The use and popularity of cryptocurrencies have skyrocketed in recent years. Numerous new blockchain and cryptocurrency firms have found a home in a variety of industries, including finance, supply chain management, gaming, and many more.
In the realm of cryptocurrencies, security is paramount. Companies in this ecosystem need to take precautions against fraud to protect both themselves and their clients.
Why do hackers target cryptocurrency businesses?
The growing popularity of cryptocurrencies has inevitably attracted the attention of hackers, who target crypto businesses for a variety of reasons.
1.Valuable digital assets: Crypto companies frequently possess considerable quantities of digital assets, which presents a chance for hackers to make significant financial advantages. For instance, almost 840,000 bitcoins, or about $460 million, were lost in the 2014 Mt. Gox breach. This event brings to light the enormous worth of digital assets owned by cryptocurrency companies as well as the potential rewards for hackers.
2.Relative novelty: Because the cryptocurrency sector is still relatively new, security best practices are constantly changing, leaving certain companies open to hacks. An exploit in the DAO (Decentralised Autonomous Organisation) smart contract allowed a hacker to steal over $50 million worth of Ethereum currency in 2016. The DAO hack highlights the possible security threats connected to cutting-edge cryptospace technologies and protocols.
3.Lack of stringent regulations: In some jurisdictions, the lack of stringent regulations governing cryptocurrency businesses offers an attractive target for cybercriminals. In 2018, Coincheck, a Japanese cryptocurrency exchange, suffered a loss of over $500 million in NEM tokens because of a security breach. This incident led to increased regulatory scrutiny and the implementation of stricter security measures in Japan’s crypto industry
Types of fraud with cryptocurrencies
There are dishonest business practices in the bitcoin space, and companies need to be aware of the various fraud schemes that might affect their operations. Businesses can safeguard their clients and platforms by taking the appropriate measures if they are aware of these crimes.
1.KYC/Fake/Stolen Identification: By using forged or pilfered identity documents, scammers avoid Know Your Customer (KYC) procedures while opening accounts on cryptocurrency sites. Occasionally, they combine phoney and actual information to create whole new, false identities, referred to as synthetic identities. Forensic operations like theft, market manipulation, and money laundering are made possible by criminals by these false accounts.
2.Takeover of Accounts:For the purpose of stealing money or personal data, thieves frequently use phishing attacks or weak passwords to obtain unauthorised access to user accounts. Users of the Electrum wallet were the subject of a phishing campaign in 2019, which caused significant losses. The attackers tricked customers into downloading and installing a malicious update that stole their money by posing as problem messages and using fraudulent servers to show them.
3.Penny Drop Frauds on Fiat: Before beginning more extensive fraudulent operations, such as moving stolen money or buying bitcoin with credit cards that have been stolen, fraudsters test the legitimacy of many accounts by transferring modest sums of fiat currency into each one. The FBI issued a warning regarding an ATM cash-out technique in 2018 that involved using fiat penny drops to confirm card information prior to making larger, illegal withdrawals.
4.Frauds involving liquidity:Fraudsters take use of decentralised exchange platforms by controlling liquidity pools in order to defraud gullible users. After users deposit their assets, fraudsters can fabricate a phoney decentralised exchange, increase platform liquidity, and then take the money, leaving the victims with large losses.
5.Laundering of money:Cryptocurrencies are used by criminals to hide the source of their illegal funds, making it more difficult for law authorities to find and recover these assets. The notorious Silk Road case involved an online marketplace that allowed users to use Bitcoin to buy illicit products and services, with the money being laundered through a convoluted series of transactions. The founder of Silk Road, Ross Ulbricht, received a life term in prison in 2015 for his role in the enterprise.
The significance of crypto enterprises adhering to security regulations
Security compliance is essential to the success of cryptocurrency businesses as they work to gain the trust of their clients. Crypto businesses may show their dedication to security and lay a strong basis for expansion by following these guidelines.
Trust factor:The confidence of their clientele is crucial for cryptocurrency enterprises. Making sure your company abides by applicable laws and security best practices can help you develop enduring relationships with users by fostering trust.
2.Fraud prevention: Implementing robust security measures can help prevent fraud and protect both your business and its customers. The absence of proper security measures can expose your business to financial and reputational risks.
3.Regulatory compliance: Compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations is crucial for crypto businesses operating in regulated jurisdictions. Adhering to these policies can help businesses avoid penalties and maintain their operating licenses
Security compliance methods to safeguard your cryptocurrency business
You need to take a multipronged strategy to safeguarding your cryptocurrency firm from fraud, including administrative as well as technical precautions. Let’s examine some novel approaches to safeguarding your company from cryptocurrency fraud.
1.Educate customers:Inform customers about possible risks and effective measures for preserving account security. Regularly send out security updates by email or in-app notifications, offer tutorials and blog articles as teaching materials, and hold webinars covering security-related subjects. Customers are more likely to spot and steer clear of frauds, phishing schemes, and account takeover attempts if you give them greater authority.
2.Use Tools for Data Enrichment:With the use of data enrichment technologies, you may learn more about your clients and identify questionable activity more accurately. To identify user behaviour, these technologies cross-reference data from multiple sources, such as databases, public records, and social media profiles. Data anomalies or discrepancies could be signs of possible fraud, enabling you to take quick action to safeguard your platform.
3.Improve ID-Proofing Without Adding Friction:Advanced identity verification methods as biometric authentication, can increase security while reducing friction for customers. Other than that, decentralized identity solutions can give users control over their identity data, allowing them to share only the information with service providers. This approach not only enhances security, but also streamlines the onboarding process.
4.Use ML and AI techniques to spot abnormal behaviour trends.: Large volumes of transaction data can be analysed by machine learning and artificial intelligence systems to find odd trends that might point to fraud. These technologies have the ability to spot patterns, set benchmarks for typical user behaviour, and highlight deviations that need more research. You can stay ahead of new threats by implementing real-time analysis and continuous monitoring, and you can then modify your security measures as necessary.
5.Apply behavioural biometrics:In order to identify suspicious actors, behavioural biometrics systems examine distinctive behavioural patterns like typing speed, mouse movement, or device usage. These systems compare user behaviour in real time to create profiles, which allows them to identify anomalies that may indicate fraudulent activity or attempts at account takeover. But it works best when combined with other techniques and cannot be fully accurate.
In conclusion, businesses in the cryptocurrency space that want to safeguard both their clients and themselves must comprehend the elements that attract scammers to cryptocurrencies, the fraud that occurs frequently in the sector, and the significance of security compliance. Strong security measures, such AML and KYC procedures, can successfully stop fraud and improve your company’s reputation in the marketplace.
Businesses must put security first as the cryptocurrency market develops and grows in order to keep customers’ trust and safeguard their funds. Crypto businesses may successfully manage risks, cultivate user confidence, and promote sustainable growth in this fast emerging market by implementing best practices and becoming security compliant.