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Wash trading and launder money on the metaverse

Updated: Apr 16

Simone from Vision Factory

Author: Simone Bellezza

Date of Publication: 11/04/2023

This post may contain affiliate links, which means I may receive a small commission, at no cost to you, if you make a purchase through a link

Meta-title: How people make wash trading and money laundering on the metaverse and how to know it.

Since there are no strict regulations on the metaverse, people try to do illegal things in the digital world rather than in the real one. For example, what they can do is money laundering and wash trading.

Wash trading

Wash trading is a practice highly used in the NFT market on the metaverse to manipulate and create a false sense of high demand. This practice consists of a person setting up many crypto wallet addresses to purchase and sell an NFT to themselves.

In particular, individuals do that to make it seem like a digital asset is extremely valuable. Since it deceives the rest of the market distorts prices, and encourages others to trade based on false information. This is prohibited in traditional financial markets.

Wash trading and NFT activities

How to recognize wash trading activities

A blockchain stores transactions that allow anybody to know when an NFT was exchanged and how much it sold for. Wallet addresses are provided with no identifying information. This makes it challenging to determine who is behind a transaction and whether two wallet addresses belong to the same person. A study of Chainalysis on NFT wash trading examined sales of NFTs to addresses that were self-financed. In some cases were funded either by the selling address or by the address that first funded the selling address.

Money in the cash-machine

Money laundering

The danger of money laundering looks severe because of the absence of rules and regulations governing the trading of NFTs. This seems to allow users to perform activities freely without the requirement to go through intermediaries or a central body.

Decentralization is mostly to blame for the metaverse's susceptibility to money laundering. There is no unified setting or distinct understanding of what or who is ultimately in charge of rules and enforcement in the metaverse. All of this results in a situation where there is a desire to avoid the expenses and consequences of a lawless digital world.

Because of the decentralized nature of the metaverse and the absence of rules and regulations, fraud risks are great. In fact, users would be asked to test out virtual slot machines by con artists. So, the criminal only steals money from the slot machine once the user inserts money into it.

Money in cash

The Dark Side of Metaverse: Wash Trading and Money Laundering

In addition to providing new chances the metaverse also enables criminals to utilize digital wallets to hide the source of their illicitly acquired wealth. This is what we must change or control more to avoid criminal and illegal activities, such as those mentioned before.

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