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One thing I don't see addressed in this article is that as far as I know, it's basically impossible to trust the reported price or volume of NFT transactions, b

One thing I don't see addressed in this article is that as far as I know, it's basically impossible to trust the reported price or volume of NFT transactions, because there's no way to distinguish fake wash trades from real ones. So it's hard to draw any conclusions about whether the data reflects an actual peak in user activity, or just a peak in scams.

arcticbull 4y ago
Or selling NFTs to yourself to launder money.
- renewiltord 4y ago
  How does that particular thing work? You run the exchange, then have dirty untraceable money traded on the exchange to dirty participant and you take the exchange fees? You'd have to KYC both participants, right?
  - officialchicken 4y ago
    Not everyone, the "participants" in the chain (typically 8-10 addresses) can arbitrarily inflate pricing by only paying fees which are trivially covered by the final trade. Once inflated, that final address can use a "mixer" to exit (for example) and essentially if KYC is performed in the conversion to fiat, it's after the mix and relatively untraceable.
  - stouset 4y ago
    Buy a “rare” NFT with clean money. Sell it a few months later for some multiple of the original price, the “buyer” is still you but using dirty money. NB: I work in fintech but have no particular experience on the fraud / KYC / AML side of things. This is just how I imagine it would work at a high level.
    - renewiltord 4y ago
      But if you do that, I think you'd be first on the list of people investigated for the dirty money. It has to be cleaned in some way by obscuring it. The approach described here seems more plausible https://news.ycombinator.com/item?id=32857382 https://news.ycombinator.com/item?id=32857382
      - stouset 4y ago
        Thanks for this!
  - polygamous_bat 4y ago
    Imagine you have $X million from a hack on wallet A, and you want to launder it. First, you run it through tornado cash (RIP) a few times and move them to wallets B1 to B1000. Then, you mint an "exciting NFT collection" on your public, KYC'd wallet C, list them on a "decentralized exchange", and have wallets B1 to B1000 buy those NFTs. Even better, seeing how fast your NFTs are selling out, a few suckers join in on the stampede and get mixed in alongside B1-B1000. Well, now on wallet C you have $(X - gas fees - minting fees) etc., that is totally legal and clean. You cash out on Coinbase, give the taxman his due, and you are good to go!
    - jaywalk 4y ago
      > Well, now on wallet C you have $(X - gas fees - minting fees) etc., that is totally legal and clean. It's not "legal" at all, because it's still proceeds of crime. Although it may "appear" legal and be very difficult to trace back to the source, it's still not actually legal.
      - ForHackernews 4y ago
        Yes, that's how money laundering works.
      - UncleEntity 4y ago
        It is legal until proven illegal -- just like you are innocent until proven guilty.
    - yieldcrv 4y ago
      Only need to do Tornado cash once, and you can still do that, it still works Nobody cares that you sold your nft to a virgin address funded solely by the tornado cash relay
    - renewiltord 4y ago
      The Tornado Cash tumbler allows you to create sort-of-Sybils so it looks organic. The no-KYC Dex allows you to push from a no-KYC account to a KYC'd account. The KYC'd account lets you withdraw fiat. I see. Okay, each of the pieces are necessary. Thanks for the explanation.
simsla 4y ago
Isn't that always the case? My friend was talking about a rare Magic The Gathering card being worth a silly amount of money... Except the card had only been sold once or twice at that price. Unless you have enough comparable items (e.g. paintings by the Dutch masters) it's really difficult to determine the value of something that's rarely sold.
- __MatrixMan__ 4y ago
  "value" is kind of a made-up thing, so I'd argue that by selling something for the first time you're setting its value, not determining it
  - maxbond 4y ago
    It's important to note that price, the last traded price, and value are all distinct concepts. The last traded price is the only one of these we can measure ahead of time, so we often use it as a metanym for these other concepts. But we don't know the price of something until we make a binding offer on it and it is accepted; that doesn't necessarily mean the next transaction won't be very different, we just have heuristics about how the next price ought to look. But it's the process of negotiating a deal or bidding on an auction that defines the price, not the historical prices. If you go to a grocery store and see that milk costs $5.25, and you remember last week it costs $5.00, you don't say the price is wrong; you understand that this is the offer the store has made you, and that the price has gone up since your last visit. When the oil futures went negative, it wasn't the case that the value of oil was negative - this was about the structure of the market and the sorts of positions people were