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Wash Trading and Money Laundering in the NFT Market: Chainalysis

Chainalysis, a blockchain analytics startup, has discovered extensive wash trading and money laundering in the NFT market.

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In the developing NFT industry, Chainalysis, a blockchain analytics platform, discovered “strong” evidence of wash trading and money laundering.

“As with any new technology, NFTs have the potential to be abused. So as our industry explores all of the ways this new asset class can transform how we connect the blockchain to the physical world, it’s critical that we also design products that make an NFT investment as safe and secure as possible,” Chainalysis wrote in research.

An NFT holder can “sell” their NFT to another wallet they control, making the NFT appear more valuable than it would otherwise be.

Wash trading and NFT

Chainalysis tracked wash trading by looking at NFT sales to addresses that were “self-financed”—that is, sales that were funded either by the selling address or by the address that initially funded the selling address.

Hundreds of wash trades were discovered using this strategy. One user, who Chainalysis identified as the most active wash dealer, was found to have made 830 sales to addresses that they had self-financed.

“We found 262 users who have sold an NFT to a self-financed address more than 25 times,” according to Chainalysis.

A total of 110 of these users have profited from this activity to the tune of roughly $8.9 million.

“Most likely originated from sales to naïve purchasers who believe the NFT they’re purchasing has been increasing in value, sold from one distinct collector to another,” according to Chainalysis.

While the blockchain analytics firm concedes it can’t be “100% confident” that all NFT sales to self-funded wallets are for wash trading, the “25-transaction threshold provides us a high degree of confidence that these users are habitual wash traders.”

Furthermore, Chainalysis’ data only includes Ethereum and Wrapped Ethereum trades (an ERC-20 token that mirrors the price of Ethereum). “We’re probably overlooking wash trade activity,” Chainalysis stated.

Money laundering concerns

According to Chainalysis, the value supplied to markets by illicit addresses “jumped dramatically” in Q3 2021, then increased to about $1.4 million in Q4 2021.

In Q4 2021, roughly $284,000 worth of cryptocurrencies was transmitted to NFT marketplaces from addresses at risk of sanctions.

This, according to Chainalysis, was due to transfers from crypto exchange Chatex, which is on the Specially Designated Nationals list of the US Office of Foreign Assets Control.

These discoveries come in the wake of $8.6 billion in cryptocurrency-based money laundering that Chainalysis identified in 2021.

“Money laundering, particularly transfers from sanctioned cryptocurrency enterprises, poses a significant risk to the development of confidence in NFTs and should be actively monitored by marketplaces, regulators, and law enforcement,” according to Chainalysis.

Other NFT concerns

This isn’t the first time the booming industry has been linked to illegal conduct.

LooksRare, an Ethereum-based NFT site, has become a popular wash trading destination.

Although LooksRare had better trading numbers than OpenSea—the industry’s most popular NFT marketplace—earlier this month, the platform has witnessed multiple NFT trades between the same two wallets.

AT THE TIME, the NFT marketplace didn’t seem to mind retweeting a discussion in which a collector claimed that wash trading occurs “by design…probably,” calling it “brilliant.”

It retweeted the same thread again, this time with the word “talk” added.

Art and illicit activity

Illicit conduct, particularly money laundering, has long been a problem in the traditional art market, and some experts have long warned that NFTs could compound the problem.

“The lack of client KYC on various NFT marketplaces creates paths to circumvent identification,” stated Gabriel Hidalgo, managing director of K2 Integrity.

The Arts and Antiques Unit of the London Metropolitan Police has previously stated that they were “very well aware” of the risks associated with NFTs.

“We know that blockchains’ anonymity allows ultimate beneficial owners to hide their identities,” one member of the Art and Antiques Unit explained.

“It’s also feasible that the exchange of NFTs between users, in the form of layering or integration, may be used to launder money.”

NFT

At a London event, an NFT vending machine will increase accessibility to digital art

The NFT vending machine at this year’s NFT.London event will give its profits to a good cause.

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The first-ever physical nonfungible token (NFT) vending machine will be on display at this year’s NFT.London conference, which is set for November 2-4.

The NFT platform aims to give anyone who wish to start buying and trading digital assets a simple and accessible way to do so without requiring them to have a thorough understanding of the Web3 sector. Users won’t need to have a digital wallet to buy an NFT from the vending machine.

Users must choose one of the shown envelopes before entering the code to acquire an NFT from the myNFT vending machine. After making their purchase, users can scan the QR code on the envelope to access an invitation to create a myNFT account, which includes an NFT wallet where they can store their NFT.

“The most convenient method to buy anything is through a vending machine, so we’re shattering the impression that buying an NFT is difficult with this campaign,” said Hugo Mcdonaugh, CEO of myNFT.

The first collection of contributed NFTs from myNFT, which includes names like Dr. Who Worlds Apart, Thunderbirds, and Delft Blue Night Watch, will be available for purchase by interested participants.

