A US Treasury report outlines the potential financial risks of NFTs.

The United States Department of the Treasury has released its first financial risk assessment for virtual tokens (NFTs) to provide greater insight into the potential risks and security risks facing the fast-growing market.

A number of potential risks have been identified, including the potential for terrorists to finance operations through NFTs, state actors using NFTs for nuclear proliferation, money laundering and theft, carpet dragging or other fraudulent means to potential investors. to be well known.

The report reiterates that most of these illegal activities are carried out in fiat financing and transactions, not just in the digital asset space.

“This risk assessment recognizes that the majority of money laundering, terrorist financing, and expansion of the volume and value of transactions occurs through fiat currency or other traditional methods outside the digital asset ecosystem,” the report emphasized.

What's more, the Treasury found that even in the face of investor or market abuse, digital asset fraud occurs through long-standing schemes like blockchain and cryptocurrencies — like Ponzi schemes or taking advantage of insider information. However, the report explains that fraud occurs through mechanisms specific to digital assets, such as smart contract fraud.

Despite this, the Treasury's review indicated a high potential for abuse and illegal activity through NFTs, although the review acknowledged the existence of few examples of NFTs being used for terrorist financing, nuclear proliferation, or drug trafficking.

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Perhaps the most prominent example of malicious activity cited in the report is the theft of digital assets by the North Korean (DPRK) government and related hacking groups to raise revenue for military spending in defiance of US sanctions. Still, the Treasury notes that NFTs account for a small percentage of all digital asset theft, and that other financial institutions have also been hacked by the DPRK.

The report concludes with a number of recommendations to reduce potential attacks via NFTs, including regulating the NFT market, working with industry insiders to prevent fraud, collaborating with external partners to prevent illegal geopolitical activities, and educating consumers about the potential risks to fickle tokens and digital assets. .