US Treasury Report NFTs Vulnerable to Fraud and Scams

NFTs Face High Risk of Fraud and Scams: US Treasury Report
The US Treasury recently published its initial evaluation report, delving into the vulnerabilities linked to non-fungible tokens (NFTs). The report emphasized that these digital assets are particularly prone to exploitation in fraudulent activities and scams, many of which are conventional in nature.
The assessment pointed out various potential risks, security concerns, and challenges associated with NFTs. Criminals often leverage these digital collectibles as a means to launder proceeds from criminal activities, as stated in the comprehensive 29-page report.
Despite this, the report indicated a lack of evidence of NFT misuse for proliferation financing or terrorist funding. In comparison, there have been few instances of exploitation by terrorists or proliferators, according to a statement from the department.
Case studies outlined in the report showcased instances of NFTs being used to circumvent sanctions and generate funds for military purposes by malicious actors from North Korea.
Prominent NFT Scams
Several instances of NFT scams have emerged, including phishing schemes, counterfeit NFTs, rug-pulls, and more. In a notable incident in 2022, CryptoBatz fell prey to a phishing attack shortly after its launch.
Another significant case occurred in April 2022 when scammers pilfered nearly $3 million worth of Bored Ape Yacht Club (BAYC) NFTs from the official Instagram page of BAYC.
In the previous year, scammers reportedly targeted the OpenSea marketplace, making off with hundreds of Ethereum (ETH). PeckShield, a data analytics firm, revealed that the breach was due to a front-end vulnerability, resulting in the misappropriation of 347 ETH (equivalent to $1.3 million at present) through 8 transactions.
Efforts to Combat Fraud
The US Treasury highlighted the lack of adequate controls on NFT platforms to tackle money laundering and sanctions evasion. The department proposed a series of recommendations to mitigate the identified risks.
These recommendations included the implementation of a regulatory framework for NFTs and their platforms, along with strategies for educating consumers about potential risks.
However, a government study in March concluded that existing intellectual property laws were sufficient to address issues related to NFTs. The study found that current laws were effective, even in cases where trademark misappropriation and infringement were prevalent on NFT platforms.