caught in when the pandemic hit. We continued to consume oil throughout the pandemic, and so I'd say we continued to value it. Another example would be, if a rancher has a lot of cow poop, they might pay a farmer to take it away. You could say that the cow poop has a negative price on it. But the farmer is going to make use of it as fertilizer; from the farmer's perspective, this is a commodity that has value. It's true though that there are a million theories of value and it's impossible to say what something's value is definitively, you can only make a decision about what is value is to you. But when wash trading is and to impact the perceived value, it does so fraudulently; it supplies information to traders - "there is a lot of interest in this security, and the (last traded) price is rising" - which is a lie. Some people will argue this too is a normal and healthy part of markets, but I don't think they've given enough thought to what sort of equilibrium that game will settle into.
zeroclip 4y ago
> there's no way to distinguish fake wash trades from real ones Ah, like that $532M Punk wash trade that was clearly visible on-chain?[1] I guess we'll never know if it was real or fake. [1] https://decrypt.co/84756/no-someone-didnt-really-pay-532-million-cryptopunk-nft https://decrypt.co/84756/no-someone-didnt-really-pay-532-mil...
- rnk 4y ago
  Please explain your comment for the rest is us. Was that a sarcastic "it really happened because it made it to the chain" or a "we'll never know whether value was exchanged from one person to another because the owner of both wallets could be the same person" - or both, neither or?
  - zeroclip 4y ago
    Commenter said "there's no way to distinguish fake wash trades from real ones" and I showed a case where a wash trade was, to anybody looking at it, very obviously fake. I agree with the other part of the comment. Blockchains do not track "persons" but "wallets" and so metrics like "number of users" will not be accurate. But it is not accurate to imply that it is impossible to recognize wash trades. In many cases they are very obvious, and even can be automatically flagged. In other cases - like with CEX mixers - only the authorities can detect the fraud.
    - pas 4y ago
      OP probably meant fake wash trades and real non-wash trade ones, not fake and nonfake wash trades
      - zeroclip 4y ago
        The flash loan trade was a wash trade, obviously “fake.” Other wash trades are also - very often - obvious because the blockchain is transparent and easily analizable.
- andrewmutz 4y ago
yieldcrv 4y ago
Correct, not possible if you dont want someone to know But of you’ve ever traded NFTs its hard to really begin with the assumption that trading volume is fake because bots and market makers buy from you so fast. You know that wasn't a fake or wash trade, while there is a pervasive audience of onlookers that are trying to prove a negative. You know that funds in bankruptcy court have successfully sold $30,000,000 worth of the NFTs on their books as ordered, without issue or further controversy about where the proceeds came from You know that DAOs have liquidated $30,000,000 worth of NFTs on their books as determined by the community, without issue How much convincing does anyone need to move off of “its all wash trading and money laundering” to “yeah thats possible there is also lots of liquidity”, it doesn’t really make sense to make the former perception their whole identity
- simonw 4y ago
  "because bots and market makers buy from you so fast" Does that still hold true today, or was that the case six months ago before the NFT market crashed?
  - yieldcrv 4y ago
    it still holds true today for the same top projects most collections are essentially just tokens with a picture, the same practices on token exchanges are prevalent on nft marketplaces
- teraflop 4y ago
  Right, I'm not saying there's no real trading, just that it's impossible to say how much. Which makes the graphs and anecdotes quoted in the article a bit meaningless, IMO.
  - yieldcrv 4y ago
    I agree that the data collection possibilities are limited this is more so for others who are looking for validation of only wash trading. I’m mostly saying some assumptions have to be made, and relative comparison to other projects and understanding actual trades occur… a lot, moves the assumptions towards more distinct market participants than assuming the nonexistence of any market participants
swalsh 4y ago
Can someone tell me how to successfully do a wash trade? because I frankly have no idea. If you fund it from your coinbase account, coinbase is going to tell the taxman about both your wallets... so no buerno. If you fund another wallet from a known wallet... the tax man can still see that. If you use Tornado cash, Coinbase is going to block it. I just don't think it's as easy as people think it is.
- jy1 4y ago
  You can report everything to the taxman. Wash trading in this context isnt to do with taxes. Its about how you hard it is to verify claimed sale prices since you can transact with yourself.
- deleted 4y ago
  [deleted]

arcticbull 4y ago

Or selling NFTs to yourself to launder money.

