How AI And Machine Learning Enable NFT Market To Fight Wash Trading And Counterfeits

Artificial intelligence and machine learning technologies are helping to legitimize the non-fungible token (NFT) market by fighting wash trading and plagiarism.

The NFT market can return to its glory days as a revolutionary asset class, but it must first address several major challenges.

Wash Traders Inflate NFT Prices

For starters, wash trading remains one of the most notable issues that cast a shadow on NFTs’ potential to boost creativity and transform digital ownership. Wash trading is the deceptive practice where an investor sells and buys an NFT concurrently to develop the illusion of considerable trading volume, hence inflating the token’s price to ultimately sell it higher.

Unlike traditional cryptos, NFTs are not a liquid market, making it quite easy for criminals to artificially inflate trading volumes.

Earlier this year, a report from NFT analytics provider bitsCrunch titled “BitsCrunch NFT Wash Trade Report for 2022,” highlighted that NFT wash trading has increased in 2022 by 25 times to nearly $33 billion. It means that over 50% of the Total $54 billion in NFTs traded on the Ethereum blockchain in 2022 was linked to wash trading.

In February 2023, CryptoSlam found that nearly $577 million worth of NFTs had been suspected of wash trading on Blur, now the second-biggest NFT marketplace by trading volume.

Related:What Are NFT Royalties?

Counterfeit NFTs Dilute The Value Of Original Pieces

Another big issue in the NFT market is the high prevalence of counterfeit and plagiarized NFTs. NFTs have two components – the technical aspect that represents the asset with the distinct identifier on the blockchain and the digital representation, which can be duplicated easily.

In October 2023, a federal judge in California mandated a conceptual artist to compensate approximately $1.5 million in damages to Yuga Labs for replicating NFTs from the Bored Ape Yacht Club collection and profiting from the unauthorized duplicates.

This case highlights the challenges faced by lesser-known digital artists and creators who may be more vulnerable to the risk of counterfeit NFTs, unlike major NFT collections with greater resources to combat such infringements.

The problem of forging NFT is that it dilutes the value of original creations and seriously threatens the reliability and integrity of the whole NFT ecosystem. Validity is touted as the cornerstone of the NFT industry, but it is severely compromised by fake art.

These challenges, counterfeit NFTs and wash trading, result in a considerable loss of perceived value and trust within the NFT market. Most of the potential users remain doubtful, which hinders the mainstream adoption of NFTs.

As a result, the NFT space deals with missed opportunities in attracting a wider user base, which is important for its long-term sustainability and upgrades beyond a niche market.

How AI And Machine Learning Can Enhance the NFT Market

Emerging technologies like machine learning and artificial intelligence can help in addressing the main challenges in the NFT space. AI is not just a helpful technology to support creativity and deliver distinct digital art, it also meets the need for better analytics and insight.

Machine learning and artificial intelligence can take on-chain analysis to a new level, which helps the market detect wash trading deals in real-time and identify any fake NFTs.

Related:Types of Exploits in DeFi You Need to Watch Out For

Leveraging AI To Resolve Wash Trading And Fake NFTs

BitsCrunch, an AI-powered non-fungible token analytics platform, fights wash trading to help traders with fair price discovery and developers with reliable NFT decentralized applications (dApps) development. Its wash trading index uses AI and ML to detect any suspicious trading patterns in real-time, help safeguard investors from any manipulated market prices, and power informed investment decisions.

This index offers an extensive overview of wash trading activity across multiple blockchains, NFT collections, and marketplaces, which allows market analysts and participants to gain valuable insights into the real state of the market. The data empowers informed decision-making, enabling users to discover genuine market trends and avoid artificially inflated volume.

For investors, the wash trading index is an important tool for assessing the legitimacy of trading activities. By analyzing the index, investors can find the NFT collections that have high incidences of wash trading, possibly meaning that their prices are inflated or there are deceptive marketing practices involved.

NFT investors and developers can use other AI-powered tools for many use cases, including:

• Analytics – NFT and blockchain analytics projects have access to the most extensive NFT database. bitsCrunch also provides the biggest repository of ERC-20 historical data available.
• Fraud detection – bitsCrunch is designed with fraud detection and alerting mechanisms, enabling users to detect suspicious trading and set up notifications and alerts.
• Price discovery – insights on pricing trends can help digital artists price their NFTs accordingly.
• Lending – NFT lending tools can use bitsCrunch for accurate collateralization based on data-driven insights.
• Audience engagement – marketing teams can use bitsCrunch data on buyer preferences and behaviors to enhance community engagement strategies.

What makes bitsCrunch unique is that it utilizes a community-driven approach, being a fully decentralized network. The co-founder of bitsCrunch, Saravanan Jaichandaran, commented:

“Our network is not just a concept. Its vibrant ecosystem empowers users and developers through permissionless participation, meaning anyone can join and contribute without centralized approval, and community-driven growth. The platform grows with its community by continuously adding new features and use cases.”

The network is supported by BCUT, bitsCrunch’s native token, which plays an integral role in maintaining the integrity of the network.

By offering market participants clear insights into the authenticity of trading activity, bitsCrunch contributes to a safer NFT environment where the investors navigate with trust and confidence.