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Growing Interest and Risks of Cryptocurrency

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Datavisor - Digital Fraud - April 2022 - A new look at consumers' growing interest in cryptocurrency and how users are navigating its unique risks

While 86% of United States consumers are aware of cryptocurrency, its actual ownership or use remains relatively uncommon, with just 16% of consumers saying they have ever invested in, traded or otherwise made use of it. Interest in cryptocurrency is growing, however, and 38% of U.S. consumers believe the digital currency will have widespread acceptance for financial transactions within a decade. 

This growing interest also means more opportunities for scammers. Growth in digital fraud is nothing new, but cryptocurrency fraud is unique by virtue of the combination of technologies and irreversibility involved in most protocols. Unlike checks or fund transfers, once most tokens have changed hands, the transaction cannot be canceled or reversed. Unlike hard currency, cryptocurrency cannot be physically locked away and is much easier to move, even in large quantities. 

This month, PYMNTS examines the current state of the cryptocurrency space, as well as the risks and rewards it holds. 

Crypto as a Transactional CurrencyDatavisor - Digital Fraud - April 2022 - A new look at consumers' growing interest in cryptocurrency and how users are navigating its unique risks

Recent research from Mastercard found that 93% of North American consumers plan to use cryptocurrency or other emerging payment technologies within a year. A recent PYMNTS report revealed that even among those who originally purchased cryptocurrencies as an investment, nearly 63% would be highly interested in using cryptocurrency to make online purchases that are more private or secure than ordinary transactions. 

Privacy and security are not the only motivations for using crypto as a currency. Among consumers who would use cryptocurrency to purchase real estate if given that option, 40% said their motive would be to eliminate “middlemen” from the transaction. Efficiency and lower transaction costs are other significant motivators for many consumers. Nearly 40% would pay for streaming services with cryptocurrencies for more efficient online payments, and more than 35% would use cryptocurrencies to pay for streaming to have lower online transaction costs. 

Already, significant sums of cryptocurrency are being exchanged for goods and services. Visa reported $1 billion in transactions globally with its crypto-linked cards during the first six months of 2021. Among millennials, 75% said the only thing holding them back from using cryptocurrency is a lack of understanding of how it works. 

Fraud and Regulation in the Crypto Space

While the cryptocurrency space is beginning to come under greater scrutiny from regulatory agencies, the lack of regulatory certainty leaves opportunities for scams and fraud. The general public’s relative unfamiliarity with crypto makes it much easier for scammers to create their own exchanges expressly to scam users. Such exchanges may deny withdrawals, charge exorbitant fees or simply take users’ crypto assets and disappear. Other scammers target well-established or reputable crypto exchanges with attempts to manipulate trading volumes. Datavisor - Digital Fraud - April 2022 - A new look at consumers' growing interest in cryptocurrency and how users are navigating its unique risks

Multiple established exchanges have closed — either temporarily or permanently — due to a proliferation of fraudulent transactions or other scams. Regulators are often stymied by the pseudonymous nature of crypto transactions, with even the best efforts to trace transactions failing to reveal the parties involved. Regulatory action is further complicated by the ease with which cryptocurrencies can be used in cross-border transactions. 

There have also been many high-profile cryptocurrency heists that have occurred. One attack on the decentralized finance (DeFi) platform Poly Network netted the attacker more than $600 million in cryptocurrency. The attacker did not require accomplices, vehicles or a duffle bag to stuff with cash, as they stole every digit of that $600 million electronically — and it was also untraceable. Bad actors are estimated to have stolen $14 billion in cryptocurrencies during 2021. 

Not all crypto exchanges and providers are equal, and DeFi platforms are known to be susceptible to security risks to a greater degree than others. Some services now employ biometrics to help secure users’ assets while also requiring authorization protections such as digital identities and wallet ID tokens. There are other security options, such as multi-factor authentication (MFA), which requires users to confirm through multiple devices or methods that they are who they say they are. Such measures are only as strong as the platforms behind them, however, and attackers have defeated MFA by simply going around it. 

The potential pitfalls of cryptocurrency are many, but consumer interest in it is not going away. Financial services companies and regulators must continue to adapt technologically and operationally to ensure that cryptocurrency matures as a stable, reliable financial tool.

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