We’ve learned recently just how extreme crypto assets are. Their market value is subject to huge changes, which means, while there are huge gains to be made, the losses can be devastating too.
Plus, because the Financial Conduct Authority (FCA) doesn’t protect crypto, if your crypto platform goes out of business you’ll probably lose your assets alongside them. In this article we’ll explore how you can protect your crypto assets from fraudsters looking to steal your funds. And fortunately, many pre-existing options on the market can do the job extremely well – let’s take a look.
What New Challenges Are There in the Crypto Market?
Crypto market value is very temperamental: Your assets could either skyrocket or plummet in value. But we also see new risks emerge in the form of crypto fraud. Between October 2020 and May 2021, Pew found that 7,000 people reported losses of more than $80 million via fake crypto schemes (particularly to criminals impersonating Tesla boss Elon Musk).
By 2022, as Chainalysis observes, over $14 billion had been lost by victims due to crypto scams in 2021. The anonymity, irreversibility, and decentralized nature of crypto exchanges make them very much a growing target, as it is almost impossible to receive a refund or to have your funds returned if stolen.
This is a type of social engineering scam. Social media engineering scams, in particular, involve a fraudster pretending to be a person in your community, such as a friend, a boss, or tech support staff. They can be incredibly convincing, but usually, when they ask for your security code or crypto currency from you, it is likely a scam.
What other forms of crypto fraud should you be wary of as a trader? In its guide to credit card fraud detection, SEON explains that account takeover fraud is particularly dangerous if your account is linked to an e-wallet, as crypto accounts often are. In order to gain access, fraudsters might try to persuade the crypto account user to give their security code to them, or transfer funds over to a compromised account they’re using. This means you should watch out for anyone impersonating a person or business that you know.
What about if you’re trying to navigate crypto transactions as a business? Attacks also happen when fraudsters attempt to buy crypto via stolen card details and fake or synthetic IDs. This is the kind of attack that’s most problematic if you’re selling crypto assets. And this is where Know Your Customer (KYC) usually enters the equation.
KYC is something of a new addition to crypto, but it has been introduced to try to combat criminals taking advantage of crypto’s anonymity. It might seem like a contradiction to have KYC checks with crypto, but being able to verify that a customer is who they say they are can in many cases protect you from criminals using fake identification.
Fraudsters will often use workarounds via fake documentation or even biometrics to try to bypass your Know Your Customer checks.
So while many crypto platforms show that they comply with anti-money laundering and KYC checks, sometimes that just isn’t enough. In fact, Investing.com found that 76.5% of fraudulent crypto transactions are carried out by KYC-verified accounts. Not only that, KYC checks are very expensive, especially when you’re dealing with large numbers of customers.
How to Protect Your Business From Crypto Fraud
If the KYC process isn’t enough to stop fraudsters from buying crypto, what do you do then?
Fortunately, there’s a pre-KYC solution in the form of data enrichment. In a nutshell, data enrichment helps you to build a bigger picture of a customer by providing information such as whether they’re hiding behind a VPN, using a disposable phone number, or using an email address that’s not connected to any social media accounts. When combined, these all provide a picture of a very suspicious user.
There are several tools on the market that do this job. Reverse email and phone lookup tools, for example, help you to build a risk profile on the basis of whether they have any social media accounts linked to their phone or email address. Data enrichment tools are able to do this by enriching a user’s primary data point (their phone or email address) with data from other available databases.
Device fingerprinting tools can assign users unique hashes, which shows you what device they’re using so you’ll still be able to detect a user who’s using multiple accounts via the same device – even if they’re covering their IP address with a VPN or proxy server.
Once you have a good idea of whether a customer is risky or not, you can increase your KYC checks via selfie verification or any other form of biometric verification which you think is particularly hard for criminals to fake.
With the help of data enrichment, you can worry less about KYC-approved crypto fraudsters buying crypto via stolen credit card information or fake IDs. This shows that, while crypto markets remain volatile, there’s still plenty you can do to protect both customers and your business from criminals wishing to exploit some of the many features in our new crypto landscape.
