Non-fungible tokens (NFTs) are unique, non-transferable assets built on the blockchain. NFTs are purchased and sold online in highly specialized marketplaces and serve as ownership proof on a digital ledger system.
Similar to the high-end art market, the value of NFTs is determined by market demand.
Another kind of scam is NFT wash trading. Wash trading is a deceptive practice used by the buyer and seller to artificially inflate the price of NFTs.
The item may be resold by the buyer and seller to raise the price, but only the initial transaction need be made public.
The money and NFT are both given back to the original seller at the following exchange. Most of the time, the bad actor is both the buyer and the seller.
When the asset is sold, the proceeds are transferred to a new bitcoin wallet under the control of the original owner.
Users just connect their accounts to the trading platform for sharing NFTs, sometimes without having to provide any personal information.
As a result of all the sales, NFTs’ price rises as prospective purchasers perceive a demand for them. Demand determines the value of cryptocurrency in the same way.
One can examine NFT sales for wash trading intent by using the blockchain analysis technique.
How NFT Wash Trading works
Assume a shareholder owns $1 million worth of Ethereum. A new NFT is created on the blockchain by the investor, who then sells it to themselves for $1 million by sending it to a different cryptocurrency wallet they own.
Due to a previous sale that was made public on the blockchain, an online database of all operations, the NFT is now worth $1 million.
The wash trader makes the whole profit from the sale because they bought and sold the NFT to themselves, even if the investor sells it to someone else at a significant discount.
Technically speaking, the NFT wash trade is a type of NFT scam and is unlawful. A Coinbase employee was accused of wash trading on their platform and giving false information by the Commodity Futures Trading Commission.
However, the difficulty in regulating NFT wash trading stems from the fact that countries have not explicitly characterized these assets as either financial security or a commodity.
Additionally, the sanctioning body must demonstrate price gouging and deceitful purpose. Wash trading is viewed in the same light as insider trading and is extremely immoral.
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