NFTs
US Treasury flags NFTs for vulnerability to fraud and scams
KEY POINTS
- Criminals Can Use NFTs to Pull the Rug, Treasury Department Says
- Copyright and trademark vulnerabilities can also be used by criminals to conduct their illicit activities
- Remilia co-founder claimed earlier this year that hackers stole millions in ETH and NFTs from his wallet
The US Treasury Department has raised warning signs about the vulnerability of non-fungible tokens (NFTs) to fraud and scams, reiterating that such vulnerability can be exploited by criminals.
“The assessment concludes that NFTs are highly susceptible to use in fraud and scams, many of which are traditional schemes involving NFTs, and can be stolen from victims,” the department said in its latest National Money Laundering Risk Assessment report.
He cited a report from a blockchain analytics firm that revealed that more than $100 million worth of NFTs were stolen through scams between July 2021 and July 2022. The department believes the number may be an underestimate since Victims often do not publicly declare their losses from scams.
In addition to common rug pulls in the digital asset space where developers raise funds through a seemingly legitimate project but disappear after receiving the funds, the assessment said criminals can also create fraudulent NFT platforms to steal victims’ funds. .
The report said that NFTs and NFT platforms have rarely been used in terrorist financing. However, it warned that criminals also use NFTs to launder proceeds “from underlying crimes, often in combination with other techniques or transactions designed to obfuscate the illicit source of funds.”
The department also pointed out how cybersecurity vulnerabilities related to NFTs, as well as copyright and trademark issues, could allow criminals to carry out fraudulent operations and thefts in the NFT space.
According to the assessment, law enforcement authorities observed that threat actors often take advantage of customer information vulnerabilities on NFT platforms, specifically those that do not require customer data before using the platforms. “Many platforms lack controls to identify customers or otherwise mitigate illicit financial risks.”
The department said the “highly automated nature” of selling NFTs and the availability of the tokens on different platforms allows illicit actors to launder the assets using fast transactions that make it complicated for blockchain analysts to track illicit transactions. Criminals can also launder the proceeds using mixers, including Tornado Cash, the report added.
The Treasury Department’s warnings came about two months after Krishna Okhandiar, the co-founder of Remilia, known for launching the popular Milady NFT collection, claimed that his digital wallet was hacked. In the alleged exploit, millions in NFTs and Ether (ETH) were stolen.
Probably one of the biggest NFT-related incidents was the takeover of Ethereum co-founder Vitalik Buterin’s X (formerly Twitter) account in mid-September. Hackers took control of your X handle and posted a phishing link that offered fake NFTs. Victims lost almost $700,000 in the said scam.