Money laundering in the Metaverse: NFTs, DeFi

Money laundering in the Metaverse: NFTs, DeFi

According to a recent analysis, 17 million Ethereum transactions between Q4 2017 and Q1 2022 were associated with criminal and legitimate operations. Overall Electronic money laundering activities increased by 30% in 2021 Compared to 2020, hackers laundered a total of $8.6 billion in cryptocurrency.

During this time, thieves increasingly relied on DeFi protocols to launder money: DeFi protocols were received 17% of all cryptocurrency transferred from illegitimate addresses in 2021up from 2% in 2020.

NFT sales also reached over $25 billion in 2021, with individual devices selling up to $90 million. However, notable scams in 2022, including a $600 million stealing NFT gaming business Axi Infiniti in March and $2.8 million from NFTs Taken from Bored Ape Yacht Club’s Instagram account in April, it caused market concern.

Money laundering has become a major problem in Web 3.0 platforms due to the lack of Know Your Customer (KYC) Verifications And the AML examination The methods that are deployed in the loop. With these growing numbers, we address the key causes and solutions for anti-money laundering compliance in the metaverse.

Let’s first find out what the web3.0 platform consists of and why it is easy to launder money in the Metaverse.

What is web3.0? How to be more vulnerable to money laundering?

Web3.0 is basically a decentralized, untrusted, and unlicensed token economy based on the blockchain. Of course, cryptocurrencies and NFTs use the same technology. As a result, the use of digital currencies is expected to become more and more popular.

Some even support Web3.0 because it allows the recovery of customer content and data, which has long been integrated into Big Tech.

In many aspects, web3.0 will go back to the original World Wide Web (known as web1.0), when anyone could upload anything without the need for intermediaries or approval from a central organization.

Concerns have been raised in recent months about the connections between cryptocurrencies, NFTs, and fraud. It is now clear that the advent of the metaverse and web3.0 may facilitate Money laundering.

This is because if all you need to join the metaverse is a Facebook account, a lot of complications can develop. For example:

  • How can people defend themselves from fraud and personal theft?
  • How will age restrictions be imposed on the user?
  • How can vulnerable users be protected from deceptive criminals?

While the blockchain is accessible and everyone can access copies of transactions, the identities of those executing the transactions remain hidden. This means that there is no way to know if the source of the coin is real. In many respects, this makes the metaverse an ideal site for illicit behavior.

Moreover, the metaverse will enable criminals to convert their funds into untraceable and easily hidden currencies. Rather than requiring a labor-intensive procedure, money laundering would only need a criminal to repeatedly click a button to buy and sell products in the metaverse, resulting in a long history of transactions that humans would not be able to track.

After all, the lack of traditional intermediaries in web3.0 means that users do not need to go through any KYC or Anti-Money Laundering (AML) Procedures.

What are the compliance risks in the Metaverse?

identity theftData breaches, breaches, and other financial frauds are all possible in the metaverse as they all aim to steal someone’s personal information and gain access to their digital wallets for illegal purposes. Because of the decentralized, blockchain-based framework that links every functionality to digital wallets, large amounts of money can be transferred by using the metaverse.

There is currently no clear understanding of the financial crime legislation relating to metaviruses. shortage, scarcity, lack Know Your Customer (KYC) AuthenticationOn the other hand, it means that consumers are usually less secure in the digital realm. Inadequate metaverse consensus and uniform regulations may become an incentive for criminals to engage in illegal activities.

Since the Internet is not usually restricted by a single central authority or regulatory organization, the metaverse is widely expected to follow a similar pattern. When it comes to the security of digital assets, Web3.0 seems to transport organizations back to the days of the World Wide Web, allowing users to conduct activities freely without the need for intermediaries or third-party software.

Why are NFTs attractive for money laundering?

NFTs are essentially digital artworks that have the same characteristics as traditional art. Furthermore, NFTs have the advantage of being completely digital, which makes them much easier to exchange than transferring physical panels. NFT, like cryptocurrency, can be transferred from one wallet or owner to another in seconds.

However, the unexpected values ​​of NFTs make them particularly attractive for money laundering reasons. While the Bitcoin to Euro exchange rate follows market principles of supply and demand, pricing for NFTs is highly speculative. In fact, NFT purchased for 1 euro may sell for 1 million euros the next day. As a result, NFTs appeal to launder black money through legal transactions.

While the blockchain allows these transactions to be tracked across wallets, it is now easier than ever to transfer wealth anonymously. For these reasons, according to the US Financial Crimes Enforcement Network (FinCEN), the “emerging digital art market” poses a significant risk of money laundering and financial crime.

To summarize, NFTs can be used for money laundering due to unexpected pricing (which is very attractive to fraudsters) and the ability to transfer values ​​anonymously. As a result, criminals can use NFTs to avoid detection.

How to counter money laundering in the Metaverse?

Money laundering Actions in the metaverse are very complex, very fast and cross multiple countries. All this means that it is difficult to define the process using existing methods.

As a result, it is critical to amend existing anti-money laundering regulations and use sophisticated technology. In the Metaverse, for example, both artificial intelligence and machine learning can be used to monitor transactions and Identity Verification.

Moreover, it becomes clear that information exchange and cooperation between agencies and between countries is essential. Moreover, there is a more metaverse-friendly version of know your customer will be required.

While it may still be legal to allow someone to create an avatar and access the metaverse with a Facebook account, a metaverse-compliant version of KYC must be developed to ensure that AML requirements are as severe as being offline. After all, whether individuals want to buy or sell in the metaverse, KYC and customer due diligence are still important in the battle against fraud.

How IDcentral can ensure compliance in Metaverse

EdCentral Provides eKYC and KYX حل solution Which verifies identity, age and documents through a fully digital process. Our AI-based solution completes within 8 seconds, ensuring the best customer experience while simplifying the verification process quickly and accurately.

EdCentral AML examination The solution also ensures that both new and existing clients comply with anti-money laundering regulations while performing background checks to screen for sanctions, terrorist financing and other regulations.

Try eKYC for IDcentral verification and AML checking to ensure regulatory compliance

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#Money #laundering #Metaverse #NFTs #DeFi

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