Risks of NFT's
Non-fungible tokens have seen such a huge growth in 2021 that even the most renowned scientific research institutions in the world are studying their usefulness. However, this also merits reviewing what crimes these new technologies could allow and how to prevent them.
That is precisely what Allison Owen and Isabella Chase, two researchers at the Center for Financial Crime and Security Research at the Royal United Institute Services (RUSI), did. It is a leading entity in security research in the United Kingdom, founded in 1831 by the Duke of Wellington.
In a publication on the official RUSI website, the researchers detail the range of possibilities that NFTs have uncovered in the art world.
Owen and Chase explain that, for buyers, these tokens represent a seal of authenticity that what they are buying is unique , original and truly theirs, as detailed in the CriptoNoticias Cryptopedia.
Likewise, for artists they constitute a way to continue generating value with the successive sales of their works, and not only with the original, as happens with “real” or physical art.
What crimes can be committed through the sale of NFTs?
Apart from listing the potential of this technology for the artistic community, the authors of the report also put the magnifying glass on the potential crimes that could originate or be promoted with it.
It is that the expansion of these new methods of production and commercialization of goods can also be exploited for evil, as has happened before in the history of humanity. This is because the crimes mentioned are not “exclusive” to NFTs , or at least not all of them are.
Both trade and traditional art have also been affected by fraudulent practices, but in this case, it is technology itself that can help prevent these criminal actions.
Money laundering
Money laundering is something that worries many token development companies and auction houses, among other actors in this world.
As CriptoNoticias reported in October, Dapper Labs (one of the most recognized NFT developers) and the blockchain analytics firm Chainalysis signed an agreement to create monitoring tools that allow establishing when the funds used in the purchase of a digital work are illicit .
Suspicions of ill-gotten money being used to purchase NFTs have grown almost in tandem with the popularity of these digital products. It is that millions of dollars have been paid for some of them — the record is USD 69 million in March 2021 — and that has triggered alarms both in the public sector , the governments, and in the private sector, in the companies involved.
Counterfeiting and theft
As with traditional art, which is plagued with stories of theft and forgery of very famous pieces, this practice is beginning to be seen in the world of non-fungible tokens as well.
According to what Owen and Chase express in their article, there were events throughout this year in which fake NFTs were put up for sale implying that they were authentic . A hacker even managed to break into the site of the English street artist Banksy and place a link to a supposed token that, in reality, was not original. This artist, by the way, has already sold several of his creations as NFTs .
Similarly, these cybercriminals have managed to hack NFT marketplace accounts and transfer digital artwork to their account and then sell it, the researchers say.
Sending encrypted information
The third and last crime that could be committed through non-fungible tokens according to these English researchers consists of sending secret information encoded in these files.
For example, they argue, a hacker could hide data about a vulnerability in a security system in order to send it "camouflaged" to someone else in the form of NFT digital art.
How can these crimes be prevented with NFT?
Beyond listing the risks that emanate from this new technological way of merchandising artwork, Owen and Chase also outlined some solutions to mitigate them.
The first of them, and perhaps the most basic, is to apply a form of user registration that cryptocurrency exchanges already use : the famous KYC or “Know your customer”. This implies requesting the personal and verified data of the person accessing the platform. If enforced by auction houses, it is an important first step in crime prevention.
On the other hand, the creation of a registry of fraudulent purchases in which the NFTs that could be falsified or stolen are listed. This already happens with physical art, through a registry known as the Art Loss Register .
"Much can be learned from traditional art markets," the researchers believe. The authors also clarify that some NFT sales sites already have a section where the creator of each piece is verified.
Finally, security features like two-factor authentication and other platform-specific measures are key to protecting yourself from hackers.
Taken together, all of these well-applied alternatives could prevent many crimes that currently cloud the possibilities offered by NFTs to people. The solutions mentioned, moreover, would not represent a brake on the growth of this market, the authors detail.