There are, among others, three risks that NFTs represent. According to a RUSI report, there are many crimes committed by selling NFTs that could be avoided with some of these actions. Read Further to know more.
Non-fungible tokens have grown so enormously in 2021 that even the world’s most renowned scientific research institutions are studying their usefulness. However, this also merits reviewing what crimes these new technologies could allow and prevent them.
That’s precisely what Allison Owen and Isabella Chase, two researchers at the Royal United Institute Services (RUSI) Research Center for Financial Crime and Security, did. It is a leading UK security research body founded in 1831 by the Duke of Wellington.
In a publication on the RUSI official site, the researchers detail the range of possibilities that NFTs have uncovered in the art world.
Owen and Chase explain that, for buyers, these tokens represent a seal of authenticity that what they are buying is unique, original, and theirs.
Likewise, artists constitute a way of continuing to generate value with the following sales of their works, not only with the original, as happens with “real” or physical art.
What types of crimes might be committed by selling NFT?
Apart from listing the potential of this technology for the artistic community, the report’s authors also put a magnifying glass on the potential crimes that could be originated or enhanced with it.
The expansion of these new methods of production and commercialization of goods can also be exploited for evil, as has happened before in the history of humankind.
The offenses mentioned are not “unique” to NFTs, or at least not all of them are.
Fraudulent practices have also plagued commerce and traditional art, but in this case, the technology itself can help prevent these criminal actions.
Money laundering by selling NFTs
Money laundering worries many token developers and auction houses, among other players in this world.
Dapper Labs (one of the most recognized NFT developers) and the blockchain analytics firm Chainalysis signed an agreement to create monitoring tools that establish when the funds used in the purchase of digital work are illicit.
An NFT is a work of art in digital format registered on the blockchain of which no two identical copies exist.
Suspicions that ill-gotten money is used to purchase NFT have grown almost in line with the popularity of these digital products.
Some of them have received millionaire sums – the highest is USD 69 million in March 2021 – and that has set off alarms in the public sector, governments, and the private sector, in the companies involved.
Counterfeiting and theft by selling NFTs
As with traditional art, which is riddled with stories of theft and counterfeiting of very famous pieces, this practice is also beginning to be seen in the world of non-expendable tokens.
According to Owen and Chase in their article, throughout this year, there were events in which fake NFTs were put up for sale, implying that they were authentic.
A hacker even managed to violate the site of the English street artist Banksy and place a link to a supposed token that, in reality, was not original.
This artist, by the way, has already sold several of his creations as NFT.
Similarly, these cybercriminals have managed to hack into NFT market accounts and transfer works of digital art to their account and then sell them, the researchers say.
Encoded information and how can these crimes be avoided with NFTs?
According to these researchers, the third and last crime committed through non-fungible tokens sends secret encoded information in these files.
For example, they argue, a hacker could hide data about a vulnerability in a security system to send it “cloaked” to another person in NFT digital art format.
Beyond listing the risks emanating from this new technological way of marketing artwork, Owen and Chase also outlined solutions to mitigate them.
The first of them, and perhaps the most basic, is to apply a form of registration of users who already use cryptocurrency exchanges, like the famous KYC or “Know your customer.”
It implies asking for the personal and verified data of the person accessing the platform. It is an essential first step in crime prevention if applied by auction houses.
On the other hand, it is advisable to create a record containing all fraudulent NFT transactions that may have been produced or stolen.
A record of this kind already exists with physical art through a register known as the Art Loss Register.
The research authors also point out that specific NFT sales sites currently include a part where the designer of each artwork may be certified.
Finally, security features like two-factor authentication and other platform-specific measures are vital to protecting yourself from hackers.
Together, these well-applied alternatives could prevent many crimes that today cloud the possibilities that NFTs offer to people.
Furthermore, the solutions discussed would not represent a brake on the growth of this market, the authors detail.