In the past 13 years, the creation and spread of cryptocurrencies have taken the globe by storm. Since the debut of Bitcoin in 2009, the cryptocurrency asset class has grown from obscurity to a valuation of over $1 trillion.
Even if the asset class as a whole is highly volatile, it is evident that bitcoin usage is growing. However, there has never been a three-year period during which an investor in a diversified bitcoin portfolio lost money. And with new currencies, protocols, rules, and infrastructures being established daily, many individuals still wish to “bet big” on cryptocurrencies.
If crypto is ever to become a permanent part of the global economy, these currencies must be completely secure. Security is one of the most crucial factors individuals will consider when investigating the ever-changing crypto-sphere. It is frequently the determining factor when holders choose an exchange.
For a cryptocurrency exchange to remain competitive, it must take proactive measures to prevent crypto fraud. Exchanges and platforms can utilize an abundance of excellent fraud detection services to enhance the security of cryptocurrency exchanges.
What is the definition of Crypto Exchange Fraud?
The term “crypto exchange fraud” refers to any fraudulent attempt to pass off an illicit cryptocurrency exchange as a legitimate one. As the most prominent cryptocurrency in circulation, Bitcoin is frequently featured in fraudulent sales, even though other cryptocurrencies are available on these exchanges.
Numerous activities and strategies could be classified as crypto exchange fraud in a broad sense. For an action to be considered fraudulent, the perpetrator must meet the following criteria:
- Try to steal from, deceive, or otherwise manipulate another party intentionally.
- Commit fraud to get money or for another personal gain.
- Knowingly mislead their identity, their goals, or other crucial information.
- Commit fraud within a cryptocurrency exchange
With the expansion of bitcoin as a unique alternative asset class, the occurrence of cryptocurrency exchange fraud has also increased rapidly.
The recorded occurrences of crypto exchange fraud surged by more than 115 per cent between 2020 and 2021. In many instances, the magnitude of fraud (the amount of value being taken) has been increasing.
Types of Cryptocurrency Fraud
The mere existence of crypto exchange fraud should not dissuade interested investors from exploring the broader crypto market; in most cases, these exchanges are highly secure, having developed robust protocols and employing high-quality fraud prevention solutions to protect each user from potential fraud schemes.
Nonetheless, it is vital to be aware of the hazards associated with the use of these platforms, including the most typical types of fraud:
Hacking Fraud:
This theft consists of the precise movement of cryptocurrencies from one digital wallet to another. Even though the blockchain is intended to make stealing nearly difficult, cybercriminals have developed increasingly sophisticated hacking methods. For more detail https://kerbalcomics.com/
Pump and Dump Schemes:
The purpose of these scams is to artificially inflate the price of a cryptocurrency, followed by a significant sell-off that allows the perpetrators to “cash in.” These schemes, which entail large amounts of buying followed by large volumes of selling, are ubiquitous across all classes of volatile assets, including cryptocurrencies.
Ponzi Schemes:
The objective of a Ponzi scheme is to transfer funds to the initial holding source. The creator of a Ponzi scheme will typically collect money in layers (similar to a pyramid scheme), with the promise that “if you can recruit more people, you’ll get even more money back.” Eventually, the number of prospective “recruits” will run out, and the Ponzi scheme will begin to collapse.
Impersonations:
In the digital realm, it is simple for evil actors to undertake impersonations and assume the identity of others. In the context of cryptocurrencies, this might involve a party posing as the founder of a currency or company, a financial counsellor, or another entity that requests personal information. After acquiring the report, the fraudulent party may be able to access digital wallets.
Giveaway Swindles:
There is no such thing as a “free lunch,” and this is especially true in the increasingly competitive world of cryptocurrency. Cryptocurrency users should be suspicious whenever someone promises them free cryptocurrency, unsolicited financial advice or services, or anything else that appears too good to be true.
Initial Coin Offering (ICO) fraud:
The initial coin offering (ICO) is sometimes the most profitable phase of a cryptocurrency’s lifetime; if you are considering investing in a brand-new coin, you should validate that it is authentic.
Why Are Cryptocurrency Exchanges Fraud Targets?
Compared to other markets for speculative assets (bonds, etc.), the bitcoin market is more susceptible to fraud. Even though crypto’s decentralized and public character is one of its most fantastic attractions, it can be problematic for market participants.
There are numerous reasons why cryptocurrencies are susceptible to fraud. But, probably most crucially, the highly volatile and decentralized character of the entire business tends to attract individuals with an exceptionally high-risk tolerance; this makes it very simple to become enthusiastic about a new coin but also relatively simple to fall victim to digital fraud.
In addition, cryptocurrency transactions are digital and irreversible, making it easier for criminals to “take the money and run.” And because most people in this environment are anonymous, fraud victims typically have few legal options.
This creates a precarious position in which the dangers of fraud are relatively modest, but the potential profits from a well-executed deception are substantial.
Five Steps to Cryptocurrency Fraud Prevention on Your Crypto Exchange
If you have recently started a cryptocurrency exchange, it can be tempting to begin recruiting new members immediately. However, it is necessary to recognize that the initial phases of launching a cryptocurrency exchange are crucial; if your exchange develops a reputation for fraud, risk, or any other form of dysfunctionality, your launch will fail.
All cryptocurrency exchanges must therefore invest considerably in security and Cryptocurrency Fraud Prevention techniques.
Utilize Software for Fraud Detection
The most effective method for mitigating the danger and repercussions of crypto fraud is to identify ongoing fraud cases as quickly as possible. The longer it takes to detect fraudulent activity on your platform, the more users it will touch and the greater the damage it will cause.
These broad dangers can be mitigated, thankfully, by a plethora of outstanding resources. Using digital fraud detection software, you can check for any red flags and immediately put an end to various scams. In addition, your users will be pleased to learn that their preferred platform is proactive.
Permit Direct Bank Transfers
By diversifying how capital can be accessed, exchanged, and dispersed on your platform, you can enable your users to take control of their accounts.
Despite the currency’s inherent structure, many crypto users prefer direct bank payments, which are simpler to reverse and potentially monitor. Even while not all transactions may necessitate the use of a bank, providing extra options can be advantageous.
Maintain User Education
Many cryptocurrency exchanges avoid the term “fraud” at all costs. But the greater an exchange’s willingness to disclose information and educate its customers, the greater the likelihood that its users would be able to recognize fraud and prevent costly difficulties.
Moreover, transparent exchanges are more likely to be deemed trustworthy by their users.
Accept identification with a positive attitude
An attractive feature of the crypto sphere is that users may typically maintain anonymity. In certain circumstances, identification verification might add a layer of security.
This is why Binance and several of the world’s other top cryptocurrency exchanges will want evidence of identification from their users.
Enhance Your Data
The significance of data enrichment cannot be emphasized enough.
Data enrichment is a procedure that enables companies (such as cryptocurrency exchanges) to gather more information about their customers, such as their phone numbers, emails, and social media profiles, without asking them directly.
This procedure not only helps weed out potential fraudsters but also helps maintain the security of present users.
Cryptocurrency Fraud Prevention: Critical Considerations
Combating fraud is a constant issue that must be taken seriously by all bitcoin exchanges.
It is insufficient to expect that all vital information will remain secure; exchanges must take proactive measures. However, with the proper resources and protocols in place, these transactions can improve the user experience and dramatically lower the likelihood of a costly fraud-related event. So, we recommend choosing a highly reputable crypto exchange development company and getting started with your secure platform.