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Fraud Exposed: The Cryptocurrency Edition

Cryptocurrency has taken the world by storm. With over 34 million Americans owning a cryptocurrency, the digital currency has transformed the FinTech landscape. But as with any new technology, the rising popularity of cryptocurrency as a payment, investment, and trading method opens a door of opportunities for fraudsters to exploit.

Unlike payments made via traditional banks, crypto payments are irreversible. While banks help in processing chargebacks for credit cards used illegitimately, there is no such process in place for crypto platforms. The odds of recovering money lost from fraud attacks are slim, which makes creating trust a key priority in the crypto space.

Companies want to create a fair and secure platform for users to trade on. Since users value privacy, it’s in the best interest of crypto apps and platforms to implement the appropriate level of Know Your Customer (KYC) checks that doesn’t send users running to a competitor’s platform. But what this also means is that while users need to be able to trust the platform before making transactions, it’s also vital the platform knows which users to trust. As crypto continues to grow, it’s important to know the fraud risks to look out for.

3 Types of Fraud on Cryptocurrency Platforms

1. Promo & Referral Abuse

With cryptocurrency becoming a wildly popular way to invest, trade, and make payments, more and more companies are entering the space to reap the rewards. But this means there’s more competition. For crypto apps to stand out and grow their user base, companies will often introduce promotions and referral schemes to reward users with tokens for referring friends.

Since tokens hold real monetary value, they also provide incentive for fraudsters to exploit referral programs. Fraudsters will create tens or even thousands of fake accounts to refer themselves over and over again. To create these fake accounts, fraudsters use stolen identities and fake IDs to bypass KYC checks. Not only does referral abuse result in lost revenue for the company, it also provides the crypto platform with skewed marketing analytics on the success of promotional and referral campaigns.

2. Payment Fraud

Fraudsters may also use stolen credit card credentials to purchase crypto. When the legitimate cardholder realizes an unauthorized payment has been made, they’ll issue a chargeback request to their bank. The legitimate cardholder may get their money back but the crypto platform will end up losing money.

3. Account Takeovers (ATOs)

Another common fraud case to look out for on crypto platforms is account takeovers (ATOs). Cryptocurrency accounts are a lucrative target for fraudsters. Once they gain access to an account, they get direct access to the funds within. This allows them to drain the funds and empty out the account. Fraudsters may also change the login details to lock genuine users out of their own accounts, or delete the account altogether. This breaks the trust of the user and harms brand reputation.

Maintain Privacy While Building Trust

One of the reasons for crypto’s skyrocketing popularity is due in part to users’ anonymity and privacy. Crypto platforms, as a result, must place a strong emphasis on striking the right balance between protecting user privacy and ensuring they still have a high level of security to stop fraud.

SHIELD’s technology enables this by providing real-time fraud detection to stop fraud and build trust. The SHIELD ID, a persistent device ID that remains unique no matter how device parameters change, is a key feature that is used to identify fake users and fake accounts. Suppose a fraudster uses the same device to create multiple user accounts to exploit a referral program. With the SHIELD ID, crypto apps will be able to tell when one device is being used to access multiple accounts.

One advantage of SHIELD’s technology is that it doesn’t require Personally Identifiable Information (PII) and traditional KYC methods to detect fraudulent activity. This enables privacy for users and also helps in creating trust between the crypto platform and their users.

SHIELD’s group of Risk Indicators also identifies the tools being used to commit fraud. For example, if a fraudster was using bots and emulators to create fake accounts, SHIELD’s technology would return this information to the crypto platform in real-time.

With the cryptocurrency industry projected to be worth around an astounding 2 billion USD by 2028, it’s imperative for crypto apps and platforms to implement a fraud detection solution that protects the privacy of their users while continuing to stop fraud and build trust.