Cryptocurrency and Asset Holder Verification in 2022
There’s been no shortage of stories hitting the headlines in recent years regarding users becoming locked out of crypto wallets and losing millions of dollars’ worth of digital currency due to lost passwords. Out in San Francisco, one man has $240m locked in a Bitcoin wallet that he’s forgotten the password to, and in two more failed guesses, he’ll be locked out forever.
Cryptocurrencies have become a frenzied frontier of speculation and investment, with the market reaching a peak capitalisation of $3trn in November 2021. Whatever your opinion on crypto, it doesn’t look to be going away anytime soon.
While some store their cryptocurrency in “cold wallets”, like our man from San Francisco, most buying or selling cryptocurrency today — either for fiat currency or another crypto —create an account with exchanges, like Binance and Crypto.com. Some users opt to store their assets on these exchanges over longer periods, too.
But with this financial responsibility comes increasing legal scrutiny and regulation, such as Know Your Customer (KYC) and Anti-money Laundering (AML) checks. In some jurisdictions, exchanges are covered by AML regulations, such as AML6 in Europe, while in others the laws surrounding digital assets are still being solidified. Just earlier this month, President Joe Biden signed an executive order on cryptocurrencies, calling on the government to examine the risks and benefits of cryptocurrencies, with consumer protection one of six key areas.
With greater consumer adoption, we’re likely to soon see a level of regulation comparable to the traditional financial services industry. These requirements, however, are at odds with the weak KYC and AML processes in place today at most cryptocurrency exchanges.
As cryptocurrency enters ‘adolescence’, how can these exchanges ensure genuine users have simple, secure, and controlled access to their digital assets?
What are cryptocurrency exchanges, and why is verification important?
Cryptocurrency exchanges act as a bridge between traditional fiat currencies and cryptocurrencies, allowing users to create an account so they can buy and sell crypto.
Many users ultimately opt to store their cryptocurrency on exchanges, so they don’t end up locked out of their funds. Generally, if users forget their password, the exchange can usually help them verify their identity and restore access to the account (unlike with cold wallets).
Despite this financial responsibility, over two thirds of the top 120 cryptocurrency exchanges have weak KYC controls.
Cryptocurrency exchanges need to keep untrustworthy people out, while making identity verification easy and quick for legitimate customers. This is especially important in an expanding and competitive market: potential customers value effortless onboarding and authentication.
Traditional financial institutions devote significant resources to KYC and AML compliance because they’re regulated entities and otherwise face fines and sanctions. Cryptocurrency exchanges need to follow suit.
So, how can cryptocurrency exchanges improve their verification processes?
Biometric facial verification is one compelling means for exchanges to ensure strong identity verification right from the start, completing the most crucial step in anti-money laundering and KYC requirements. As biometric face verification can verify users against a trusted document, such as a passport or driving licence, it can ensure exchanges have the highest level of verification. Unlike other authentication methods, like passwords or SMS OTPs, biometrics is an ‘unshareable credential’, meaning it simply cannot be stolen, hacked or compromised in the same way.
The most advanced liveness verification solutions even have protections against new digital threats like deepfakes, and can help verify that exchanges are dealing with the right person, the real person, and right now - not a photo or mask, a bot or a bad actor, or a video replay or image.
For the user, it couldn’t be easier either. The leading facial verification solutions employ passive authentication principles, meaning they don’t require any additional user effort. No complex instructions to read, understand and execute means it’s easy but also inclusive. As the crypto space becomes more consumer-facing and competitive, offering a seamless onboarding solution like this is invaluable to onboard new customers quickly without compromising security.
Biometric use cases for cryptocurrency exchanges
There are three main security functions biometric face verification can facilitate for crypto exchanges:
- Onboarding: accurately verifying the asserted identity against a photo from a trusted identity document, completing liveness checks and creating a biometric profile – linking the face to the document and verifying the new user.
- Ongoing authentication: using the biometric template provided during onboarding, you can log users back in securely and effortlessly with a brief facial scan. This helps avoid drop-offs by genuine users, as well as preventing fraudster account takeovers.
- Identity recovery: If a user loses their device, or it breaks or gets stolen, they lose the ability to authenticate themselves. As such, cloud-based facial verification solutions are best practice, as these can enable users to securely access their account via any other device without needing to re-enroll.
Next-gen verification, fit for next-gen currency
Crypto is one of the most technically advanced and savvy industries. It feels at odds to wait for regulation to implement security measures that are equally as advanced. Biometric face verification delivers both the level of security and the effortless user experience needed in the industry.
Implementing best practice verification technology is vital for cryptocurrency exchanges to safeguard for the future and show consumers (and the competition!) you’re serious about security.
About the author: Aarti Samani is the SVP Product and Marketing at iProov an ward-winning authentication technology solutions provider that manages the verification of more than 100 million people annually. The company's Genuine Presence Assurance is used by governments, banks and other organisations worldwide.
- The race for smart customer data for the future of fintechFinancial Services (FinServ)
- Starling Bank Founder and CEO Anne Boden steps downBanking
- QED Investors lands $925m in funding for fintech investmentFinancial Services (FinServ)
- Top 10 UK fintechs by total fundingFinancial Services (FinServ)