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Comment by Cthulhu_ | Hacker News Reader

An NFT is a certificate of authenticity, but it applies to something easily copied. If you think the certificate of authenticity is worth something, great; if you think it gives you ANY kind of legal rights or protection, or any kind of DRM or digital anti-copying protection, you're in for a surprise.

TL;DR: NFT's are a money laundering and tax evasion scheme. There is no value for average consumers, unless the NFT appreciates in value over time and there remains a buyer's market for them. But that's highly volatile and uncertain.

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> An NFT is a certificate of authenticity,

It's like a certificate of authenticity that was just written on a napkin by some guy you found on the corner.

How much authenticity does such a certificate convey?

But then you make sure that napkin is really hard to copy! there's only going to be one napkin you got the guy on the corner to write on yesterday attesting to authenticity of something else. (There might be other napkins other guys on other corners wrote on, but only one copy of this one!)

Does it convey more authenticity by virtue of being really hard to copy?

Why does an NFT convey any "authenticity"?

From the OP:

> Alongside platforms that make no effort to prove ownership of artworks for sale, artists are waking up to find that their digital artworks are being sold by fraudsters to unwitting victims.

What authenticity do these NFT's "prove"? Authenticity in what?

Replying to myself, it's actually not even that, you didn't even have the guy on the corner write anything about authenticity on the napkin, you just had him write the title "Mona Lisa" and sign it.

But you can prove this is really the very same napkin you had a guy on the corner of Park and High write "Mona Lisa" on, at 9:45ET on November 9th 2020. It's the very same napkin! So surely you should pay me what the Mona Lisa is worth for it, right?

I can throw in a napkin with "Brooklyn Bridge" written on it if you like...

Everyone likes to talk about how NFTs are just 'a money laundering and tax evasion scheme' as it makes a good story but as far as I see most big investors don't treat it that way and nobody has shown if that's the case for more than a minority of sales.

I get the possible tax evasion schemes, but how would one launder money with NFTs?

my understanding was that you'd buy an NFT at some inflated price using cryptocurrency to be laundered, and on-sell it (having affected its perceived value with the previous inflated sale) but I could be off.

The other use I read about recently was using them as a proxy for buying some sort of illicit good or service, i.e "here's $600,000 for that wink NFT wink I wanted".

Not my space though so might be off by a mile :')

In this case there would still be a very simple trail of the NFT purchase for the asking price.

So what? Say you have an account X which holds funds from criminal operations (e.g. ransomware payments). If you cash it out directly there's no doubt you're a criminal. But if you use that money to pay yourself for an NFT, now you can possibly deny that you have any knowledge about source of X income.

Better yet send money from X through a bunch of privacy oriented tokens like monero, tumblers and mixing services, losing 20-50% in the process and consolidating the rest in account Y. Now you have plausibly clean money but you can't pay taxes yet as there's no paper trail for this income. Solution is easy, buy an NFT from yourself, declare it, pay taxes and buy a new yacht.

If buying a virtual good from oneself at any arbitrary price was easy, money laundering would be solved problem for criminals, regardless of NFTs or not, wouldn't you agree?

That's exactly what's happening right now. But before NFTs the most plausible ways were either opening a business accepting crypto (not unlike meatspace money laundering involving cash-accepting businesses) or having lucky strikes on gambling platforms (where you can play against yourself).

For a larger operation going business route is still preferable but on an individual level NFTs are much easier due to ridiculously high margins that have been normalized there.

How do you know this is exactly what's happening right now? Do you work in the sec space or with tax authorities? I'm genuinely asking, as I'm a layperson in regards to these subjects, and, in my ignorance, I don't see the difference between that and, say, Counter Strike skins selling for 15k USD.

To my understanding, all these things leave simple 1-1 paper trails that can be followed later and lead to consequences, but I might certainly be wrong.

I'm trying to separate people who simply don't like cryptocurrencies and NFTs (which might be your case, I don't know) from actually informed thoughts about what's happening.

You need to pay me for some illicit activity. Instead of having you pay me directly, I produce a set of minimalist pieces of art and issue NFTs for them. You buy them or pay your associates to buy them. The transactions now appear as legitimate trade.

Since both parties have to (supposedly) declare their expenses/income (if the value is high) in their retrospective countries, this scheme is as failsafe as just sending the transaction directly between the two of them.

In your example you have successfully transferred the funds between two parties, but you have not laundered anything here.

I'm not sure I can follow.

The "legit" transaction (NFT<->Money) would be declared and taxes would be paid on any gains.

The "real" product would be delivered off chain and without anybody knowing.

From an outsiders perspective it looks like a high value art purchase.

The purchaser can just claim they spent X on art, sure, declare away.

But how do you recover the funds again? You'll need to declare that you sold art for X, and tax it so you can actually use it.

Again, nothing has been washed here, you've just made a normal transfer with zero benefit.

Oh I see.

I think there are several use cases people associate with NFT. One is money laundering and that is indeed hard as you mention.

The other is payment for illegal services and goods. I can't wire you money for "one assassination" but I can wire you money for "art" because who knows how much it's really worth.

> But how do you recover the funds again? You'll need to declare that you sold art for X, and tax it so you can actually use it.

Yes, in every respect you treat it as legitimate trade, when in fact it's payment for something illegal, in order to conceal that it isn't payment for a legal service or good. That's a basically a dictionary definition of money laundering.

I'm not sure what you expect of it here, or why paying taxes matters. The point is not to evade taxation, but to conceal the illegal transaction and make it appear as though it's legitimate and legal.

> Again, nothing has been washed here, you've just made a normal transfer with zero benefit.

Something has been washed in the sense that you've intentionally created a plausibly legitimate cover for the transaction in order to conceal the illegal goods/services the payment actually concerns.

Well, you're wrong. Seller declares income and pays taxes, but they don't have a duty to track down buyers real identity and check their income sources. Thus you could easily be both buyer and seller but only declare seller part.

This type of money laundering has always been possible somewhat easily. Shell companies can be used for that, and look way more legitimate than paying possibly millions of euros on speculative art - I'd imagine that declaring to the tax man that those extra millions you made this year came from a few ms paint drawings would eventually get one caught.

Physical art has strict laws about sell value and speculation exactly because of that, if NFTs really take off (somehow), it's easy to imagine that the same scrutiny would follow.

I'm curious to understand how NFTs would be used to launder, for instance, drug cash. I often see the expression "money laundering" being used in these discussions without a real understand of how it would work.

Alice owes Bob 10 million dollars.

Bob uses artbreeder.com to generate cool looking AI art piece.

Bob lists it on OpenSea or similar site.

Alice creates a few dummy wallet addresses and makes fake bids on the NFT, eventually winning with 10 million dollars worth of eth.

Money laundered.

Your scheme suffers from the same problem as described in https://news.ycombinator.com/item?id=29160668

Not very well laundered... the transactions and flow of money are trivially traceable.

So it's been trivial to find all of the missing money during the many recent crypto hacks ?

Not so sure about that.

True, they’d probably be more sophisticated and use a zk privacy-type solution like https://zk.money/

Sure, but half the point of laundering is plausible deniability. Bob now has an explanation for why he's received a lot of money in a short space of time from foreign accounts he claims to know nothing about.

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