The actual NFT vending machine will be situated outside the Queen Elizabeth II Centre, Westminster, London, which is where the NFT.London conference will take place.

The revenue from the NFT vending machine will go to two charities: Roald Dahl’s Marvellous Children’s Charity, which provides specialized nurses to seriously ill children, and Giveth, a blockchain-based philanthropic community that supports public goods, services, and education in developing countries.

The Solana, California-based NFT marketplace Neon introduced a 24-hour NFT vending machine in the financial sector of New York City in February, according to Cointelegraph. This machine took credit and debit card payments. However, people complained that neither the NFT vending machine nor the NFT performed as promised after a week had passed after its introduction.

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Could this trademark application indicate that PayPal is developing an NFT market? 

A trademark application for blockchain and cryptocurrency technology has been submitted by PayPal. Some claim that the file has something to do with Web3 and the metaverse, although it may be tied to an NFT marketplace.

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A recent trademark application by PayPal has been found, and it suggests the development of a service pertaining to several facets of blockchain technology. The file, which was made on October 18, makes a notable allusion to the potential introduction of a non-fungible token (NFT) market.

For its logo, PayPal submitted two trademark applications. The first one concerns “downloadable software” for cryptocurrency trading and storage. The second discusses cryptocurrency-related payment processing services.

Although users may currently buy cryptocurrencies on PayPal’s platform, this filing suggests that there may be more to come. The concept of assets is substantially broader in the filing’s terminology. Mike Kondoudis, a trademark lawyer licensed by the USPTO, claimed on Twitter that this filing relates to NFTs and the metaverse.

Although there is no proof to support this, it would not be shocking if it were true. The finance business would be adding its name to a lengthy list of businesses that are starting to make inroads into the Web3 and metaverse spaces.

PayPal is investing more in cryptocurrency.
Over the past two years, PayPal has intensified its focus on cryptocurrencies. First, the company made a huge announcement for the industry by saying that consumers would be able to purchase cryptocurrency on its platform.

However, it didn’t start enabling users to move those funds into wallets outside of the network until recently. It indicated that it would roll out additional crypto-related features in the latter part of last year. One of those additions might be an NFT marketplace.

It teamed up with Coinbase’s TRUST network more recently. This was viewed by many as an endorsement of the sector. The TRUST network upholds consumer security and privacy while adhering to the banking industry’s Travel Rule.

Increased Criticism of Payment Giant
Additionally, PayPal has been in the spotlight for all the incorrect reasons. The business has recently come under fire for a contentious policy that penalized users for disseminating false information. Later, it claimed that false information was released with the amended policy. Crypto aficionados, however, were eager to point to this as evidence of the value of decentralization.

PayPal established a blockchain and cryptocurrency advisory committee earlier this year. According to the company’s management, working with governments is essential to overcoming obstacles and seizing possibilities.

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Seba Bank, a cryptocurrency company, aims to store valuable NFTs

Seba Bank, a cryptocurrency company, has launched its first NFT service, a blue-chip NFT-specific institutional-grade, certified, and independently audited hot and cold storage custody product.

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The launch comes in response to requests from customers to keep their NFTs with the bank alongside other crypto assets, such as the already-approved Bored Ape Yacht Club, Cryptopunk, and Clone X NFTs. The bank stated that new collections would be added based on customer demand.

With its newest offering, Seba Bank seeks to entice investors who view NFTs as an asset class and crypto natives. Not your keys, not your bitcoin is a well-known phrase in the crypto sphere, and adherents of this maxim could object to having their Apes or Punks stored with a third-party custodian.

Urs Bernegger, co-head of markets and investment solutions at Seba Bank, however, highlights a growing group of NFT holders who are more at ease handing up their NFTs and private keys to a company.

They don’t want the key because they aren’t even aware of how to handle and store it. He claimed that they’re more concerned with damaging the key than giving it to a bank.

It’s a significant issue. Between 2.3 million and 3.7 million bitcoins, according to Chainalysis, are trapped in inaccessible wallets. Numerous accounts of people have lost millions owing to losing private keys, including Russian officials, students, and engineers. Families have also been prevented from accessing substantial quantities of money following sudden deaths in which wallet owners had not disclosed their private keys.

Bernegger asserts institutional custody can be advantageous for native crypto users as well. There has been an increase in businesses providing services that employ NFTs as collateral for conventional banking services like loans.

Seba Bank is thinking about implementing these features in the future. Based in the crypto-friendly Swiss town of Zug, the four-year-old bank already backs several investing, credit, lending, and staking options for cryptocurrencies and might extend them to NFTs.

“Instead of traveling to the market, for instance, we could create a club for collectors and assist them in finding other collectors. There are a few things we have in mind, but we laid the groundwork by storing NFTs securely at first, “explained he.

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