Investigating NFT Fraud and Intellectual Property Theft

Non-Fungible Tokens (NFTs) present a distinct investigative challenge. Unlike fungible tokens (like BTC or USDT) where value is liquid and interchangeable, each NFT is a unique asset, often holding subjective value and attached to specific intellectual property.

Investigations into NFT fraud typically fall into three categories: outright theft via phishing, wash trading/market manipulation, and intellectual property infringement.

Tracing Stolen NFTs

NFT theft is most commonly executed via malicious signature requests (e.g., Seaport exploits). A victim connects their wallet to a fake minting site, signs a malicious transaction, and inadvertently transfers ownership of their high-value assets to the scammer.

Tracing the asset itself is relatively easy: you follow the ERC-721 or ERC-1155 transfer events on the blockchain. The challenge lies in liquidity.

• •A stolen NFT is useless to a scammer until it is sold.
• •Scammers immediately dump stolen NFTs on major marketplaces (OpenSea, Blur) below the floor price to secure quick WETH.
• •Investigators must trace not just the NFT, but the subsequent flow of the WETH received from the illicit sale.

Marketplace Interventions

Centralized NFT marketplaces maintain broad authority over their front-end interfaces. They cannot destroy the NFT on the blockchain, but they can hide it from view and disable trading functionality on their platform.

Victims must immediately file police reports and submit them to platforms like OpenSea to flag the asset as stolen. While this prevents the scammer from easily selling it, it can also harm innocent buyers who unknowingly purchase the stolen asset via decentralized aggregators.

Detecting Wash Trading

Wash trading involves artificially inflating the trading volume or floor price of an NFT collection by selling assets back and forth between wallets controlled by the same entity. This is primarily done to deceive buyers or farm marketplace airdrops.

Investigators detect wash trading by identifying cyclic trading patterns and tracing the gas funding networks. If Wallet A sells an NFT to Wallet B, but both wallets were funded by the same initial address, the trade is highly suspect.