The Web3 world is doing its best to find solutions to one of the biggest problems in the crypto ecosystem: theft.
More than 46,000 people said they lost over $1 billion to crypto scams since 2021, according to a recent report from the Federal Trade Commission (FTC). The problem has gotten so bad that regulatory agencies and legislative bodies in the United States are now playing a hot potato game asking for help in finding new solutions.
NFT marketplaces are also grappling with ways to combat theft on their platforms. OpenSea recently updated their stolen property policy, for example. In a Twitter thread explaining the update, the company commented on its rationale for not allowing the sale of stolen items on its website, noting that this policy complies with legal requirements in the United States.
This legal requirement has been the source of much controversy on OpenSea. While trying to follow this law to the letter, any asset recognized by the platform as stolen – wrongly or not – has effectively become a dead asset in the OpenSea market. The only recourse for a wrongfully accused user, or a user who unknowingly purchased a stolen NFT, was to transfer the digital asset to another platform to sell or trade there. Not an ideal solution.
In the Twitter thread, OpenSea acknowledged that it has occasionally penalized buyers on its platform who unknowingly purchase stolen NFTs in this manner.
“Based on your input,” the company continued. in the wire, “we have already called for adjustments to some elements of our policy implementation. 1st, we are expanding the ways we use police reports: we have always used them for escalated disputes, but they will now be used to confirm all theft reports. »
The company says that if users do not turn in a police report within seven days of submitting a ticket that an NFT has been stolen, it will reactivate the sale of the item on the platform. The update also makes it easier for NFT owners to transact with formerly stolen assets once the platform has helped recover them. In situations of wrongly tagged theft and successfully recovered assets, the company says it strives to develop a process that does not involve a notary.
What this means for the current NFT theft crisis
OpenSea does not have a perfect track record of handling stolen NFTs on its platform, as many users will attest. The response to the stolen property policy announcement was mixed, with some saying it’s probably better than a massive NFT platform trying to conform to certain legal realities can do that.
Others are unconvinced that OpenSea is sincere about its desire to do good for its community, with responses in the thread ranging from skeptical to downright scathing.
In all honesty, this skepticism is not entirely without justification. Many scandals have rocked the platform in recent months, deeply shaking user confidence. In June, the FBI charged the former OpenSea chief product officer with insider trading. A month later, the company announced that it was laying off 20% of its staff, raising questions about whether or not the platform had acted responsibly in its planning for the cyclical nature of the crypto market.
OpenSea has also shown a lack of specificity in enforcing its policies, such as when it attempted to comply with US sanctions law and banned all Iranian artists from its platform, even though many of them were not legal residents of the country.
How expanding police reporting on OpenSea could help
Requiring police reports for all stolen items on OpenSea could help discourage fraudulent reports of theft, which could have important downstream effects, such as reducing the number of wrongful charges its user base faces. .
The policy update also works in OpenSea’s favor, allowing it to legally comply with necessary regulations while letting the market claim it has done its due diligence to fix the issue.
It’s all pretty messy, and no one is thrilled with the rampant NFT theft on the platform or the proposed solutions. Overall, security in Web3 is a slippery and multi-faceted thing to consider. Ethereum co-founder Vitalik Buterin, for example, recently suggested using stealth addresses for ERC-721 tokens to ensure users’ ability to anonymously transfer, create, and burn NFTs, which could do wonders for a Soulbound token using world.
But these addresses could benefit bad actors in the space, making recovering stolen assets nearly impossible. Using social recovery wallets can reduce risk, but it is not a guarantee. Either way, OpenSea’s stolen item policy update is an example of how difficult it is to manage the other side of the decentralized coin in a Web3 world.
That fraud in Web3 is rampant is hardly a surprise – the nature of DeFi gives a much larger number of ways people can transact online. Yet it also allows malicious actors to take advantage of the very foundation of that freedom. The coming months and years will likely see increasingly serious and creative attempts to balance decentralization with security and a sense of justice, a symmetry that the NFT space sorely needs.