On Wednesday, the U.S. Treasury Department released its first risk assessment report examining vulnerabilities associated with non-convertible tokens (NFTs). The report highlights that these asset classes are “highly susceptible to exploitation in fraud,” most of which are traditional schemes.
The findings highlighted several potential security risks and challenges associated with NFTs. These digital collectibles are used by criminals “to launder the proceeds of crime,” the 29-page report reads.
However, it added that the tokens are rarely used to fund proliferation or terrorist financing. “It also found little evidence of misuse of NFTs by terrorists or proliferators, as opposed to fraudsters, so far,” the department’s statement said.
The report also examined case studies, such as the use of NFT to evade sanctions and generate revenue from military spending by North Korean counterfeiters.
“In addition to stealing funds from virtual asset companies and projects, DPRK-linked entities have engaged in separate activities within the digital asset ecosystem, indicating that the group may have expertise and access to the increasing abuse of non-financial transactions to generate revenue.”
Notable NFT scams
Some of the NFT scams that have come to the fore include phishing scams, fake NFTs and scams, among others. In 2022, CryptoBatz fell victim to a phishing scam a few days after launch.
Another similar attack took place in April 2022 on BAYC ‘s official page on Instagram, where fraudsters stole BAYC NFT transactions worth nearly $3 million.
The OpenSea marketplace was reportedly attacked last year by fraudsters who stole hundreds of Ethereum (ETH). Data analytics company PeckShield revealed that the exploit occurred due to a “user interface issue.” As a result, the perpetrators amassed 347 ETH (currently $1.3 million) in 8 transactions, it noted.
Ways to combat fraudsters
The U.S. Treasury Department has noted that NFT platforms “lack adequate controls” to combat money laundering and sanctions evasion. The department made a set of recommendations to mitigate the risks identified.
Some of these include an appropriate regulatory framework for NFTs and their platforms. In addition, it also advised on strategies for consumer education and awareness of potential risks.
However, a U.S. government study found that current intellectual property regulations are sufficient. It determined that current regulations are adequate, even though “trademark misappropriation and infringement is common on NFT platforms.”
