Money laundering NFTs? + Should NFT Marketplaces introduce KYC?

by James · July 11, 2022

Skeptical of the legitimacy of NFTs? Could they be the latest device used to inject counterfeit money into the economy? Let’s look at it …

Non-fungible tokens have just entered the art world as a bold new protagonist, hailed by some with enthusiasm and by others with skepticism.

The artist Beeple’s “Everydays: The First 5,000 Days” sold for $ 69.3 million at Christie’s, which shocked the art world, but there are still many misconceptions about this new form of expression and what it means to have an NFT.

NFTs are computer representations of actual things, such as works of art, music, virtual goods, and movies. These digital assets are valuable collectibles that have blockchain registration.

Each token consists of a digital file and a “smart contract”, which is a code-written, immutable contract that specifies the conditions for the ownership and legitimacy of an NFT token. These tokens therefore pose a challenge to the conventional approaches to seeing, buying and selling art.

However, many people are skeptical about the authenticity of NFTs and what they can actually be used for, in the same way that many feel about crypto. Are they really valued as works of art, or are they just the latest tool for money laundering?

Table of Contents

Are NFTs used to launder money?

As with art, the value of NFTs is subjective, leaving much room for maneuver when it comes to the perceived value of a particular digital work of art. This means that technically, and quite simply, there is cause for concern with possible money laundering.

Can NFT money laundering be detected?

Checking whether the transaction price corresponds to the real market value of the object being transferred is the simplest technique for identifying suspected commercial money laundering.

Usually, an appraiser’s price estimate for paintings will be that amount. It is challenging to decide which fair market price should be given, how fresh and unstable the market for NFTs is right now, especially since there are no prerequisites to take precedence over.

Despite the fact that purchases are listed in a public ledger, buyers can remain anonymous, which is a great advantage for anyone trying to launder their assets. There is no protection in place to stop money launderers from opening many accounts and moving money around in them to further bury the trail.

What is KYC?

Customer identification is the most important component of KYC (Know Your Customer), which is now a key component in the fight against financial crime and money laundering. This is because it comes first and helps the other phases of the process to run more smoothly.

When you create an account and periodically thereafter, it is necessary to identify and confirm the customer’s identification via a KYC or KYC (know your client) check. Companies with many stripes, including bookmakers and banks, use it.

If a customer does not meet the minimum KYC criteria, responsible companies may refuse to create an account or terminate a business relationship.

Should NFT Marketplaces introduce KYC?

Ultimately, it is only a matter of time before the authorities expand their AML coverage to NFTs, given their growing popularity and especially their explosive trading volumes.

In parallel, the same debate is taking place on decentralized finance.

Furthermore, compatible systems with appropriate KYC processes can encourage widespread use. To avoid money laundering, brands and institutional investors in particular need solutions for compliance.

How can NFTs be purchased?

The majority of NFTs are now purchased using Ethereum’s native currency, Ether, which can be converted from fiat currencies on exchanges.

Blockchain networks such as Ethereum and Solana, unlike bitcoin, which only serves as payment networks and money, allow users to create applications that can store personal data and establish rules for intricate financial transactions.

These are what are referred to as “smart contracts”, which are digital contracts that are registered on a blockchain and executed automatically when certain criteria are met, for example when an NFT changes ownership and the original artist receives royalties.

You will need to create a digital wallet to store your cryptocurrency to purchase NFTs. You can connect these platforms to the marketplace where you want to buy NFTs, such as one of the marketplaces below, using Gemini, Metamask, Binance and Coinbase as examples.

NFTs are often sold via an auction mechanism where you place a bid on NFT. NFT can be purchased right now for a predetermined price on several websites, such as OpenSea.

Where can NFTs be purchased?

Before trying to buy a particular NFT, you need to get some Ethereum.

Depending on the NFT marketplace you want to buy NFTs from, you will then need to transfer your newly acquired Ethereum to an Ethereum-compatible crypto wallet, such as Coinbase Wallet, eToro Money Wallet or MetaMask.

Money in exchange does not always mean that you have money in a wallet since the two are different. You can store, transfer and receive cryptocurrencies, including NFTs, in a crypto wallet.

You can buy NFTs directly from any NFT marketplace that connects to your wallet after financing it, such as OpenSea, Coinbase or Crypto.com, after doing so.