Non-Fungible Tokens: Digital Art’s Rising Popularity Attracts Growing Audience of Financial Criminals

How much could an algorithmically generated pixel painting of a cat be worth? US$11.7 million—or that’s how much “Covid Alien,” by Cryptopunk #7523, sold for at Sotheby’s in June 2021. Or how about US$69.3 million, what Beeple’s “Everydays: The First 5000 Days” netted at Christie’s in March 2022? Astonishing numbers, but hardly outliers in the market for “Non-Fungible Tokens,” or NFTs. From their beginning just a few years ago as a technical curiosity in the digital art market, NFTs have exploded into a multi-billion dollar feeding frenzy—from $106 million in 2020, according to analytics firm Chainalysis, to $44.2 billion the following year—even as incredulous onlookers have been left wondering on what basis these valuations are made.

NFTs were originally intended to leverage blockchain technology to assist digital artists in protecting their work. They aimed to be a systematized record of ownership and royalty payment every time an artist’s work was traded on the blockchain. Almost immediately, however, they became an asset class on top of an artwork, opening a new frontier of digital financial investment and speculation. And like any investment, NFTs were embraced by opportunistic criminals.

NFTs are primarily purchased with cryptocurrencies – conceived as a form of money issued and transferred outside of government-regulated financial systems – which adds complexity to their use as financial instruments: in addition to being decentralized and under-regulated, the cryptouniverse is based on its own pseudo-anonymous blockchain designed to protect users’ privacy above all else. Like cryptocurrencies, the NFT market may be considered as a sort of “Wild West” where participants can operate relatively freely but at their own risk. The Luna cryptocurrency’s recent $40 billion collapse highlights such risks.

The NFT market represents a novel intersection of art, finance, and technology, and has attracted considerable attention from public actors as such. It may therefore soon be subject to the same regulations imposed on these markets. In order to assess this possibility and to bring clarity to a murky and oft-changing world, VIDOCQ has conducted an investigation into the cyber underworld to learn how criminals perceive NFTs to determine their real and potential use in financial crime.