been around for years, the market for them has exploded into a bonafide frenzy in recent months as <a href="https://www.businessinsider.com/taco-bell-potatoes-return-celebrated-with-nft-crypto-collectibles-2021-3">mainstream companies</a> and investors have piled in.But for all the hype surrounding them, digital collectibles - like cryptocurrencies, stocks, or any other asset prone to speculation - come with significant risks that people would do well to understand before diving in, experts told Insider. <h3>The top risks of the budding NFT market</h3>For Nadya Ivanova, COO of L'Atelier BNP Paribas, an emerging-market research firm that put out a <a href="https://nonfungible.com/blog/nft-yearly-report-2020">report on NFTs</a> in February, the technology's greatest strength is also one of its major weaknesses. Anyone on the internet can create an NFT out of literally anything, which means there are a lot of "really bad" tokens out there, Ivanova said in an interview. It takes a trained eye to weed out what's worth collecting or investing in. "That applies to the physical art market as well - it's usually a space for the knowledgeable. Same thing with NFT art," Ivanova said. <div type="image" title="The first emoji by Beeple" height="3000" width="2400" msid="81485465" hostid="261"></div>And although Ivanova sees the NFT market eventually maturing and continuing its course into the mainstream, she recognizes a handful of additional risks and uncertainties new collectors should consider about the budding space. The NFT market suffers from massive volatility, Ivanova said, in part because there aren't any mechanisms in place yet to help people price assets. Over the course of 2020, the value of some of the most popular types of NFTs spiked by around 2,000%, L'Atelier's report found. On Top Shot, some highlights that initially sold for a few dollars are now worth tens of thousands. When it comes to liquidity - how readily an asset can be exchanged for cash - NFTs are a lot more like baseball cards or paintings than bitcoin or stocks, because every seller needs to find a buyer who's willing to pay a certain price for a particular, one-of-a-kind item. That can put collectors in a difficult spot if they, say, spent $100,000 on a Top Shot moment and the market begins to tank, Ivanova said. But illiquidity can also be a good thing, since it prevents people from making rash decisions, Andrew Steinwold, a crypto investor who started an <a href="https://www.sfermion.io/">NFT investment fund</a> in September 2019, told Insider. If people don't have the option to panic and offload their NFTs, the market could avoid the kind of plummeting values that would spark such a selloff in the first place, he said. <h3>Do you really own your NFTs?</h3>What most people new to NFTs don't realize, according to Steinwold, is that there's usually a distinction between the token itself - a record of ownership that lives on a blockchain - and the asset it refers to, which would be a photo, video, or audio file that's stored separately. If a startup that issued NFTs goes out of business and stops hosting those digital artworks, basketball trading cards, or other media, buyers could be left with tokens pointing to files that no longer exist. <div type="image" title="NBA Top Shot marketplace" height="950" width="1788" msid="81485467" hostid="261"></div>There are remedies to this problem - like storing files using decentralized services - that both Ivanova and Steinwold think will be the norm soon enough, but for now that risk remains. To skeptics like Nicholas Weaver, a professor of computer science at UC Berkeley, the hairy nature of NFT ownership proves that the tokens have no intrinsic value and that the frenzy surrounding them is absurd. "The ownership records themselves are the digital equivalent of Beanie Babies: cute little nothings that have no value beyond what someone else will buy them [for]," Weaver said in an email to Insider. <h3>The potential for fraud and foul play</h3>It's impossible to forge an NFT and it's easy to determine where one came from, but that doesn't mean the market is free from foul play. Anybody can theoretically mint an NFT out of a file that doesn't belong to them and pass it off as their own to unsuspecting buyers, Ivanova said. Various types of manipulation prevalent in other markets also may be happening. Wash trading - when someone artificially pumps up the price of an asset by opening multiple accounts and trading with themselves - has historically been common in NFTs, she said. It's a practice that can be easy for experienced collectors to sniff out, but might be tough for newcomers to identify. <div type="image" title="Cryptokitties." height="1407" width="2500" msid="81485468" hostid="261"></div>And since blockchain transactions are anonymous and irreversible, if someone gets into your computer and steals your assets, you're pretty much out of luck, according to Weaver. From a security perspective, "'blockchain' is exactly the wrong solution for what you want," he said. <h3>What the future holds </h3>Despite the uncertainties, Ivanova sees huge potential in the future of NFTs. A correction is inevitable, she said, but ultimately the market will continue to grow and NFTs may become the underlying asset for the whole virtual economy, expanding far beyond just digital art and collectibles. Steinwold, though he thinks some people are "getting a little ahead of their skis" in these early days, predicts NFTs will eventually be a trillion-dollar market. And he should hope so - his <a href="https://www.sfermion.io/" target="_blank" rel="noopener noreferrer">NFT fund</a> invests in art, collectibles, virtual land, and video game assets.Weaver, on the other hand, thinks the current NFT fever is "pure speculative mania," and that it's nothing but a bubble waiting to pop. "It is entirely a classic tulip mania but where tulips are recorded in a different media," Weaver said. "At least with Beanie Babies they're cute."

