NFT Wash Trading is a misleading practice about digital assets used by bad actors or scammers. Due to the less regulatory system in blockchain projects, there are many bad actors and scammers who try new practices daily to fool the audience, NFT Wash trading is one of them. Let’s discuss what NFT Wash trading is all about.
What Is NFT Wash Trading
NFT Wash Trading is a practice through which scammers mislead the audience about digital assets. In wash trading, an asset would be sold and bought by the same person to drive up the price of that specific asset.
For instance, an NFT is created and minted by seller A, and the next moment seller A would be a buyer of that NFT. Moreover, if an investor acts as a seller and buyer of the same NFT at the same time, he or she would use two different wallets at the selling and buying time. This practice applied many times to drive up the price of NFT.
How Does It Work?
An NFT is created and minted by an investor with an initial price of $2 and the next moment he or she would buy the same NFT at the price of $2. Now, it would be updated in the distributed ledger with the previous price record which is $2.
Now onward if the seller sells it for even less than $2 at a discount rate of $1 to someone else. So here the seller earns a profit of $1.
Is It Legal?
No, it is not legal because it is the practice used by the bad guy and scammers to mislead investors about digital assets. So that’s why this is completely illegal.
How To Identify Wash Trading
The following practices are done by wash traders through which you can identify the wash trading:
- An NFT bought more time by the same buyer.
- The collection is on high trend but has poor visibility on social media platforms.
- An NFT purchase is more than the actual number of times in a day.
Wash Trading is a technique applied by scammers and the bad guy to mislead investors about digital assets. An investor mints an NFT and purchase the same NFT at the same time to drive up the price of that specific NFT. Furthermore, it is completely illegal.