NFTs for Illicit activities: Warns U.S. Treasury through studies

• The U.S. Treasury recently released a study signifying the potential risks NFTs can pose.
• Traditional industry participants like the art auction houses might have a lack of technical understanding for the distributed ledger technology, says the U.S. Treasury.
• Despite the threats mentioned by the Treasury, the trend of NFTs seems to be ever-evolving, with celebrities buying NFTs from popular projects.

The Department of Treasury, U.S. recently released a study suggesting that the increase in the use of art as a financial asset or investment could pose threats to the high-value art market.

It highlighted the potential in the Non-Fungible Tokens(NFTs) sector to conduct illegal money laundering or terror funding operations. 

What exactly the study underlines

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U.S. Treasury’s study, called the Study of facilitation of money laundering and terror finance through the trade in works of art, proposed that the increase in the use of art as a financial asset can make the high-value art trades prone to money laundering.

According to it, the emerging online art market might expose new threats and risks, depending on the structure of some activities in the arena. This points to the trade of NFTs and digital units on blockchain technology that can signify digital work of art ownership. 

The study further emphasises the importance of Non-Fungible Tokens(NFTs) in representing the ownership of physical and digital property managed and operated via smart contracts and digital wallets on blockchain technology. The Treasury highlights that the value of these NFTs is not decided by the market but by the buyers and sellers. 

The market of NFTs generated a trading record of $1.5 billion, and over the previous quarter, it grew 2,627 percent, says the U.S. authorities. The NFT market in 2020 valued at over $20 billion solely. 

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The U.S. Treasury suggested that there’s a possibility where criminals might purchase NFTs with illegal funds and can resell them to a naive collector who can compensate the criminal with clean funds.

NFTs can also be traded via peer-to-peer sales, eliminating the need for a third party or recording the transaction on the public ledger. The Treasury further concluded that the technical understanding of the required distributed ledger technology might not be with traditional art auction houses and galleries, which is a drawback.

On the one hand, the U.S. Treasury focuses on the potential threats NFTs can pose. On the other hand, Gentry, popularly known as MsCryptoMom, left her bank job of around 16 years to enter totally into the world of cryptocurrencies. She believes in the crypto industry, DeFi, and NFTs.  

No matter what the studies say, the sub-sector of cryptocurrencies is evolving and witnessing a wider adoption rapidly. And more and more individuals, celebrities, and brands are getting associated with NFTs. Recently, Justin Bieber bought a Bored Ape Yacht Club NFT, one of the prominent NFT projects.