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Space transition and the vulnerabilities of the NFT market to financial crime

Author

Listed:
  • Mohammed Al Shamsi
  • Deborah Smith
  • Kimberly Gleason

Abstract

Purpose - The purpose of this paper is to describe how non-fungible tokens (NFTs) can be used in the commission of financial crime, including money laundering and crypto-fraud schemes, using the framework of the Space Transition Theory. Design/methodology/approach - A literature review relating the Space Transition Theory to crime vulnerabilities related to NFTs is conducted and practical examples illustrating NFT schemes are provided. Findings - The authors find that the Space Transition Theory explains the evolution of financial crimes into the NFT space. The transformation of the art industry from the physical to the virtual space through NFTs underlies the criminal activity surrounding them. NFTs enable crime because of the flexibility, dissociative anonymity, lack of deterrence and anonymity. Research limitations/implications - Criminals can easily take advantage of the users’ limited knowledge of blockchain to defraud them of their money or tokens. These risks accentuate the need to adopt appropriate measures to augment the accountability of NFT transactions. Until such interventions are implemented, the NFT market remains a highly viable space for the perpetration of financial crimes. Practical implications - The dynamic nature of the cyberspace and fast-past underlying technology provide a greater chance to escape than crimes committed in the physical space. The state of security on NFT platforms has elicited concerns from diverse quotas. NFTs pose significant money laundering risks because of the lack of appropriate regulatory mechanisms, generating a need for enhanced oversight and enforcement of sectors of the economy in physical space vulnerable to abuse in the NFT space, including entities such as art galleries, museums, sports teams and luxury brands. Social implications - The Space Transition Theory is also supported in that norms and values regarding ethics and criminal actions in the physical space do not transfer to cyber space. Originality/value - The novelty aspect of this research is in applying the Space Transition Theory to financial crime schemes based on NFTs.

Suggested Citation

  • Mohammed Al Shamsi & Deborah Smith & Kimberly Gleason, 2023. "Space transition and the vulnerabilities of the NFT market to financial crime," Journal of Financial Crime, Emerald Group Publishing Limited, vol. 30(6), pages 1664-1673, January.
    • Handle: RePEc:eme:jfcpps:jfc-09-2022-0218
    DOI: 10.1108/JFC-09-2022-0218
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    Citations

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    Cited by:

    1. Proelss, Juliane & Sévigny, Stéphane & Schweizer, Denis, 2023. "GameFi: The perfect symbiosis of blockchain, tokens, DeFi, and NFTs?," International Review of Financial Analysis, Elsevier, vol. 90(C).
    2. Dany EKA SAPUTRA & Nicoleta ISAC & Waqar BADSHAH & Cosmin DOBRIN, 2023. "Analysis of Potential Threats of NFTS (Non-Fungible Tokens) for National Security and Economic Resilience. A Case Study of Indonesia," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 24(5), pages 696-716, December.

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