renewiltord 4y ago
How does that particular thing work? You run the exchange, then have dirty untraceable money traded on the exchange to dirty participant and you take the exchange fees? You'd have to KYC both participants, right?
- officialchicken 4y ago
  Not everyone, the "participants" in the chain (typically 8-10 addresses) can arbitrarily inflate pricing by only paying fees which are trivially covered by the final trade. Once inflated, that final address can use a "mixer" to exit (for example) and essentially if KYC is performed in the conversion to fiat, it's after the mix and relatively untraceable.
- stouset 4y ago
  Buy a “rare” NFT with clean money. Sell it a few months later for some multiple of the original price, the “buyer” is still you but using dirty money. NB: I work in fintech but have no particular experience on the fraud / KYC / AML side of things. This is just how I imagine it would work at a high level.
  - renewiltord 4y ago
    But if you do that, I think you'd be first on the list of people investigated for the dirty money. It has to be cleaned in some way by obscuring it. The approach described here seems more plausible https://news.ycombinator.com/item?id=32857382 https://news.ycombinator.com/item?id=32857382
    - stouset 4y ago
      Thanks for this!
- polygamous_bat 4y ago
  Imagine you have $X million from a hack on wallet A, and you want to launder it. First, you run it through tornado cash (RIP) a few times and move them to wallets B1 to B1000. Then, you mint an "exciting NFT collection" on your public, KYC'd wallet C, list them on a "decentralized exchange", and have wallets B1 to B1000 buy those NFTs. Even better, seeing how fast your NFTs are selling out, a few suckers join in on the stampede and get mixed in alongside B1-B1000. Well, now on wallet C you have $(X - gas fees - minting fees) etc., that is totally legal and clean. You cash out on Coinbase, give the taxman his due, and you are good to go!
  - jaywalk 4y ago
    > Well, now on wallet C you have $(X - gas fees - minting fees) etc., that is totally legal and clean. It's not "legal" at all, because it's still proceeds of crime. Although it may "appear" legal and be very difficult to trace back to the source, it's still not actually legal.
    - ForHackernews 4y ago
      Yes, that's how money laundering works.
    - UncleEntity 4y ago
      It is legal until proven illegal -- just like you are innocent until proven guilty.
  - yieldcrv 4y ago
    Only need to do Tornado cash once, and you can still do that, it still works Nobody cares that you sold your nft to a virgin address funded solely by the tornado cash relay
  - renewiltord 4y ago
    The Tornado Cash tumbler allows you to create sort-of-Sybils so it looks organic. The no-KYC Dex allows you to push from a no-KYC account to a KYC'd account. The KYC'd account lets you withdraw fiat. I see. Okay, each of the pieces are necessary. Thanks for the explanation.

simsla 4y ago

Isn't that always the case? My friend was talking about a rare Magic The Gathering card being worth a silly amount of money... Except the card had only been sold once or twice at that price. Unless you have enough comparable items (e.g. paintings by the Dutch masters) it's really difficult to determine the value of something that's rarely sold.

__MatrixMan__ 4y ago
"value" is kind of a made-up thing, so I'd argue that by selling something for the first time you're setting its value, not determining it
- maxbond 4y ago
  It's important to note that price, the last traded price, and value are all distinct concepts. The last traded price is the only one of these we can measure ahead of time, so we often use it as a metanym for these other concepts. But we don't know the price of something until we make a binding offer on it and it is accepted; that doesn't necessarily mean the next transaction won't be very different, we just have heuristics about how the next price ought to look. But it's the process of negotiating a deal or bidding on an auction that defines the price, not the historical prices. If you go to a grocery store and see that milk costs $5.25, and you remember last week it costs $5.00, you don't say the price is wrong; you understand that this is the offer the store has made you, and that the price has gone up since your last visit. When the oil futures went negative, it wasn't the case that the value of oil was negative - this was about the structure of the market and the sorts of positions people were caught in when the pandemic hit. We continued to consume oil throughout the pandemic, and so I'd say we continued to value it. Another example would be, if a rancher has a lot of cow poop, they might pay a farmer to take it away. You could say that the cow poop has a negative price on it. But the farmer is going to make use of it as fertilizer; from the farmer's perspective, this is a commodity that has value. It's true though that there are a million theories of value and it's impossible to say what something's value is definitively, you can only make a decision about what is value is to you. But when wash trading is and to impact the perceived value, it does so fraudulently; it supplies information to traders - "there is a lot of interest in this security, and the (last traded) price is rising" - which is a lie. Some people will argue this too is a normal and healthy part of markets, but I don't think they've given enough thought to what sort of equilibrium that game will settle into.

