Tue. Sep 26th, 2023

Money laundering through the purchasing and selling of NFTs is a small but rising sector of illicit activity, according to a Chainalysis analysis issued Wednesday.

The report found a small but growing portion of activity on NFT marketplaces that could be attributed to money laundering, which quantified this amount by tracking value sent to NFT marketplaces from cryptocurrency addresses known to be associated with scams, theft, malware operators, and accounts under legal sanctions. In total the amount recorded was little — roughly $1.4 million in Q4 2021 — but had grown dramatically from the beginning of the year.

NFT Money Laundering Growing Sector

“All of this activity constitutes a drop in the bucket compared to the $8.6 billion worth of cryptocurrency-based money laundering we documented in all of 2021,” the report’s authors wrote. “Nevertheless, money laundering, particularly in particular transfers from sanctioned cryptocurrency enterprises, constitutes a huge risk to creating trust in NFTs, and should be monitored more rigorously by marketplaces, regulators, and law enforcement.”

The same Chainalysis research also alludes to an increase in wash trading, the process of NFT owners “selling” an NFT by sending money to themselves from a cryptocurrency wallet that they control, and creating a false impression of value. Wash trading has long been a problem for bitcoin exchanges — because it creates a deceptive perception of trade volume — but it is also increasingly a problem for NFT marketplaces too.


Chainalysis discovered hundreds of incidents of NFTs bought from self-financed addresses, meaning instances where either the wallet address that purchased the NFT had first been paid money by the selling address of the NFT, or a common address had sent cash to both buyer and seller addresses.

The most prolific wash vendor uncovered by Chainalysis had apparently made 830 such sales. And 262 people were identified as making self-funded sales more than 25 times; the total profit made by this group was around $8.9 million.

Wash trading also has an impact on the perceived relationship between marketplaces. Last week, NFT marketplace LooksRare eclipsed OpenSea by trading volume, but analysts revealed that over $8 billion of sales could have been customers selling NFTs to themselves.

In general, the simplicity with which cryptocurrencies may be exchanged and received anonymously has led to worries concerning money laundering since the introduction of Bitcoin. Mixer services (which break transactions into numerous little fractions and then reassemble them into “clean” money) have emerged as a thorn in the side of law enforcement.

In response, agencies have aggressively targeted money laundering in the cryptocurrency space, taking down services like Bitcoin Fog in 2021, Helix in 2020, BestMixer in 2019, and even launching a sting in 2018 that saw federal agencies taking over operations of a money-laundering service to gather evidence.

By Adam

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