After releasing the Anatomy of a Crypto Hack last year, Scorechain is releasing today its latest report: Anatomy of a Crypto Hack - NFT edition. This new report depicts the NFT industry and its regulatory overview. The report then examines how criminals can use these assets for laundering purposes and investigates NFT-related hacks that took place in 2022.
NFTs: Development, compliance, and regulation
Crypto assets have largely developed since Bitcoin first emerged. They helped disrupt financial services by creating value in a digital and decentralized ecosystem. Following the crypto boom, non-fungible tokens (NFTs) stepped in to revolutionize property and ownership across many sectors like art, supply chains, real estate, and more. These blockchain-authenticated tokens represent ownership of tangible or digital assets in various forms and allow users to trade unique items in complete security without needing any trusted third parties.
The first NFT was created back in 2014. However, it is only since 2017 that they have been getting traction in the crypto industry with the Crypto Punk NFT collection. Today, the NFT industry is flourishing, with many projects, use cases, and interest from various industries. According to Coinmarketcap data, the NFT market capitalization accounted for $2,365,116,350.08 in early December 2022.
The NFT industry is, therefore, highly lucrative and NFTs are highly speculative assets. This represents an interesting way for criminals to steal and launder money. In 2022, hackers targeted many NFT projects and investors and defrauded them of their assets.
While authorities have already recognized the laundering potential of NFTs, the industry remains largely unregulated. However, the growing use of NFTs has urged regulators to take a closer look at the technology, to regulate the ecosystem, protect investors, and prevent criminal activities.
Scorechain can provide AML reports for NFT projects operators are willing to be compliant and prevent money laundering. These reports help the project validate the profiles of NFT buyers while guaranteeing that only clean crypto funds are used to buy NFT pieces.
Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a leader in crypto compliance, the Luxembourgish company has helped over 200 customers in 45 countries since 2015, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets, customers onboarding, audit and law firms, and some LEAs.
Scorechain solution supports Bitcoin analytics with Lightning Network detection, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger, Tezos, Tron with TRC10 and TRC20 tokens, and BSC with BEP20 tokens. The software can de-anonymize the Blockchain data and connect with sanction lists to provide risk scoring on digital assets, transactions, addresses, and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. In addition, 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.