Apprehensions against Non Fungible Tokens were always high. When we think about it, to those who are outsiders to crypto-space, the concept of high-value for crypto arts that look nothing more like pixelated pups is unfathomable.
But they are not the only ones. It is no news that the US government has always been anxious about the growth of Non Fungible Tokens. But now, the US Department of the Treasury has come out with a study about NFTs, enforcing this anxiety.
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This study is on the high-value art market prevalent in the NFT space and highlights the potential of the space to house money laundering activities or terror financing operations.
Let us take an in-depth look at these studies and see if this fear is irrational, or is it finally giving us a glimpse of the Dark side of NFTs.
What is the US Treasury Study of NFTs?
The official title of the research paper is “Study of the facilitation of money laundering and terror finance through the trade in works of art.” It has suggested that the rising prevalence of art as a valuable investment has made high-value creations susceptible to money laundering.
As you can see, all types of art are bearing the brunt of this study – but there is a nuanced emphasis on the NFT space.
Paraphrasing the words present in the study – “It all depends upon the structure and incentives that come out of certain activities of this (NFT) sector. It is an emerging online market, where the seller controls the price.”
Diving further into the significance of these NFTs, the study underlines how the ownership of these tokens is managed by digital wallets and smart contracts – an aspect still beyond understanding to the outsiders.
So, where is that apprehension coming from? Is it the market?
According to the latest reports by US authorities, within the first three months of last year (2021). The NFT market generated $1.5 billion in trading and grew by 2,627% in the final quarter of that year.
These numbers, to some, are unfathomable because it accentuates how powerful a community can be.
The US Treasury has hinted at a possibility that criminals with access to enormous funding can purchase these tokens and sell them to an unaware customer and earn clean funds through that.
“NFT trade can double up as money washers. You purchase an NFT and use the community’s desire to own exclusive tokens to drive up the price and sell it. For a criminal mindset, such a naïve approach is a goldmine.” – These are the collective words of many up in arms about the growth of tokens.
What are the other factors behind the US treasury targeting the NFTs?
There are many reasons behind the US Treasury Department painting a bullseye on the Non-Fungible Token Markets.
High priced art has always been susceptible to money laundering, and not just in those naïve cop shows on TV. Artistic creations with a high-dollar value are idealized not only by the criminal elements seeking to clean their money but also by terrorists.
The Islamic State of Iraq and Syria (ISIS) has earned notorious renown for using art to fund its terror activities.
That brings us to an array of reasons why the department is up in arms when it comes to Non Fungible Tokens:
- The seller is deciding the market: As per the conventional rules of trading, if you would like to call it such, it should be the market, not the seller, determining the value of tokens. As it is the emotional equity that drives the prices of tokens, there are not many ways to put regulatory bounds on the NFT price.
- There are just too many high-value tokens: And if the seller-decided price point wasn’t enough, there are just too many high-value NFTs circulating in the market. While a trip to OpenSeas can reveal most of them, the government is still at a disadvantage when monitoring all the tokens is a priority.
- Too much trust in the community-appraised art: Many NFTs have high floor prices today because their appraisers – the community – build too much hype around it on social media. Their collective emotional investment doesn’t take the fair market value into account. And as a result, most projects sellout mere minutes after being launched.
All these factors make this NFT marketplace appear as a wild market where, at least during the starting stages, anything goes.
It further alienates the authorities trying to protect people from a technology they don’t understand yet. So, what’s the solution?
How to protect yourself from laundering incidents in the NFT space
Now comes the real question – how can you keep yourself safe? How can you prevent yourself from going into the list of naïve victims?
The answer is NOT that simple, unfortunately. The space is still new, and the unfamiliar domain allows the familiar players to “fudge” the fungible. However, there are some steps that you can take to be on the safer side:
- Know your NFTs: Before you listen to that little voice inside your heart to buy your next “diamond demon” or any other token, run a complete background check. Try to understand the founders who are selling it. Just because they might preach the terms like “art” and “community”, does not mean that they are necessarily believers.
- Understand the market: It is hard to estimate a fair value in a market where hype decides the price. But, if you are careful enough, and instead of getting swooned by the “bro-marketing hype”, focus on the value that tokens can bring to your “finances”, you can be safe.
Another thing that helps is finding the best place to buy NFTs. It will help you make an informed decision before you invest in NFTs.
To sum it up, is the US treasury right in being fearful about the NFT projects? Yes. However, does that mean you should fear it as well? No.
The crypto world is wild and unregulated. That can be fearful for some. But it is also a place of freedom and where you can form a community within a parallel Metaverse. Understand the market, and know your projects, and hopefully, you will be more than fine.
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