Digital identity fraud protection

Scrutiny and criminal activity putting longevity of cryptocurrencies at risk

The interest in and growth of cryptocurrency has undeniably surged in recent years. For those who view this digital alternative to cash or credit cards as a viable investment, growth in this sector can potentially change the way our global economic system operates.

However, success will be unattainable unless crypto can shed its negative reputation as an unregulated currency for the black market. The failure of crypto exchanges and wallets to conduct proper identity checks is leading major publications like Fortune, to describe trading crypto as an “online Wild West.”1

Without a framework or standard of accountability with which to comply, fraudsters, criminals and politically exposed persons (PEPs) can trade freely, making many wary. Until the cryptocurrency sector can instill more public confidence in safety and security, the industry will remain niche and far from mass market adoption. In fact, China has banned cryptocurrencies entirely and, in turn, many wallets and exchanges have relocated to Europe and North America. Without regulation, the industry will not be able to sustain itself. 

Regulation is coming 

In an effort to reduce fraud and limit volatility, governments and regulators are considering a framework for anti-corruption that look similar to those offered in traditional financial sectors. Whether these regulations come from within the industry itself or by government mandate, advocates for wider adoption of cryptocurrencies will need more safeguards to sustain the sector for the long term. The US will most likely require cryptocurrencies to become self- or government regulated by 2019, moving in the same general direction as the EU, where more stringent regulations are already in place.

Regulations like those coming from the Securities and Exchange Commission (SEC) and Financial Crimes Enforcement Network (FinCEN), who together agreed upon the Bank Secrecy Act (BSA),  Anti-Money Laundering regulations, as well as self-regulation amongst exchanges, are starting to come to come to light in the US public eye.

And with many cryptocurrency broker platforms experiencing a rapid growth of onboarding requests, we will see a growing demand for fast, accurate and scalable identity verification solutions. The long-term survival and success of cryptocurrency companies hinges on getting ahead of the regulatory curve and on employing identity verification best practices.  

A vision of success

The need for low-friction and seamless onboarding comes right along with the necessity for intelligent and precise security solutions; users can be fickle and expect a fast and easy onboarding experience. Finding the balance between security and seamlessness will be key to progress. Top ranked exchanges employ combinations of email verification and password creation along with password hints, mobile two-factor authentication (2FA), and government-issued document capture and proof of address. 

“Wallets and exchanges want to change perceptions of lawlessness and it’s a relatively straightforward fix. Identity verification processes can be — if implemented correctly — simple for the customer and no barrier to signing up,” says Mitek’s COO, Kalle Marsal. “By incorporating systems that are just as future-looking as cryptocurrency itself, exchanges and wallets can be both competitive and compliant with regulatory demands.”

Learn how Mitek provides digital identity verification and digital onboarding for leading bitcoin broker, BTCDirect.

We now have available a P.A.I.D. Strategies industry scorecard for a cross section of leading exchanges that examines:

  • If the newer wallets have adopted new approaches more aligned with Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements 
  • The onboarding procedures of each 
  • Requirements of each provider for identity verification 
  • Additional security measures 

Read the P.A.ID Strategies report, “Cryptocurrency Identity Crisis” to see how 25 wallets and exchanges ranked for the onboarding and identity verification user experience


References

  1. “Cryptocurrency Exchanges Are Increasingly Roiled by Hackings and Chaos.” Fortune, September 2017. http://fortune.com/2017/09/29/cryptocurrency-exchanges-hackings-chaos/

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