Сompliance for NFT marketplaces and P2E games with in-tradable items
Introduction and Stats
According to NFT stats released by blockchain analytics firm Chainalysis Inc., the NFT marketplace grew to $41 billion in 2021, closing in on conventional art sales. In 2020, traditional art and antique sales amounted to $50 billion. Such difference was likely caused by the pandemic starting in 2020, yet looking at the numbers, one could say that since 2014 when the first NFT was released, this market has shown formidable results compared to other tech inventions and/or trends of the 21st century. Moreover, according to CNBC, NFT trading volume rose by 704% between Q2 2021 and Q3 2021, which shows a growing demand for the popularization of NFTs. The adoption of NFTs can explain the influx of volume into gaming and the rise of the Play2Earn concept. Looking at the data, the in-tradable items became a hit in the NFT world.
What are the main reasons for AML/KYC compliance to integrate into NFT marketplaces?
The world of art has been a place to hide illicit funds for a long time. When art becomes digital, it is important not to let NFTs enter the same “dirty” loop since such a significant chunk of the world’s money circulation concerns money laundering matters. There are reasons to impose a series of laws regarding the Anti Money Laundering (AML) procedures. The approval of such policies can be ruled, at least, by 2 apparent reasons: the price of an NFT can be ridiculously high, whereas underaged people do not have a legal right to purchase such expensive items (according to Artnet, the most valuable NFT is worth more than $91.8 million); the purchase of NFT could entail money laundering conducted in favor of individual or a business.
Excerpts from the UK legislation can support the statement, for instance, the Age of Legal Capacity Act 1991. This Act translates that “(a) a person under the age of 16 years shall, subject to section 2 below, have no legal capacity to enter into any transaction; (b) a person of or over the age of 16 years shall have the legal capacity to enter into any transaction.”
Why is this such a huge problem?
Many NFTs can only be purchased with Ether. Owning some of this cryptocurrency and storing it in a digital wallet doesn’t always require a KYC procedure. Ether can be bought with Bitcoin without any age verifications. Thus, it becomes necessary to ensure the safety and legitimacy of transfers.
Following the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017, the transactions conducted by independent legal professionals and trust or company service providers must go through the AML checks. The transactions that go under AML compliance must be related to (a) the buying and selling of real property or business entities; (b) the managing of client money, securities, or other assets; © the opening or management of the bank, savings or securities accounts; (d) the organization of contributions necessary for the creation, operation or management of companies; or (e) the creation, operation or management of trusts, companies, foundations or similar structures.
Conclusion
Setting up a compliant business is essential when talking about mass adoption and attracting giant whales into anything related to crypto. It’s a matter of the fact that it will be increasingly crucial for NFT marketplaces and Play-2-Earn games to build AML/KYC infrastructure, and PureFi is aware of this. Apart from that, both Play-2-Earn games and NFT marketplaces are built on the principles of decentralization and the absence of a minimum involvement of the backends, API, and other attributes of centralized products. It becomes evident that the AML compliance solutions for such projects should be executed on-chain and aspires to become a full value SSI. PureFi Verifiable Credentials SDK recognizes these projects and offers a full-fledged solution for Web 3 businesses.
