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November 5, 2024 6:58 pm

NFT Space Vulnerable to Acts of Money Laundering, U.S. Treasury Warns

IMG SOURCE: CoinDesk

The growing NFT space is considered to be extremely vulnerable to illicit and even terror financing operations, according to a report done by the U.S. Department of the Treasury. The study notes that as high-value art increasingly becomes an investment or financial asset, its environment could be open to acts such as money laundering.

“The emerging online art market may present new risks, depending on the structure and incentives of certain activity in this sector of the market (i.e., the purchase of NFTs, digital units on an underlying blockchain that can represent ownership of a digital work of art),” the study explained.

“According to U.S. authorities, in the first three months of 2021, the market for NFTs generated a record $1.5 billion in trading and grew 2,627 percent over the previous quarter,” it added. In 2020, the general NFT market was valued at over $20 billion. Within this space, the U.S. Treasury believes that criminals could easily purchase NFTs using funds obtained through illicit activities. These can then be resold to a potential buyer “who would compensate the criminal with clean funds not tied to a prior crime.”

Marketplaces usually allow NFTs to be sold either through peer-to-peer (P2P) trading. This essentially circumvents the essential step of needing an intermediary or taking note of the transaction over the public ledger. “Moreover, traditional industry participants, such as art auction houses or galleries, may not have the technical understanding of distributed ledger technology required to practice effective customer identification and verification in this space,” furthered the U.S. Treasury.

Despite this, the prominence of NFTs and cryptocurrencies continue to grow as it enables individuals to lift themselves up from financial hardship. This was the case of former banker turned full-time crypto entrepreneur Brenda Gentry, who also goes by the handle @MsCryptoMom on Twitter.

“My biggest flex this year was walking away from my banking career of 16yrs to go into crypto full time! Retired my parents and now my goal is to retire my siblings and get them working for themselves! NFTs and DeFi are breaking down generational curses of poverty.” Gentry tweeted earlier last year.

Aside from managing her crypto assets, Gentry also educates her followers on how to navigate the expanding ecosystem. “I’m also hosting seminars to educate the general public about navigating in this space and things to look out for when searching for good NFT projects or DeFi tokens, and also how to quickly detect scams or rug pulls.”

 

Source: CoinTelegraph

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