The skyrocketing popularity of unique tokens (NFTs) in the past few months may have pitfalls. The cost of NFT collections is increasing at a tremendous rate, while in many cases the price of individual “pictures” easily oversteps the $ 100 thousand mark just a few days after their creation.
Analyst under the pseudonym Mr. Whale believes that the hype around NFT is partially created artificially, and the high price of tokens is formed due to money laundering in this area.
Let’s start with an example. The rate of growth in the value of some tokens is really surprising. Here is a graph of the change in the average selling price of NFTs from the CryptoPank line. On January 1, the indicator was 6.7 thousand dollars, and yesterday it set an all-time high of 195 thousand.
This HYIP can also be used by those wishing to legalize their shadow income.
Why NFTs Are So Popular
On his blog, Mr. Whale cites NFT as an excellent vehicle for money laundering and tax evasion. Recall that in the US, cryptocurrency investors are required to pay taxes on their profits. However, at the same time, the NFT sphere is not yet regulated by the state, so it allegedly attracts those who want to carry out illegal financial fraud.
Here is a quote from a cryptanalyst on this subject, in which he shares his vision of the situation. The replica is provided by Cointelegraph .
Behind the façade of a bunch of bored rich guys buying digital art at insanely high prices is a sinister and perverse money laundering scheme for the ultra-wealthy elite in the industry to keep their illicit profits from drawing government attention.
That is, the expert assumes that NFTs are very convenient both for hiding sources of income and for explaining the possible earnings of large amounts.
One of the latest vivid examples of the hype around the new trend is the collection of unique Pudgy Penguins tokens. It consists of 8,888 penguin pictures backed up by NFTs on the Ethereum blockchain. The collection was created just three weeks ago, but in the last 24 hours the volume of trading in its tokens has grown to almost $ 12 million . Some of the cheapest Pudgy Penguins are priced at 2.888 ETH on the OpenSea platform, that is, more than $ 9 thousand.
Art itself is subjective, making it difficult for regulators to determine the “true” value of specific NFTs. In general, money laundering through art is an old scheme that has been used by rich people for several centuries. Let us remind you that money laundering is transactions that make “legal” cash flows obtained through illegal activities.
In the case of NFT, laundering is very simple: crypto investors simply buy tokens from themselves with the money they want to launder. Thus, the proceeds can be withdrawn into common currency without any problems. The whole process was explained earlier in his blog by USA Today journalist Isaiah McCall, here is his quote.
If you have a million dollars of illegal money, you will spend a million dollars on your own NFT. You can do it yourself or use a trusted third party account.
Accordingly, in fact, the sale of NFT for hundreds of thousands of dollars, which cost very little the day before, makes it possible to explain the reason for the appearance of funds. Well, it is sometimes impossible to determine the identity of the token buyer, because ordinary cryptocurrency wallets allow you to dispose of them anonymously.
Catherine Graffham, associate professor of art and design at Lacella University, has confirmed that money laundering of physical objects of art follows the same pattern. Moreover, according to her, this process in the case of NFT is much easier, since the funds are tied to a decentralized cryptocurrency – ETH. Here is a quote from her.
It might even be easier to move dirty money around because it is tied to a decentralized currency and there is no need to transport and store physical art.
According to Mr. Whale, the NFT space will soon receive increased attention from financial regulators. Until now, there are several trading platforms for exchanging unique tokens without the need to verify their real identity. Most likely, by analogy with cryptocurrency exchanges, as a result, the management of such platforms will introduce mandatory identity verification – at least this scheme works on the NFT exchange from Binance.
We believe that the NFT token industry itself is unique and revolutionary. Thanks to their connection to the blockchain, the concept of digital property is completely changing – and for the better. That is, now a person can own something digital – be it a picture or a song – completely, and no one can dispute this fact.
And although the presence of those who like to launder funds in the niche arouses the increased interest of law enforcement officers, it is unlikely that it will be possible to do without it. As we have already noted, a similar scheme still works in the niche of ordinary art, which continues to exist successfully. This means that the development of the NFT market here will certainly continue without any problems.