Source: Cointelegraph
Original: “The Tipping Point of User Growth in Cryptocurrency—Can Verification Mechanisms Keep Up?”
Author: Ilya Brovin, Chief Growth Officer of Sumsub
In the second half of 2024, traffic to crypto platforms increased by 20%. As the use of cryptocurrency worldwide—especially in the U.S. market—reaches new highs, institutional adoption expands further, and risks increase accordingly. Market research shows that approximately 10.2% of the global population has invested in cryptocurrency in some form. In 2024, about one in every 100 digital platform users will be affected by fraud. This also applies to crypto platforms, meaning that around 8 million cryptocurrency holders may be involved in some form of digital fraud.
With the launch of projects like meme coins impersonating Trump, the surge of new users has widened and cheapened the network of potential cryptocurrency and digital fraud victims. Many new users lack education, making them more susceptible to scams than ever before. Accompanied by a change in the U.S. government and widespread positive sentiment towards crypto, interest in cryptocurrency has surged, leading to a historic high in demand for fast and secure user registration, ensuring that the users accepted by platforms are indeed who they claim to be. Verification speed and technology are struggling to keep up with this demand. With the help of automation and AI, verification times have improved by 46%, helping platforms quickly complete user registrations and reduce user churn, but the approval rate remains a concern.
Registration, Monitoring, and Management
As cryptocurrency becomes more popular, global fraud has also increased by 48%. All this new traffic provides ample opportunities for identity fraud, especially document forgery—the most prevalent type of fraud in the crypto industry. However, anti-fraud innovations are continuously fighting back. Biometric checks and non-document verification have improved registration success rates, notably, all countries implementing non-document verification have seen significant increases in approval rates.
Nevertheless, over 70% of fraud occurs after the registration stage. In the past, traditional verification systems relying on Know Your Customer (KYC) and registration checks were considered robust enough. However, in today’s rapidly evolving technology landscape and the speed of cryptocurrency adoption, verification technology must go beyond the initial stages and remain dynamic and adaptive. While KYC has become a legal standard in most jurisdictions, the information typically required, such as live detection, document verification, address proof, and sanctions screening, is no longer sufficient. Simply verifying information once is inadequate to address risks. Companies must now extend the registration process into subsequent monitoring and management stages.
Crypto platforms and businesses must strengthen their anti-fraud and anti-money laundering (AML) efforts to support the growing user base. To effectively combat identity fraud, companies must adopt comprehensive preventive strategies that safeguard every step of the user journey. This includes implementing continuous monitoring and advanced analytics technologies to detect suspicious behavior in real-time and respond swiftly before potential threats cause financial damage.
Security Adaptation Required for Future Cryptocurrency Adoption
Industry research shows a strong market preference for automated third-party solutions and composite anti-fraud approaches, with the U.S. and Canada leading in the use of automated third-party solutions. Manual and internal verification methods have struggled to meet the rapidly evolving demands of the crypto industry. This is because internal verification often relies on existing IT and security teams, which typically lack sufficient resources to support the surge in users and may overlook warning signs.
The field of digital fraud needs to integrate AI, cybersecurity, and identity fraud prevention technologies. In recent years, cybersecurity and fraud prevention have been separate functions within corporate structures. However, to remain resilient in the crypto storm, it is essential to recognize the shift in protection needs and merge the two. Therefore, developing a comprehensive defense strategy becomes crucial, which should include features such as API checks, digital risk protection, and AI defenses to protect organizations and their users.
Winning the Regulatory Gap
Despite the growth in the use and adoption of cryptocurrency, crypto asset holders and exchanges in the U.S. remain in a protective regulatory gap. The Travel Rule aims to protect virtual asset service providers (VASPs) and decentralized finance (DeFi) platforms from money laundering and terrorist financing, and this rule has been implemented in several countries, including Singapore, Canada, the UK, and the EU, serving as an important protective mechanism for many. However, currently, only 29% of companies globally are fully compliant, with regulatory ambiguity being a major reason.
This year, we can expect governments to introduce stronger government-supported verification methods, pushing for stricter KYC requirements, moving towards the integration of government databases and verifiable credentials. Although paper documents will not disappear entirely, VASPs can take the lead in adopting more sophisticated verification methods while supporting both traditional and digital credentials to stay ahead of the evolving regulatory landscape. At the same time, as the new U.S. government gradually shapes its regulatory policies, businesses and platforms still need to proactively implement protective measures to ensure the safety of themselves and their users.
In the coming years, exchanges, crypto users, and VASPs clients that invest in multi-layered protective strategies (combining AI, behavioral analysis, and robust verification methods) will stand out in the ever-evolving fraud landscape. On a global regulatory level, the EU's implementation of MiCA (Markets in Crypto-Assets Regulation) is a step in the right direction towards mandatory strict authorization and governance rules. The question is whether the pace of global regulatory rollout can keep up with the current wave of digital fraud.
Author: Ilya Brovin, Chief Growth Officer of Sumsub.
Related: DeepSeek: A Wake-Up Call for Responsible Innovation and Risk Management
This article is for general informational purposes only and should not be considered legal or investment advice. The views, thoughts, and opinions expressed in this article are solely those of the author and do not necessarily reflect or represent the views and positions of Cointelegraph.
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