NFTs and Illicit Financing: Smoke versus Fire

An initial look at the illicit financing risks of NFTs

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In recent weeks and months, I’ve been getting a lot of questions about the illicit financing risks of NFTs. I’ve given some initial thought to this problem, and I see these risks along several lines. But to start with, let’s explore what NFTs are in as simple terms as possible.

Non-fungible tokens (NFTs), which first emerged in late 2017, are digital tokens (like cryptocurrencies) built using blockchain technology. The tokens function as “virtual deeds” that convey ownership of a digital asset. The most common NFTs are digital art that are sold on platforms, most often using cryptocurrencies like Bitcoin or Ethereum. Owning an NFT is like owning a painting or photograph; in this case the owner can profit from the NFT by selling rights to use the image, and the artist can also profit when the NFT is re-sold. Each NFT is stamped with a long, constant string of alphaneumerics that is also recorded on the blockchain, creating a permanent record of who owns what. NFTs provide an unchangeable record of ownership and blockchain technology can be used to allow an owner of an NFT to trace previous transactions.