NFTs could be the future of collecting - or a huge bubble. We talked to 3 experts about the risks to consider before buying in.

<ul class="summary-list"><li>Non-fungible tokens skyrocketed in 2021 riding the broader cryptocurrency boom. </li><li>In 2021, around $44 billion worth of <keyword id="11893898" type="UNKNOWN" weightage="60" keywordseo="crypto" source="Orion">crypto</keyword> was sent to NFT-related smart contracts, up from $106 million in 2020, according to <keyword id="11902141" type="UNKNOWN" weightage="60" keywordseo="chainalysis" source="Orion">Chainalysis</keyword>.</li><li>The firm identified two rampant schemes criminals used in 2021: wash trading and money laundering.</li></ul>Non-fungible tokens skyrocketed in 2021, riding the broader cryptocurrency boom, and criminals took advantage.NFTs — <a href="https://www.businessinsider.com/non-fungible-tokens-nfts-have-taken-over-heres-why-theyre-important-2021-4?utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets" target="_blank" rel="noopener">digital representations</a> of artwork, sports cards, or other collectibles tied to a blockchain — have surged in popularity as investors from Wall Street and Hollywood get onboard.In 2021 alone, around $44 billion worth of crypto was sent to NFT-related smart contracts, up from just $106 million in 2020, according to blockchain analytics firm Chainalysis.But with this elevated consciousness came an increase in crimes. Here are two rampant schemes Chainlysis has tracked in the past year.<h2>Wash trading</h2>Wash trading is the illegal process in which a seller is on both sides of a trade to manipulate an asset's value and liquidity. This typically occurs in <a href="https://blog.chainalysis.com/reports/fake-trade-volume-cryptocurrency-exchanges/">crypto exchanges</a> that attempt to boost their trading volumes.In the case of NFTs, an investor would sell a token for a higher price to a wallet that he also owns — a relatively seamless process in this space where there is no need to disclose one's identity, Chainlysis explained. For 2021, the firm found that while most <keyword id="11919795" type="UNKNOWN" weightage="60" keywordseo="nft" source="Orion">NFT</keyword> wash traders have been unprofitable, the successful ones gained handsomely. Of the 262 wash traders tracked, only 41% were profitable but they raked in nearly $8.9 million. The rest lost nearly half a million. <table style="border-collapse: collapse; width: 100%; height: 88px;" border="1"><tbody><tr style="height: 22px;"><td style="width: 33.3333%; height: 22px;">Wash trader group</td><td style="width: 33.3333%; height: 22px;">Number of addresses</td><td style="width: 33.3333%; height: 22px;">Profits from trade</td></tr><tr style="height: 22px;"><td style="width: 33.3333%; height: 22px;">Profitable</td><td style="width: 33.3333%; height: 22px;">110</td><td style="width: 33.3333%; height: 22px;">$8,875,315</td></tr><tr style="height: 22px;"><td style="width: 33.3333%; height: 22px;">Unprofitable</td><td style="width: 33.3333%; height: 22px;">152</td><td style="width: 33.3333%; height: 22px;">- $416,984</td></tr><tr style="height: 22px;"><td style="width: 33.3333%; height: 22px;">Total</td><td style="width: 33.3333%; height: 22px;">262</td><td style="width: 33.3333%; height: 22px;">$8,458,331</td></tr></tbody></table>"NFT wash trading exists in a murky legal area," the report said. "While wash trading is prohibited in conventional securities and futures, wash trading involving NFTs has yet to be the subject of an enforcement action ... We encourage NFT marketplaces to discourage this activity as much as possible."<h2>Money laundering</h2>Money laundering has plagued the traditional financial world but has grown to be more pervasive in the digital asset realm, much to the <a href="https://www.businessinsider.com/cryptocurrency-crackdown-doj-announces-cryptocurrency-enforcement-team-2021-10">concern of regulators</a>. Chainlysis found that around $3 million was sent to NFT marketplaces by illicit addresses last year, up from less than $500,000 in the prior year. In the last two quarters of 2021, the vast majority of this activity came from scam-associated addresses, the firm said.In one example from the fourth quarter, roughly $284,000 worth of crypto was transferred from <a href="https://blog.chainalysis.com/reports/ofac-sanction-chatex-revil-sodinokibi-november-2021/">Chatex</a>, a virtual crypto exchange on the US government's <a href="https://home.treasury.gov/news/press-releases/jy0471">Specially Designated Nationals List</a>, which includes suspected money launders as well as suspected terrorists and drug traffickers, among others.<div type="image" title="Illicit value received by NFT platforms" height="778" width="1884" msid="89302402" hostid="261"></div>Apart from these two schemes, there are other pervasive techniques used by criminals. But Kim Grauer, head of research at Chainalysis, said the firm focused on these two types because they are "extremely straightforward" to analyze on the blockchain."This does not necessarily mean they are the biggest types of crime, because the industry has not really been around long enough to see the extent of fraud and scamming on users," she told Insider. "We expect 2022 to be a big year for crime on NFTs and will be keeping a close eye on the ecosystem."

