Non-fungible tokens (NFTs) have taken the world by storm, sparking widespread interest and increased use of cryptocurrencies. According to Chainalysis, an analytics company, the popularity of NFTs surged in 2021. The “NFT Market Report” from Chainalysis shows that at least $44.2 billion was sent to Ethereum smart contracts tied to NFT markets and blockchains last year. The report notes that this figure was $106 million in 2020.
Although impressive, the rise in scams and fraudulent activities has permeated the NFT space. For example, NFT’s major OpenSea marketplace recently announced the abuse of its free coin tool. As a result, OpenSea reported that 80% of NFTs generated with this tool were either plagiarism, forgery, or spam. If that wasn’t enough, the latest Chainalysis blog post in the “Crypto Crime Report 2022” states that the NFT sector is vulnerable to money laundering and money laundering.
Laundry business is increasing in the NFT sector
According to the Blogger, phantom trade refers to a trade in which the seller is on both sides of a trade in order to paint a misleading picture of the value and liquidity of an asset.
Not surprisingly, the laundry business has become a major problem in the NFT sector. Recently, data from the trading platform LooksRare NFT showed that the platform is highly vulnerable to trading underwear.
But as the laundry business becomes more common in the NFT markets, new solutions are being developed to detect fraudulent activities. Kim Grauer, Head of Research at Chainalysis, told Cointelegraph that the company has created a potential tool capable of identifying individuals who are self-financing their cryptocurrency for misleading transactions:
“With Chainalysis, we can see when someone buys a token using money from the same person who sold the same token to them. That is the definition of laundering.”
The Chain Analysis blog post also explains that through blockchain analysis, the company can trace a laundry’s NFT trading by analyzing NFT sales to addresses that were self-funded, meaning that they were either funded at the sale address or at the address as an address originally funded from the sale. . .
Interestingly, while Chainalysis found that some NFT retailers made hundreds of lingerie trades, Grauer noted that the majority of NFT lingerie retailers are actually unprofitable. She said:
“In general, we have found erasing NFTs unprofitable because you end up paying high gas taxes. Many laundromat merchants have come in negative because of the amount spent on gas compared to the amount taken from their sales.”
Specifically, the results of the Chainalysis analysis show that 152 Ethereum addresses associated with laundry merchants resulted in a loss of $416,984. On the other hand, Grauer noted that some laundry retailers have been successful. Chainalysis data shows that 110 Ethereum addresses generated $8.9 million in laundry revenue.
Grauer says that successful laundry traders tend to be people who make multiple trades in the NFT across multiple platforms. However, she noted that transparent trading in general is not a good idea due to the high cost of gas fees, combined with the fact that all transactions can be viewed on the Ethereum blockchain network. This is a risky type of crime, even more serious considering that people have to pay exorbitant gas taxes. Those doing it on a large scale need expertise, Grauer said.
How can NFT platforms keep users safe
Although NFTs for the laundry business have proven to be risky and unprofitable for most people, Grauer believes that the activity will become more popular as the NFT field continues to grow. “Everyone can easily participate in the laundry trade – if you can load an ETH wallet and buy an NFT, you can do that,” she said. With this in mind, it is becoming increasingly important for NFT platforms to put in place initiatives to help protect users from fraudulent activities.
Alex Salnikov, co-founder and product manager at NFT Rarible Marketplace, told Cointelegraph that compared to what the platform has seen in the broader NFT ecosystem, there is a tendency for users to launder trades on platforms that offer trading incentives. . According to Salnikov, LooksRare planned to offer users a bonus in the form of the original platform token, which could increase the trading volume of underwear on the platform.
