What is NFT wash trading?
NFT wash trading is a type of scam in which the same NFT is sold back and forth between two accounts owned by the same person or group of people. This is done to artificially inflate the price of the NFT and make it appear more valuable than it actually is.
How does NFT wash trading work?
Here is an example of how NFT wash trading works:
Alice creates an NFT and lists it for sale on an NFT marketplace.
Alice then uses a different account that she controls to buy the NFT from herself.
Alice then lists the NFT for sale again, but this time at a higher price.
An unsuspecting buyer sees the NFT listed at the higher price and buys it, thinking that it is a good investment.
In reality, the NFT is not worth the higher price that the buyer paid. The buyer has been tricked into buying an NFT that has been artificially inflated in value.
How to avoid NFT wash trading scams
Look for NFTs that have a high trading volume. This is an indication that the NFT is in demand and is not likely to be involved in a wash trading scam.
Check the NFT's seller rating. A seller with a good rating is less likely to be involved in a scam.
Use a NFT trading platform that has measures in place to prevent wash trading.
Is NFT wash trading illegal?
In some jurisdictions, NFT wash trading is illegal. In the United States, for example, wash trading is considered a form of market manipulation and is illegal under the Commodity Exchange Act.
However, in other jurisdictions, the legality of NFT wash trading is unclear. This is because NFTs are a relatively new asset class and there is no clear legal definition of what constitutes wash trading in the context of NFTs.
Conclusion
NFT wash trading is a scam that can be used to artificially inflate the price of NFTs. By doing your research and only buying NFTs from reputable marketplaces, you can help to avoid falling victim to this scam.
