Is KYC protection needed for the NFT marketplace?
Author: Mandee McFerren
Image: https://commons.wikimedia.org/wiki/File:KYC-nedir.png CC-BY-SA-4.0
As NFTs become more and more popular, it becomes critical to ensure that the market is protected both for buyers and sellers. This presents itself as a new, and even greater challenge as NFTs exist online where fraud and criminal activity are rampant.
For those interested in buying or making NFTs, these possible risks could deter them from participating in this new and exciting marketplace. But is there a way to make the purchase and sale of NFTs more safely regulated, and less likely to be used criminally?
In this article we will explore the possibilities of using KYC (Know Your Customer) technologies within the NFT art marketplace, how KYC can help secure trust for buyers and sellers, and how it could provide a solution to criminal activity within the market, allowing it to grow safely.
First off, we will answer some basic NFT and KYC questions.
What is an NFT?
An NFT (Non Fungible Token) is a piece of information stored on and verified by a blockchain – primarily on Ethereum – that grants unique ownership of something that has been sold by its creator or owner. NFTs can be used to represent ownership of easily-reproducible items such as photos, videos, audio, and other types of digital files as unique, collectible digital items.
What is KYC (Know Your Customer) technology?
KYC technology, short for "know your customer" as well as "know your client" is used to verify a customer's identity. Used commonly by financial institutions and financial service businesses (such as banks, stock brokers, and now cryptocurrency exchanges), KYC confirms that a customer is who they say they are. While some markets will allow you to buy crypto without KYC, it can produce obstacles in the amount you can sell or earn.
Now that we have the two technologies explained, we can go into the possible criminal threats an unregulated market could pose, as well as how KYC could be the answer to many people’s worries.
What possible crimes could be committed with NFTs if the market is unregulated?
If NFTs, or any crypto purchases, remained unregulated, it is possible that they could be used for money laundering, funding terrorism, and tax evasion, among other international crimes.
Why do unregulated NFTs pose a worry to those looking to stop these crimes?
Very much in the same way other unregulated markets pose a threat – in that people with large amounts of money are able to hide or pay money secretly. For example, if the buyers are not verified, someone could theoretically purchase an NFT for a large amount of money, then sell it to a third account (that they own themselves) for a lesser amount of money, reducing their tax liability. Also, art has a long history of being used for monetary crimes, making the NFT art market a particular red flag for financial authorities.
How would KYC prevent these types of crimes?
Because KYC verifies the identities of buyers, it would make it more difficult for someone to masquerade as multiple identities in order to launder money, as their NFT purchase would be attached to a KYC verification.
Is NFT money laundering prevalent?
While there have been no reported cases of money laundering through NFTs, it has been raised as a serious concern by professional analysts. Many global organisations, including the FAFT (Financial Action Task Force), are considering NFTs as potentially dangerous. Because of the global influence of these financial groups, it is highly probable there will be future KYC mandates and market regulation on all crypto sites. This could mean potential issues or fines for those who have bought NFTs without KYC verification.
What would the benefits be of regulating the market and buying NFTs with KYC verification?
There are multiple benefits to using KYC technology in the sales and purchases of NFTs, many of which assist in many NFT artists' goal for the space – to create a safe and democratic marketplace where people can buy and sell authentic work. By using KYC technology, the NFT marketplaces could mitigate the chance of intellectual property theft for artists as well as potential fraud for buyers. With the correct verification in place, both buyers and sellers could be assured of the authenticity of the sale.
KYC technology could also bolster NFT marketplace’s place within the global financial system. The more that purchases and sales are authentic and verified, the less risk they pose for banks and financial institutions, making it more probable that users will be able to make money and the market will be able to successfully grow.
Where can I buy KYC verified NFTs?
Due to current lack of regulation and rules, many NFT marketplaces have yet to implement KYC or other identity verification technology. This poses a risk for buyers and their NFTs worth if the markets do become regulated in the future, which is likely.
The ARTESSERE art market and ArtChips platform offers KYC verification of all NFTs sold – ensuring a copyright and a guarantee of origin and ownership for all buyers.
NFTs continue to be a growing and exciting sector within both the crypto and art sectors, and could lead to a more democratic, accessible, and fair art market. KYC could assist the NFT market to a safe growth, meaning that all buyers could feel secure about their purchases.