Never before have digital identities been so complicated. Identities are always changing; it increasingly includes aspects of our digital lives, such as our digital and behavioural identities. This poses more challenges to ID verification in the crypto space with increasing frauds, which is becoming more significant as the industry develops.
What is Identity Verification?
As crypto companies strive to achieve a balance between security, compliance, and convenience, many are increasingly employing sophisticated identity verification technologies to validate user identities. ID verification services often examine and verify account holders’ identities by processing data from a variety of sources. This can contain contextual data such as phone numbers and IP addresses, as well as third-party data, such as voter registration information, in addition to ID documents. Crypto exchanges and other businesses can drastically reduce the risk of identity fraud by consulting various data sets.
Crypto firms may need to verify a user’s identity at a number of crucial times, such as during customer onboarding. The most frequent ones include users trying to create a new account, execute a high-value transaction, or transfer the contents of their wallet. Users may be asked for identification documentation in a number of different situations. This might be done by entering a special code that was sent to a mobile device or email address, uploading a picture of an ID so it can be verified against third-party data, or shooting a picture or a video of themselves.
Why is Identity Verification Important?
Fraudsters are increasingly targeting cryptocurrency firms by assuming fraudulent or stolen identities. Payment card fraud, phishing attempts, and transfer fraud are some of the most frequent threats that businesses in the crypto sector are now experiencing. A rising number of fraudsters also use account takeovers to pretend to be legitimate users in order to steal money or transfer illicit money.
Since some users feel less secure purchasing and trading cryptocurrencies, this in turn is eroding trust and having an adverse effect on growth. In fact, according to GBG, nearly one in ten (9%) fell victim to it in the last year, and another 18% were not even sure if they had been defrauded or not. Consumers in the UK and Germany were most likely to fall victim to fraud (both 9%). According to the GBG State of Digital Identity 2022 Report, the percentage was 8% in Spain and 7% in France.
Digital identity verification is a critical tool in the battle against fraud in crypto companies, providing the information needed to identify and prevent fraudsters on a massive scale while preserving the seamless and safe experience that customers now expect when trading online.
Why is Identity Verification Important for Crypto Companies?
As the competition for new consumers intensifies, having an onboarding process that allows them to breeze through and sign up is critical. According to GBG, more than a quarter (28%) said they abandoned signing up for a new online account in the previous 12 months because it took too long, while one in eight (12%) felt it was too difficult.
Many businesses fail to create a good onboarding experience because they are unable to reconcile the twin challenges of providing a seamless experience while continuing to avoid fraud. By learning more about digital identities, companies can layer the correct data, and have the finest technology in place to keep consumers secure in a digital environment and meet increasing consumer expectations.
Fraudsters, on the other hand, have exploited gaps in crypto exchange security by creating new accounts with fake names and using stolen identities to take over existing accounts and empty wallets of any available money. Given the breadth and complexity of these attacks, cryptocurrency transactions and other cryptocurrency companies identified the need for greater security and regulation.
Today, cryptocurrencies are becoming increasingly regulated. This implies that any organisation that allows consumers and businesses to buy and trade cryptocurrencies must adhere to a number of Anti-Money Laundering (AML) and Know Your Customer (KYC) rules. Common approaches, such as requiring users to upload a copy of their ID as well as a photo of themselves or their signature, are no longer enough. They not only fail to meet KYC and AML regulations, but they can also be forgeries using photos taken from social media or personal information posted on the dark web.
To confirm the identities of their users and protect their assets, cryptocurrency companies must adopt more robust identity verification procedures. While many organisations in the crypto sector prioritise regulatory compliance, it is equally critical to provide a smooth experience for consumers whether they create accounts, log in, or make trades.