The boom in NFTs has led to a spike in crime around digital collectibles. Here are 2 of the most rampant schemes, according to Chainalysis.

<ul class="summary-list"><li>DeFi protocol NFTfi reported a record amount of borrowing using NFTs as collateral in January. </li><li>NFTs boomed in popularity in 2021 and early 2022 but have since seen trading volumes crash. </li></ul>Non-fungible token holders are borrowing against their NFT collections at the highest rate ever.Data from NFTfi, a DeFi protocol that lets NFT holders list their items as collateral for crypto loans, counted a record 4,399 loans, totaling 18,000 ether tokens, disbursed in January. That's almost double the previous high of 2,481 loans made in March 2022, per a report from <a href="https://thedefiant.io/nftfi-record-loans" target="_blank" rel="noopener">The Defiant</a>.The spike in borrowing comes amid a months-long collapse in NFT trading volume following the huge enthusiasm in the space seen in 2021 and early 2022, when assets from popular collections like <a href="https://markets.businessinsider.com/news/currencies/bored-ape-yacht-club-nft-sales-1-billion-opensea-bayc-2022-1">Bored Ape Yacht Club</a> traded at massive premiums. NFTs can range from digital pictures and art to music, and are purchased using cryptocurrency. While it's possible to download a file or screenshot an image, purchasing an NFT gives a holder ownership of the item on the blockchain.Adjusted for market manipulation tactics like <a href="https://thedefiant.io/nft-wash-trading-2022" target="_blank" rel="noopener">wash trading</a>, NFT trading volumes are down about 75% from all-time highs. But considering that the price of <a href="https://markets.businessinsider.com/currencies/eth-usd">ether</a> — the primary crypto used for NFT purchases — has cratered 46% from a year ago, the decline in volumes is less dramatic.Crypto markets are still recovering from the FTX fallout and the year-long bear market that hit in 2022. However, token prices are on the rise again, with bitcoin up nearly 40% year-to-date.

NFT holders are using their digital art as collateral to borrow record amounts of cryptocurrency

