The digital asset market is heating up and is predicted to be worth almost $2 billion by 2027, and this quick growth is making it all the more important for the exchange platforms facilitating cryptocurrency trades to keep out fraudsters. Bad actors who manage to onboard with platforms or take over legitimate users’ accounts can swindle their victims out of digital assets and use accounts to perpetrate far-reaching crimes such as money laundering and funding criminal activities. Crypto exchanges may find it advantageous to offer strong security to thwart bad actors, but they also want to avoid imposing roadblocks that could deter genuine users from signing up.
The tensions involved in balancing security, customer privacy and convenience have long been on display in the cryptocurrency sector. Digital assets’ ever-shifting values drive many new investors to get up and running fast, meaning they have little inclination to plod through lengthy know your customer (KYC) checks. Some digital assets also aim to attract users by allowing them to trade anonymously or to shield their true identities with pseudonyms, and users who prioritize such privacy may be reluctant to provide many identifying details. This makes it imperative that exchanges learn to provide seamless onboarding experiences that can reassure users about their privacy while still locking out fraudsters.
The inaugural Future Of Identity Report, a PYMNTS and AU10TIX collaboration, examines this rich space to explore how cryptocurrency platforms are currently tailoring their KYC approaches and leveraging robust verification tools to build trust and convenience, as well as how their approaches may evolve in the future.
Around The Identity Verification Space
Traditional payments players are taking note of cryptocurrencies’ growing popularity and are getting more involved in the space. Mastercard, for example, recently declared that it would start processing cryptocurrency payments for digital tokens that meet certain criteria related to data security, financial regulation compliance and price stability. This may prove to be a tall order, however, as the financial services company is reportedly still working to identify a cryptocurrency that meets its needs.
Cryptocurrency users are also reconsidering how they balance privacy and security. Many customers enjoy the privacy offered by anonymous decentralized finance options, but some have discovered that this gives them little recourse should they forget their passwords or private keys. The space’s general lack of regulatory organizations can mean that there is no entity to help users reset or recover their passwords. One bitcoin user has been locked out of $220 million worth of digital tokens that he has held in a crypto wallet simply because he cannot remember his access credentials, for example.
Crypto exchan
ges are also facing strong incentives to demonstrate that their fraud-fighting strategies are robust, as doing so can put customers at ease and be critical to deterring regulators from imposing restrictive new policies. India’s government, for example, is considering a proposal to ban all private digital currencies. The move is likely the product of a perception among government officials that cryptocurrencies are too often used to fund criminal activities. Crypto platforms that already have strong KYC procedures in place could thus do well to advertise and promote their identity verification strategies to allay regulators’ concerns and persuade them that all-out bans are unnecessary.
Read more on these and other headlines in the Report’s News and Trends section.
How Crypto Exchanges Balance ID Verification Speed And Rigor
Crypto exchanges need to thwart fraudsters without deterring new users who are eager to quick, simple onboarding processes. Making ID verification seamless as well as secure requires using the right tools and strategies, said Stephen Cheng, chief compliance officer and Bank Secrecy Act (BSA) anti-money laundering (AML) officer at Prime Trust, a financial infrastructure provider serving crypto exchanges and other FinTechs. In the Feature Story, Cheng details how artificial intelligence (AI), progressive KYC and other strategies can help exchanges deliver trusted, convenient experiences.
Find that story in the Report.
Deep Dive: Tailoring KYC For Secure, Smooth User Experiences
Crypto users may be sensitive about how much identifying information they provide during onboarding, as many are interested in the anonymity that digital asset marketplaces offer. Crypto exchanges still need to obtain at least some details if they want to fend off fraud and foster trust in their platforms. The Deep Dive examines the challenges exchanges face when trying to secure their ecosystems while guaranteeing low-friction, convenient onboarding and digs into the emerging strategies that exchanges can use to meet these needs.
Get the full scoop in the Report’s Deep Dive section.
About The Report
The Future Of Identity Report, a PYMNTS and AU10TIX collaboration, examines how businesses are using modern identity verification tools to provide tight security and smooth customer experiences.