NFTs are Highly Susceptible to Fraud and Scams: US Treasury Report

CryptoNews.com

2024-05-29 21:36:24

Sujha Sundararajan

Last updated:

May 30, 2024 01:36 EDT | 1 min read

The US Treasury, on Wednesday, released it first risk-assessment report, exploring the vulnerabilities associated with non-fungible tokens (NFTs). The report stressed that these asset classes are “highly susceptible to use in fraud and scams,” most of which are traditional schemes.

The findings highlighted several potential risks and security concerns and challenges involved in NFTs. These digital collectibles are used by criminals “to launder proceeds from predicate crimes,” the 29-page report read.

However, these tokens are seldom used for proliferation financing or terrorist financing, it added. “It also found little evidence of the misuse of NFTs by terrorists or proliferators, in contrast to fraudsters, to date,” a statement from the department, noted.

The report also explored case studies such as NFT’s use in evading sanctions and generate revenue for military spending by North Korean bad actors.

“In addition to stealing funds from virtual asset firms and projects, DPRK-linked actors have engaged in separate activities within the digital asset eco that indicate that the group may have the expertise and access to increasingly abuse NFTs to generate revenue.”

Notable NFT Frauds

Some of the NFT scams which have come to the fore include phishing frauds, counterfeit NFTs, rug-pulls, among others. In 2022, CryptoBatz fell victim to phishing scam, few days after the launch.

Another notable similar attack occurred in April 2022 on BAYC’s official Instagram page, where scammers stole almost $3M worth of BAYC NFTs.

Last year, OpenSea marketplace was reportedly attacked by scammers, stealing hundreds of Ethereum (ETH). Data analytics company PeckShield revealed that the exploit occurred due to “a front-end issue.” As a result, perpetrators amassed 347 ETH ($1.3 million currently) using 8 transactions, it noted.

Measures to Combat

The US Treasury noted that NFT platforms “lack appropriate controls” to combat money laundering and sanctions evasion. The department has offered a set of recommendations to mitigate the outlined risks.

Some of these include a proper regulatory framework for NFTs and its platforms. Additionally, it also advised strategies for consumer education and awareness regarding potential risks.

However, in March, a US government study said that current laws around intellectual property are enough to deal with. It found that the current laws are adequate, even if “trademark misappropriation and infringement are common on NFT platforms.”

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