Opinion by: Ilya Brovin, chief growth officer at Sumsub
In the latter half of 2024, crypto platforms saw a 20% increase in traffic. As global crypto – specifically in US markets — sees new usage highs and broader institutional adoption, risk increases, too. Market research suggests that as much as 10.2% of the global population is invested in crypto in some capacity. In 2024, roughly one in every 100 digital platform users was affected by a fraud. This goes for crypto platforms, too, meaning about 8 million crypto owners could be entangled in some form of digital fraud.
As these onboarding numbers tick up with launches like fake Trump-branded memecoins , the net of potential crypto and digital fraud victims becomes wider, cheaper and with many new users lacking education, easier than ever. With a changing US administration and widespread crypto-positive sentiment, the boost in crypto interest results in a record-high need for quick and secure onboarding, ensuring that the users onboarded by platforms are who they say they are. Verification speeds and technology are trying to keep up. With automation and AI, verification times improved by 46%, helping onboard users quickly while reducing drop-off rates, but pass rates remain a concern.
Onboarding, monitoring, management
Through the growing use of crypto, global fraud increased, too, seeing a 48% surge. All this new traffic presented ample opportunity for ID fraud, specifically document forgery — the leading fraud type in the crypto industry. But fraud-detection innovation is pushing back. Biometric checks and non-doc verification have boosted onboarding success rates, and notably, all countries that implemented non-doc verification saw drastic improvements in pass rates.
Still, more than 70% of fraud occurs past the onboarding stage. At one time, traditional verification systems were considered robust through Know Your Customer (KYC) and onboarding checks alone. At the rate of today’s technological turnover and crypto adoption, verification technology must go beyond the initial stages, remaining dynamic and adaptive. While KYC is now the legal standard in most jurisdictions, the information they typically require, such as liveness detection, document verification, proof of address and sanctions screening, isn’t enough. Verifying information once is no longer adequate. Companies now must see onboarding through to the next steps of monitoring and management.
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Crypto platforms and businesses must lock down their anti-fraud and Anti-Money Laundering efforts to support this ongoing influx of users. To effectively combat identity fraud, companies must adopt a comprehensive prevention strategy that secures every aspect of the user journey. This includes implementing continuous monitoring and advanced analytics to detect suspicious behavior in real-time and allowing for prompt responses to potential threats, catching them before they turn financially ruinous.
Security adaption for the future of crypto adoption
Industry research surveys show a strong preference for automated third-party solutions and combined methods for anti-fraud, with the US and Canada leading the way in automated third-party solution use. Manual and in-house verification have struggled to meet the fast-moving demands of the crypto industry. That comes from internal verification often falling upon existing IT and security teams lacking the bandwidth to support user influxes and missing some warning signs.
The digital fraud landscape requires a fusion of AI, cybersecurity and identity fraud prevention. In previous years, cybersecurity and fraud prevention have been separate entities within a corporate structure. Still, part of staying ahead of the crypto-hurricane is recognizing the shift in protection needs and merging the two functions — cybersecurity and fraud prevention. In turn, it will be crucial to create a comprehensive defense strategy incorporating capabilities like API inspection, digital risk protection and AI defenses to protect the organization and its users.
Winning the regulatory limbo
Crypto-asset holders and exchanges in the US are still in somewhat of a regulation limbo regarding protection despite the increase in crypto use and adoption. The Travel Rule, which protects against money laundering and terrorism financing for virtual asset service providers (VASPs) and DeFi platforms, would be an impactful protection for many, having already been implemented in crypto hubs like Singapore, Canada, the UK and many countries in the EU. And yet, only 29% of global companies are fully compliant. Lack of regulatory clarity is to blame.
We can expect more potent government-backed verification methods this year as many governments push for more stringent KYC requirements, shifting toward integrating government databases and verifiable credentials. While paper documents will not disappear completely, VASPs can take the lead in adapting more complex verification, supporting both traditional and digital credentials to get ahead of evolving regulations. Simultaneously, the onus remains on companies and platforms to implement protections for their organization and users as government regulation begins to take shape under the new US administration.
Exchanges, crypto users and clients of VASPs that invest heavily in multi-layered prevention strategies combining AI, behavioral analysis and robust verification methods will prevail against the ever-evolving fraud schemes in years to come. On a global regulatory scale, implementing MiCA by the EU is a step in the right direction in mandating strict authorization and governance rules. The question is, will the rate of global regulatory roll-out be fast enough for the digital fraud taking place?
Opinion by: Ilya Brovin, chief growth officer at Sumsub.