Hello everyone and welcome to ZD Tech, ZDNet’s daily editorial podcast. My name is Guillaume Serries and today I explain to you how scammers drive up prices by using wash trading to sell NFTs.
Before starting, I must of course explain to you what NFTs are. Well actually no. After all, I only have three minutes. So, to learn more about NFTs, listen to the ZD tech episode on the subject, and go to the site, we have a whole bunch of articles devoted to the subject.
So, head to wash trading. What is wash trading? It’s a technique as old as the world of commerce.
Virtual currency and NFT exchanges are anonymous as a matter of principle
But it is a fraud technique that particularly thrives in the field of cryptocurrencies and NFTs, these famous non-fungible tokens that have caused hysteria and bewilderment in recent weeks on the web.
Why ? Because virtual currency and NFT exchanges are anonymous in principle, since the blockchain guarantees the anonymity of users.
Chainalysis, a company that analyzes the blockchain industry and technology, has just published a study on the subject. And its researchers define “wash trading” as transactions where the seller is on both sides of the transaction. Buyer and seller therefore. But why? To paint a misleading picture of the value and liquidity of an asset, such as an NFT for example.
Gain and loss of money
Come on, here’s an example. I have a nice NFT of a sullen monkey design. I sell it dear, but I want to sell it even more. Come on, boom! I create a buyer account and buy it. And I give the impression to all observers that my drawing is gaining in value.
Yes, it’s as old as the world as a technique. The rating of some painters has been maintained or artificially developed for years by this technique which obviously exists in auction rooms.
But on the web, it’s even easier to do.
Because many NFT exchange platforms allow users to make transactions by simply connecting their wallet to the platform, without needing to identify themselves, explain the researchers.
Chainalysis tracked $44.2 billion worth of cryptocurrencies traded to acquire NFTs in 2021 last year. And in the lot, Chainalysis claims to have found many cases of wash trading.
The researchers found 262 users who sold an NFT to a self-funded address more than 25 times. But more than half lost money due to commission fees. The 110 sellers who made a profit received a total of approximately $8.9 million in profit. The others lost a total of $416,000.
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