In its early days, the entire crypto landscape was dubbed by skeptics as the "wild west" of the investment world due to the gold rush mentality attributed to many of its investors. During this period, fraudsters took advantage of the inherent anonymity of blockchain technology and a lack of regulation to steal a fortune via SIM swaps and data breaches. Unfortunately for the outlaws, there’s a new sheriff in town (the Feds) and more cryptocurrency crimes are being curbed as Cryptos adopts advanced digital identity technologies such as cryptographic authentication to prevent fraud and stay KYC-compliant.
In February, the Department of Justice seized over $3.6 billion worth of Bitcoin that was stolen back in 2016. The multi-year investigation underscores the federal government’s increasing interest and technical sophistication when it comes to prosecuting these relatively new forms of crime. Much of the tracing that led to the bust was made possible by Chainanalysis, the “cryptocurrency-tracing equivalent of Palantir,” which has made a small fortune selling its cryptanalysis software to the government. This has given Federal agencies the ability to search blockchains for anomalies that may indicate a financial crime.
In addition to the DOJ increasingly prosecuting crimes committed by cybercriminals, the SEC has announced several new initiatives to protect crypto investors and incentivize Cryptos to provide better fraud prevention for its users:
The SEC advised that an exchange or company holding cryptographic key information for a user or users’ crypto assets in digital wallets should account for those as a liability at fair value of the crypto assets on their balance sheet and warn investors of the risks of safeguarding those assets. Financial statements should include clear disclosure of the nature and amount of crypto assets that the exchange is responsible for holding for users, with separate disclosures for each crypto asset, and the vulnerabilities the exchange has, the staff wrote.
In effect, the SEC’s call for increased liability will push many exchanges to continue investing in cybersecurity and fraud prevention.
As the industry continues to expand, leading Cryptos are turning to cryptographic authentication to reduce fraud, accelerate onboarding, and maintain KYC compliance. Here are three ways that Cryptos can fight fraud and break through the crypto bottleneck using cryptographic authentication:
As cryptocurrency becomes mainstream, it will continue to shed its wild west image by implementing more robust KYC procedures. Those that are able to do so while also providing the best user experience will win. To learn how you can leverage cryptographic authentication to achieve these goals, request a free demo.
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