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Everyone says this NFT craze is money laundering. Can someone explain how the money laundering scheme works with NFTs? I know people first hand who have bought

Everyone says this NFT craze is money laundering. Can someone explain how the money laundering scheme works with NFTs? I know people first hand who have bought NFTs and I'm pretty sure they are not money laundering.

donkeyd 6y ago
The fact that you know people who are legitimately buying that stuff makes it a great money laundering scheme. If only people laundering were buying them, it would be obvious, but the fact that it's picking up steam makes high sales prices seem legitimate. Say, you have a bunch of money made from selling cocaine and you want to buy a house. It's really hard, because people will want to know how you made the money without a job. So you buy some NFT for about 10k with your clean money. Two months later, you sell the NFT for 500k to an anonymous buyer online, who pays through crypto. The buyer is you, buy nobody knows that, because they're anonymous. You now have 500k cash, you will need to pay some taxes over your gains, but then the money is clean and when you buy the house you say you got the money through an investment in NFT. Meanwhile, some random people read about how you made 10k into 500k in two months by trading NFT. So people will start investing in it, making your money laundering less obvious. This is a bit of a simplification of what could be happening, but it does seem feasible.
- M5x7wI3CmbEem10 6y ago
  couldn’t this be audited unless using monero?
  - woah 6y ago
    There are on chain mixers for Ethereum. Or you can just move them money in and out of a few different shady exchanges
  - donkeyd 6y ago
    Yes, it could, that's why I mentioned it's a simplification. There will definitely be more steps involved in a scheme like this.
- fasteddie31003 6y ago
  That would only work with resold NFTs. You can track the NFT through the blockchain and see its sale history. https://etherscan.io/ https://etherscan.io/
  - sushid 6y ago
    That doesn't matter though. You bought an NFT for 10k and re-sold it for 500k (and paid taxes). The IRS isn't going to come after you and now you can buy your house.
djrogers 6y ago
Say I have $1m in dirty money. I buy an NFT for $1, then use the dirty money to ‘buy’ the NFT from myself for $1m (through an anonymous cutout, like a crypto bank), and now I have a clean $1m. Bonus points, as now a lot of people think the NFT that my dirty hand still holds is worth $1m!
- fasteddie31003 6y ago
  Why use an NFT then? Couldn't any old crypto transaction work for that?
  - dagw 6y ago
    When I show up at the bank and want to deposit the $1 million I just got from selling bitcoin, they're going to want to know why someone just transferred $1 million worth of bitcoin to me. NFTs are 'real' enough that my story is plausible, and anonymous enough that investigating it would be very time consuming.
    - capableweb 6y ago
      It would be anonymous if you used something like Zcash. Now the current craze is happening over Ethereum so it's pseudo-anonymous at best. And for sure many governments have tools for linking accounts and transactions together by now.
  - djrogers 6y ago
    If I sell BTC for $1m, the IRS/InsertGovAgencyHere will want to know where I got the $1m in BTC from. If I can point to an NFT that I 'sold' (after a dramatic rise in value) then I have a plausible source of that income. That's the purpose of money laundering - to bring ill-gotten gains into the light so they can be used.
undefined1 6y ago
it's money laundering in the same way that the art world and car washing businesses are money laundering. meaning, it's mostly not money laundering, but some use it for that.

donkeyd 6y ago

The fact that you know people who are legitimately buying that stuff makes it a great money laundering scheme. If only people laundering were buying them, it would be obvious, but the fact that it's picking up steam makes high sales prices seem legitimate. Say, you have a bunch of money made from selling cocaine and you want to buy a house. It's really hard, because people will want to know how you made the money without a job. So you buy some NFT for about 10k with your clean money. Two months later, you sell the NFT for 500k to an anonymous buyer online, who pays through crypto. The buyer is you, buy nobody knows that, because they're anonymous. You now have 500k cash, you will need to pay some taxes over your gains, but then the money is clean and when you buy the house you say you got the money through an investment in NFT. Meanwhile, some random people read about how you made 10k into 500k in two months by trading NFT. So people will start investing in it, making your money laundering less obvious. This is a bit of a simplification of what could be happening, but it does seem feasible.

M5x7wI3CmbEem10 6y ago
couldn’t this be audited unless using monero?
- woah 6y ago
  There are on chain mixers for Ethereum. Or you can just move them money in and out of a few different shady exchanges
- donkeyd 6y ago
  Yes, it could, that's why I mentioned it's a simplification. There will definitely be more steps involved in a scheme like this.
fasteddie31003 6y ago
That would only work with resold NFTs. You can track the NFT through the blockchain and see its sale history. https://etherscan.io/ https://etherscan.io/
- sushid 6y ago
  That doesn't matter though. You bought an NFT for 10k and re-sold it for 500k (and paid taxes). The IRS isn't going to come after you and now you can buy your house.

djrogers 6y ago

Say I have $1m in dirty money. I buy an NFT for $1, then use the dirty money to ‘buy’ the NFT from myself for $1m (through an anonymous cutout, like a crypto bank), and now I have a clean $1m. Bonus points, as now a lot of people think the NFT that my dirty hand still holds is worth $1m!

fasteddie31003 6y ago
Why use an NFT then? Couldn't any old crypto transaction work for that?
- dagw 6y ago
  When I show up at the bank and want to deposit the $1 million I just got from selling bitcoin, they're going to want to know why someone just transferred $1 million worth of bitcoin to me. NFTs are 'real' enough that my story is plausible, and anonymous enough that investigating it would be very time consuming.
  - capableweb 6y ago
    It would be anonymous if you used something like Zcash. Now the current craze is happening over Ethereum so it's pseudo-anonymous at best. And for sure many governments have tools for linking accounts and transactions together by now.
- djrogers 6y ago
  If I sell BTC for $1m, the IRS/InsertGovAgencyHere will want to know where I got the $1m in BTC from. If I can point to an NFT that I 'sold' (after a dramatic rise in value) then I have a plausible source of that income. That's the purpose of money laundering - to bring ill-gotten gains into the light so they can be used.

undefined1 6y ago

it's money laundering in the same way that the art world and car washing businesses are money laundering. meaning, it's mostly not money laundering, but some use it for that.