US Treasury Departments warns upon potential NFT risks

As the US presidential election unfolds, candidates are having different approaches to cryptocurrencies. While the spotlight for digital assets grew due to crypto being a bipartisan political issue, American voters expect their investment portfolio to include crypto. 

Cryptocurrency may not be a pressing problem compared to inflation, the state of the economy, and gun violence, but it is undoubtedly a factor through which citizens choose their preferred options. 

The media attention brought on cryptocurrencies also influenced the market, as the price of Bitcoin increased during the past election and has been surging since the beginning of the year. However, beyond the interest of candidates and people’s excitement about being able to leverage crypto, US financial institutions are raising questions regarding the proper use of digital tools, such as NFTs, which boomed in the market a few years ago. 

Let’s see what the issue is about. 

NFTs are potentially dangerous for users 

The US Treasury Department has recently developed a finance risk assessment for NFTs to provide more insight into the use of these assets, as the current market is rapidly growing. The institution discussed the urgency of the government to regulate these assets, as this would be the only solution to avoiding potential dangers to consumers, who need more education on the matter. 

The US Treasury identified the following challenges:

• Terrorists making financial operations through NFTs;
• Money laundering;
• Rug-pulls and various forms of fraud;

One of the best examples the institution offered of how illicit actors used NFTs is the event when the North Korean government group and associated hackers were found guilty of digital theft, and NFTs were part of a small percentage of the financial assets stolen. 

Should investors be worried about using NFTs? 

NFTs are similar to every other cryptocurrency tool, meaning they’re both risky and beneficial for anyone interested in investing, which is why everyone should be careful when approaching them. If approached correctly, NFTs can ensure these advantages:

• Dividing an NFT into numerous pieces for buying or selling, making them affordable;
• Being part of a strong community that builds hype around a new project;
• Having true ownership of in-game assets;
• Accessing diversified NFT projects with different use cases and benefits;

However, people should also be wary of these risks: 

• Dealing with high volatility that makes predictions challenging;
• Facing security concerns as NFTs are more vulnerable to attacks than other assets;
• Triggering environmental issues since NFTs are backed by consuming consensus mechanisms; 
• Handling art stealth as minting NFTs is available for most people;

So, how can investors mitigate risks while holding NFTs? 

Introducing NFTs to one’s portfolio is considerably beneficial for building long-term value and exposing yourself to great projects. Hence, the best thing to do is to take time to research a new NFT initiative before investing because it can be a potential fraud. Creators of these NFTs develop a seemingly trustable website and engage in everything possible to make the project seem attractive. Still, they will only flee after the first ICO, so be wary of the possibility of this happening. 

At the same time, not every exciting NFT project will bring significant income or even portfolio value, whether there isn’t enough hype around it or it proved to be useless for the crypto environment. Numerous NFTs flopped through the years, such as BollyCoin, that wanted to become a staple for supporting Bollywood, or Comedy Monsters Club, that experienced a total wipeout only a year after development. 

Types of NFTs to invest in 

Luckily, the number of NFT categories is plentiful and will help you better choose what kind of assets are best fit for your portfolio. For example, if we were to categorize them by use cases, here’s what you can choose from:

• Profile pictures (PFPs), such as CryptoPunks or Bored Ape Yacht Club;
• Digital art tokenized and offering ownership;
• Music that provides musicians with royalties and users with unique content;
• In-game items on platforms like Decentraland;
• Virtual real estate in the metaverse;

There are also NFTs based on interactivity, like static assets that maintain their original form throughout their lifecycles. Dynamic NFTs, on the other hand, can transform due to external sources, while interactive NFTs, such as Axie Infinity, that players use in-game properties.

Finally, NFTs can be classified in terms of token standards, created especially for these assets and assets based on rights and licensing. 

NFTs can become of great value

Although they might not offer spectacular income, especially in the short term, some NFTs have become a great deal in the market by being sold at significant prices. The Merge collection, for example, is the most expensive one on the market, and the digital artist sold it for $91,806,516. It has also won the place for the largest art sale. Another notable mention is Everydays: The First 5000 Days, which sold for $69 million, as the artists’ community was of impressive power to make his art famous. 

You may wonder how these simple images and creations have raised so much money. In the case of The Merge, every NFT is represented by a white circle on a black background that has a unique system behind it, making assets merge and form new NFTs when they reach one’s wallet. Indeed, its current value has decreased considerably, but it has entered history.

On the other hand, Everydays was the product of about 14 years of building a community on platforms that ensured the artist’s significant fame and massive price on the project. He used to post a new digital art piece every day for a long time, which built up fame over time. 

What do you think about NFTs? 

NFTs, or non-fungible tokens, became considerably popular in the past years as the media brought attention to digital land and art with volatile value. As more creators approached their creations, the market became a nurturing environment for such assets. 

However, despite their portfolio benefits, the US Treasury Department warns that users must be careful using NFTs since they pose significant money laundering and theft risks.