zeroclip 4y ago

> there's no way to distinguish fake wash trades from real ones Ah, like that $532M Punk wash trade that was clearly visible on-chain?[1] I guess we'll never know if it was real or fake. [1] https://decrypt.co/84756/no-someone-didnt-really-pay-532-million-cryptopunk-nft https://decrypt.co/84756/no-someone-didnt-really-pay-532-mil...

rnk 4y ago
Please explain your comment for the rest is us. Was that a sarcastic "it really happened because it made it to the chain" or a "we'll never know whether value was exchanged from one person to another because the owner of both wallets could be the same person" - or both, neither or?
- zeroclip 4y ago
  Commenter said "there's no way to distinguish fake wash trades from real ones" and I showed a case where a wash trade was, to anybody looking at it, very obviously fake. I agree with the other part of the comment. Blockchains do not track "persons" but "wallets" and so metrics like "number of users" will not be accurate. But it is not accurate to imply that it is impossible to recognize wash trades. In many cases they are very obvious, and even can be automatically flagged. In other cases - like with CEX mixers - only the authorities can detect the fraud.
  - pas 4y ago
    OP probably meant fake wash trades and real non-wash trade ones, not fake and nonfake wash trades
    - zeroclip 4y ago
      The flash loan trade was a wash trade, obviously “fake.” Other wash trades are also - very often - obvious because the blockchain is transparent and easily analizable.
andrewmutz 4y ago

yieldcrv 4y ago

Correct, not possible if you dont want someone to know But of you’ve ever traded NFTs its hard to really begin with the assumption that trading volume is fake because bots and market makers buy from you so fast. You know that wasn't a fake or wash trade, while there is a pervasive audience of onlookers that are trying to prove a negative. You know that funds in bankruptcy court have successfully sold $30,000,000 worth of the NFTs on their books as ordered, without issue or further controversy about where the proceeds came from You know that DAOs have liquidated $30,000,000 worth of NFTs on their books as determined by the community, without issue How much convincing does anyone need to move off of “its all wash trading and money laundering” to “yeah thats possible there is also lots of liquidity”, it doesn’t really make sense to make the former perception their whole identity

simonw 4y ago
"because bots and market makers buy from you so fast" Does that still hold true today, or was that the case six months ago before the NFT market crashed?
- yieldcrv 4y ago
  it still holds true today for the same top projects most collections are essentially just tokens with a picture, the same practices on token exchanges are prevalent on nft marketplaces
teraflop 4y ago
Right, I'm not saying there's no real trading, just that it's impossible to say how much. Which makes the graphs and anecdotes quoted in the article a bit meaningless, IMO.
- yieldcrv 4y ago
  I agree that the data collection possibilities are limited this is more so for others who are looking for validation of only wash trading. I’m mostly saying some assumptions have to be made, and relative comparison to other projects and understanding actual trades occur… a lot, moves the assumptions towards more distinct market participants than assuming the nonexistence of any market participants

swalsh 4y ago

Can someone tell me how to successfully do a wash trade? because I frankly have no idea. If you fund it from your coinbase account, coinbase is going to tell the taxman about both your wallets... so no buerno. If you fund another wallet from a known wallet... the tax man can still see that. If you use Tornado cash, Coinbase is going to block it. I just don't think it's as easy as people think it is.

jy1 4y ago
You can report everything to the taxman. Wash trading in this context isnt to do with taxes. Its about how you hard it is to verify claimed sale prices since you can transact with yourself.
deleted 4y ago
[deleted]