Cryptocurrencies and blockchain technology are making waves in different industries, with non-fungible tokens (NFTs) being the latest talk of the town. As cryptocurrencies have become more mainstream, so too has the use of blockchain for non-financial transactional services. This year alone saw a surge in the creation and trading of NFTs or digital assets stored in the same way as other cryptocurrencies. These assets can be anything from digital art to music to sports cards.
Some purchase NFTs to trade them like stocks. Others acquire them as a form of investment to resell them later at a higher price. Still, others are buying them for the art itself—they want to own a digital piece of artwork by an artist they love. The NFT market is flourishing because it’s a better storage medium than most other methods. It also means that no one can replicate them without being able to prove ownership over an original copy first. This makes it much easier for artists to protect their intellectual property rights.
A cryptocurrency is a digital or virtual asset that uses cryptography to secure its transactions. Cryptocurrencies are decentralized, meaning they aren’t subject to government or financial institution control. The first and most well-known cryptocurrency, Bitcoin, was created in 2009 as a peer-to-peer electronic cash system. Blockchain is the technology that powers most cryptocurrencies. It’s a distributed database that maintains a continuously growing list of records called blocks- Each block contains details of transactions made during a set time period.
NFTs are digital assets that are not interchangeable. Each NFT is unique and cannot be replaced by another token. Unlike Bitcoin and other cryptocurrencies, NFTs have no defined value. The market determines their worth based on how much someone is willing to pay for them, what’s in demand, or how popular the creator is. This makes them very unstable assets with unpredictable values.
In the beginning, blockchain technology was primarily used by computer geeks interested in encrypting data so that it couldn’t be copied or duplicated. The technology was seen as a way to protect critical information from hackers and allow people to make secure transactions over the internet without worrying about fraud.
But blockchain technology has evolved into something much more than just a way of securing data and facilitating internet purchases. Now it is being used by artists and creators who are making unique pieces of art that can’t be duplicated. The NFT market is booming; in 2021, collectors and traders spent $22 billion on NFTs. There was so much buzz about this new form of digital currency that even Jack Dorsey (Twitter CEO) got in on the action, selling his first-ever tweet for $2.9 million as an NFT.
RJ Palmer, a concept artist who worked on Detective Pikachu and whose work is known for his realistic rendering of Pokemon, learned about the dangers of an uncontrolled NFT market. Although, it was not just his artworks that became a target for thieves. Tweets of his works were tokenized and sold on the market without his knowledge and his consent. Even if NFTs and tweets have a digital signature to prevent theft, Palmer’s case shows that better solutions are needed.
Criminals are attracted to the easy access offered by digital collectibles and the fact that the government does not regulate them. It becomes much more difficult to trace when you convert cash into a digital asset. Since there is no physical form of cryptocurrency, it can be used to launder money easily. Anonymous accounts make it difficult for law enforcement to trace who owns NFTs because it’s hard to connect accounts with real identities.
Because there are no regulations on how much information needs to be provided when buying or selling an NFT, criminals could potentially buy and sell multiple NFTs without providing any identity verification information. This action would enable them to transfer large sums of money anonymously. In addition, if criminals use cryptocurrencies, such as bitcoin, when buying or selling NFTs, they can conceal the true source of the funds.
A big part of the appeal of NFTs — especially compared to cryptocurrencies like Bitcoin, which are facing increasing scrutiny on their potential for money laundering — is that there isn’t a central authority or regulator keeping track. As with most cryptocurrencies, NFT transactions are anonymous, and while some exchanges require extra steps such as KYC to verify a buyer’s identity, others don’t.
It isn’t easy to trace who buys the NFTs and their real identities. Crypto exchanges are set up so that it does not allow any authorities to check who owns what assets in exchange.
NFTs are a new phenomenon, and it’s hard to know how they’ll be regulated. The Commodity Futures Trading Commission (CFTC) has said that bitcoin and other digital currencies are commodities. In September 2020, the European Commission issued only a proposal to regulate crypto assets.
The bottom line is that we don’t know yet exactly how they’ll be regulated. There’s a lot of speculation based on various regulatory agencies’ statements. Some people think that NFTs will fall under the same regulations as crypto-currencies; others think they might be treated differently due to their unique nature.
How will this affect the regulation of NFTs? It depends on what kind of NFT you are buying. Some NFTs represent ownership over real-world assets, such as a house or car, while others represent virtual assets like artwork or collectibles; these would be classified as securities under SEC rules because they can provide future profits for their owners.
As NFT marketplaces grow in popularity, so does the number of fraud attempts. While most blockchain platforms are decentralized and immutable, the buying and selling of non-fungible tokens is not entirely anonymous.
To keep these transactions safe, crypto exchanges are turning to KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures to verify that their clients are who they say they are. This has proven effective in other industries and works especially well for crypto because it can be done without compromising the client’s privacy or anonymity.
NFT buyers should be aware that these procedures exist when choosing where they make their purchases–and NFT marketplaces should consider implementing them to protect themselves and their customers from fraudsters who prey on unsuspecting people online.
KYC/AML programs are designed to address the problem of financial crime. These crimes include money laundering, terrorist financing, bribery, tax evasion, and other methods used by criminals to hide their proceeds and carry out illegal activities.
To combat these crimes, financial institutions are required by law to know the identities of their customers. They also need to ensure that customers’ funds aren’t used for illegal purposes or derived from illicit activities. This is where KYC comes in: it helps identify who a customer is and what they’re doing with their money.
With AML regulations in place, companies need to take specific steps when carrying out transactions with customers:
1) Identify the customer
2) Verify the customer’s identity
3) Monitor the customer’s transactions
4) Keep records
Introducing more thorough verification of sellers and buyers could improve the security of NFT transactions. In addition, the implementation of identity verification can reinforce the tracking of scammers and thieves.
Fully-Verified is the leading identity verification platform. We provide a simple, fast, and secure way for individuals to verify their identity online. Our technology uses live video and biometric data to verify a person’s identity in real-time. We are trusted by companies and educational institutions around the world. Our services include:
People and enterprises involved with NFTs must be concerned with Know Your Customer (KYC) policy, assuring that every transaction is associated with a verified individual or business. Our platform provides simple, affordable solutions and a complete PEP and sanctions check against over 350 databases. Fully Verified harnesses the latest advancements in biometrics, video, and data analytics to deliver a secure, scalable and efficient solution to verify identities instantly, streamline onboarding processes and meet compliance demands.
Fully-Verified was created as answer to its founders collectively losing over $150 000 to various types of fraud in their eCommerce businesses.
Leave a Comment