Why Identity Verification Is Crucial in Fighting Crypto Fraud

Crypto fraud is a growing concern among financial institutions. Identity verification is key to fighting fraud, because it removes fraudsters' anonymity.

Daniël de Jager

 on September 6, 2022. 
Reviewed by 

Joshua Genuth

Crypto fraud is a growing concern among financial institutions. Increased identity verification is key to fighting such fraud, because it removes any anonymity fraudsters have.

Identity verification in crypto requires a client to verify their true identity before being permitted to use a platform's services. While crypto transactions are private, they are not necessarily anonymous, and linking someone's true identity to their transactions helps keep a financial record to fight fraud.

If a platform has identity verification measures in place, it likely takes security seriously. Such platforms are trusted more often by their clients than platforms that only offer anonymity and obfuscation. Crypto payment platforms that verify their clients' identities are also protected by government laws and insurance, allowing their clients to send money with confidence.

How Does Identity Verification Work?

Identity verification is a one-time process linking a client's identity to their transactions. Crypto platforms can verify clients' identities in essentially the same way as any other industry. Know your customer (KYC) verification is the most popular method and is almost universally required by governments for any financial institution.

The crypto industry may seem like a ripe target for payment fraud, even though traditional payment systems like credit cards suffer much more fraud. Crypto payment fraud is actually not very difficult to prevent with the right tools, since there's usually more information available on which to make a decision.

The best solution is to use a fraud protection platform that balances security with a smooth user experience. Adding too much friction to the signup process may chase away clients, so the ideal solution involves using fraud protection in tandem with KYC verification for security that your clients can trust.