Combating Financial Crime in The NFT Sector — What NFT Platforms Can Do Differently

Combating Financial Crime in The NFT Sector — What NFT Platforms Can Do Differently

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NFTs have been a hot topic since they started gaining traction back in 2021. The technology has so many positive use cases in different industries from the creative sector to real estate and finance. However, bad actors have also seized this medium to escape the cold hands of the law.

A recent report by Ismail Issa found that financial crimes only represent a small portion of NFT trading volumes. However, its impact has tarnished the image of the industry and reputation of legitimate users.

In this article, we’ll go over the negative impact financial crimes have had on the NFT sector and how we as a forward thinking crypto project are doing differently.

Financial crime isn’t the biggest problem facing the NFT sector. However, these incidents have caused a lot of damage to the public perception of the space.

We’ll go over some important numbers outlined in Ismail’s report:

  • Since 2017, over $8 million in criminal money have been laundered using NFT-based platforms, accounting for just 0.02% of trading activity with traceable origins.
  • But another $328.6 million (0.81%) comes from services that hide the source of the money, such as crypto mixers. Proceeds from illegal activities might account for a fraction of this.
  • Between July 2021 and July 2022, scammers stole $100 million in NFTs, netting an average of $300,000 from each fraud. Over 4,600 NFTs were stolen in July 2022, the most ever, amid the crypto bear market.
  • At slightly under $24 million, May 2022 saw the greatest verified value of NFTs stolen through scams. Thefts aren’t usually recorded, therefore actual figures may be higher.
  • State-sponsored hackers and other authorized actors pose an increasing risk to NFT-based services. This has been highlighted by the $540 million robbery from Axie Infinity’s Ronin Bridge by North Korea’s Lazarus Group and the holding of NFTs by the US-sanctioned Chatex cryptoasset exchange. Digital assets from sanctioned companies totaling $160,000 were utilized to buy NFTs.
  • Tornado Cash, a US-sanctioned mixer, was the source of $137.6 million in cryptoassets handled by NFT markets and the laundering instrument of choice for 52% of NFT scam revenues when OFAC sanctioned it in 2022. Its widespread usage by threat actors dealing with NFTs highlights the necessity for comprehensive sanctions screening.
  • Social media hacks, especially on NFT project Discord servers, have risen in 2022, accounting for 23% of all NFTs (almost 5,000 worth $20 million) stolen this year. One possible cause is the growth of malicious software specifically designed to circumvent 2FA systems.

Read the entire report on Ismail Issa’s LinkedIn Post.

  • You can use blockchain analytics to check for possible interactions with sanctioned addresses, helping you stay in compliance with penalties.
  • Ensure continued cooperation between trading platforms, blockchain analytics firms, and cryptoasset exchanges in order to properly communicate information on wallets used in illegal NFT-based activities.
  • As soon as a legitimate allegation of fraud is received, the perpetrator’s accounts and stolen funds should be frozen.
  • Make an open database of any and all NFTs and accounts used for illegal purposes.
  • Make sure your policies on customer service and reporting scams are well-defined and easy to follow.
  • Be sure to do routine checks for online data breaches or sales of user information.
  • Ensure that audits are performed on all smart contracts in operation, including those using listed NFTs.
  • Keep an eye out for signs of obvious theft, such the abrupt movement of a user’s assets into a single wallet followed by a quick sell at a price below the floor price.
  • Verify the legitimacy of newly created NFTs on your platform.
  • Avoid including links in emails or other contacts with users if at all feasible, and make this stance explicit.
  • To stop hackers from getting into user accounts, it’s a good idea to require several forms of verification from them when they sign up.

IllumiShare SRG is building an ecosystem of interrelated blockchain projects that aim to provide stability and opportunities to investors and everyday users. But we can’t achieve this without considering the needs of our community members in terms of security.

We want to create a safe environment where people can trade their digital assets without worrying about getting scammed or losing their funds.

As such, we’re taking proactive steps toward ensuring our NFT marketplace and other related products are secure. We’ve already implemented several measures to prevent theft and fraud, including:

1. Implementing KYC/AML checks before allowing new accounts to join our platform

This helps us identify suspicious individuals who may try to use our service to launder illicit funds.

2. Enforcing strict rules against fraudulent behavior

The IllumiShare SRG NFT marketplace and the entire ecosystem will take a zero-tolerance approach to any form of fraudulent activity.

3. Ensuring that all transactions are fully transparent

All transactions made on our platform will be visible to both buyers and sellers so they know exactly what happened during the transaction. This will be further strengthened with our own SRG token which will be the only authorized currency used within the IllumiShare ecosystem.

4. Implementing an Anti-fraud Module to stop listing of scam NFT collections

Our anti-fraud module will double check listing requests before it gets uploaded to our marketplace. If it identifies any collection that contains stolen NFTs or looks like a scam project, it’ll ignore the request completely.

5. Creating a dedicated team to handle customer support

We will have a dedicated team to handle any issues that arise while using our platform. Our team will also work closely with law enforcement agencies to help them combat financial crime.

At IllumiShare SRG, we believe that the future of finance lies in decentralization and innovation. As such, we’re committed to creating a safe and stable environment for our community members. We will continue to implement additional measures to ensure our platform remains free of scams and fraud.

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