<ul><li>The <keyword id="1401234" type="General" weightage="100" keywordseo="daba" source="Orion">DABA</keyword> has been in the works for a while, but a leaked report sheds light on what regulations are coming.</li><li><keyword id="5565" type="General" weightage="50" keywordseo="south-korea" source="Orion">South Korea</keyword>’s new President has also promised to regulate the crypto industry fast.</li><li>The DABA is expected to come into effect by 2024.</li></ul>The government of South Korea may be looking to implement a new licensing framework that forces crypto exchanges to protect investors. A new report from the Financial Services Commission (<keyword id="166109" type="General" weightage="80" keywordseo="fsc" source="Orion">FSC</keyword>), which regulates financial markets in the country, suggests that the government will introduce a law called the <keyword id="13983687" type="General" weightage="50" keywordseo="digital-assets-basic-act" source="Orion">Digital Assets Basic Act</keyword> (DABA) next year, which will be enforced by 2024. The law will seek to incorporate virtual assets into the institutional system in the country. The report was leaked and <a href="https://news.kmib.co.kr/article/view.asp?arcid=0017065835&amp;code=61141111&amp;cp=nv">reported</a> by Korean media earlier this week and seeks to provide rules that help fight issues like pump-and-dump schemes, wash trading, and even insider trading. Pump-and-dump and wash trading schemes inflate the price of a crypto or non-fungible token (<keyword id="4668945" type="General" weightage="50" keywordseo="nft" source="Orion">NFT</keyword>) through illicit means. In wash trading, the seller is on both sides of transactions and inflates the price by buying and selling to themselves. On the other hand, pump-and-dump schemes spread false information to inflate the price. To be sure, the DABA has been in the works for a while now and was formed by the FSC earlier this year. <cmsannotation type="cmsannotation" annotationid="What does it entail?" comment="subhead" text="What does it entail?">What does it entail?</cmsannotation> According to the FSC’s report, the new regulations will be stricter on <a href="https://wazirx.com/signup?invite=2kpah6gr&amp;utm_source=business-insider&amp;utm_medium=referral&amp;utm_campaign=article-editorial">exchanges</a> and will punish them for failing to comply with the country’s <keyword id="13983688" type="General" weightage="50" keywordseo="capital-markets-act" source="Orion">Capital Markets Act</keyword>, which regulates securities. The DABA will also issue varied licences to crypto service providers, based on the kind of service they provide. In this, crypto trading service providers will be required to provide the highest level of protection to users. South Korea has been big on the protection aspect of the industry for a while now. The country also <a href="https://news.bitcoin.com/south-korea-launches-emergency-investigation-into-collapse-of-luna-and-ust/">launched</a> an “emergency investigation” into its domestic exchanges after the crash of the cryptocurrency Luna this month. Further, the DABA will also require firms and users issuing cryptocurrencies to submit white papers to the FSC before a project goes live. It’s not clear whether the same will apply to NFTs as well, but the information provided to the FSC will have to include information about the company’s executives, how funds are obtained, and the risks that are involved in the project. This rule will also apply to companies outside of South Korea, that put tokens on the country’s exchanges. <cmsannotation type="cmsannotation" annotationid="Regulating crypto" comment="subhead" text="Regulating crypto">Regulating crypto</cmsannotation> South Korea is amongst a handful of countries that have been moving fast on crypto regulations around the world. The country’s new President, Yoon Seok-yeol, who was elected earlier this month, has been a vocal advocate for regulating the industry. While it is unclear whether the DABA is the law in question, shortly before he took office on May 3, Yoon said he would push his administration to pass a law to regulate cryptocurrencies and put a legal framework in place. Yoon had also <a href="https://cointelegraph.com/news/south-korea-s-new-president-delays-crypto-taxes-in-favor-of-consumer-protections">said</a> he would defer taxation regimes on cryptocurrencies till the DABA is clarified. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/international/news/economic-tension-on-all-time-high-as-pakistani-rupee-breaches-200-mark-in-interbank-trading/articleshow/91661814.cms">Economic tension on all-time high as Pakistani rupee breaches 200-mark in interbank trading</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/international/news/oscar-winner-a-r-rahman-says-india-should-tell-west-stories-from-its-own-narrative/articleshow/91660659.cms">Oscar winner A R Rahman says India should tell 'West stories' from its own narrative</a>

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Money laundering through NFTs a growing sector: Chainalysis report

IANS

NFTs could be the future of collecting - or a huge bubble. We talked to 3 experts about the risks to consider before buying in.

Tim Levin

The boom in NFTs has led to a spike in crime around digital collectibles. Here are 2 of the most rampant schemes, according to Chainalysis.

Isabelle Lee

NFT holders are using their digital art as collateral to borrow record amounts of cryptocurrency

Phil Rosen

South Korea’s new crypto bill is likely to impose stricter controls on exchanges

BI India Bureau

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