The booming non-fungible token (NFT) market might look like an attractive place for crypto criminals looking to make a quick buck, but new research from Chainalysis suggests NFT crime is less lucrative – and more difficult – than other types of crypto crime.
In a report published Wednesday, the blockchain research firm examined two types of NFT-related crime – wash trading and money laundering – that occur in the Ethereum NFT ecosystem.
The NFT market exploded in popularity last year. In 2021, Chainalysis traced $44.2 billion worth of crypto sent to NFT-related smart contracts, up from just $106 million the year before.
And as the crypto market grows, so, too, does crypto-enabled crime such as ransomware attacks and scams. In 2021, crypto crime hit an all-time-high of $14 billion, and criminals increasingly turned to new areas like decentralized finance (DeFi) platforms to make money. But criminals looking to NFTs to strike it rich might find it a tougher nut to crack than expected.
“It’s not a very good idea to get into crime in NFTs because it’s expensive,” said Kim Grauer, Chainalysis’ head of research. “It’s hard to guarantee you’ll be profitable if you wash trade, and if you want to use [NFTs] to launder money, we can trace it, and you will be able to see who’s in possession of the NFT. There’s things that make the NFT space unattractive for crime.”
Wash trading – the practice of buying and selling the same asset to create artificially high trading volume and manipulate the asset’s price – has become common on NFT marketplaces like LooksRare.
Chainalysis found 262 NFT traders who had sold an NFT to a self-financed address over 25 times, which is Chainalysis’ threshold for when NFT sales are more likely to be wash trading than not. The research firm found that more than half actually lost money, as gas fees racked up and their wash trading failed to generate interest from real buyers.
However, for successful wash traders, the NFT marketplace can be profitable: the 110 successful wash traders Chainalysis tracked made a collective $8.9 million last year.
Money laundering through NFT marketplaces also picked up steam in 2021, with a collective $2.4 million sent from wallet addresses connected to illicit activity by Chainalysis. However, this was only a tiny fraction of the total $8.6 billion in crypto-based money laundering Chainalysis tracked last year.