How Can Security Compliance Protect Your Crypto Business from Fraud?

Cryptocurrencies have witnessed a meteoric rise in popularity and adoption in recent years. Industries such as finance, supply chain management, gaming, and many others have welcomed a multitude of new blockchain and crypto startups. 

Security is a cornerstone in the world of cryptocurrencies. Businesses operating within this ecosystem should take steps to safeguard themselves and their customers against fraudulent activities.

In this blog post, we will explore the factors that make crypto businesses a prime target for fraudsters, and discuss the importance of being security compliant. 

What makes cryptocurrency so attractive to fraudsters?

The digital age has brought with it an array of advancements, but also new challenges. Fraudsters are drawn to cryptocurrencies for various reasons, including the digital nature of cryptocurrencies, irreversible transactions, decentralization, and anonymity. 

In this section, we will look at each of these factors in detail and discuss how businesses can adapt to minimize their vulnerability.

  • Digital nature: The digital and virtual nature of cryptocurrencies makes them an easy target for hackers and fraudsters. The absence of physical assets, like banknotes or coins, allows criminals to transfer and steal funds with relative ease.
  • Irreversible transactions: Cryptocurrency transactions are irreversible, meaning that once funds are transferred, they cannot be easily returned to the original sender. This characteristic makes them a favored choice for criminals who exploit these features to defraud unsuspecting victims.
  • Decentralization: The decentralized nature of cryptocurrencies allows transactions to occur without the oversight of centralized institutions, like banks or governments. While this offers several advantages, it also presents an opportunity for fraudsters to operate without the fear of detection.
  • Anonymity: Anonymity is another factor that attracts criminals to cryptocurrencies. Users can transact without disclosing their real-world identities, making it challenging to trace and prosecute perpetrators of fraud.

Recognizing these inherent risks is crucial for crypto businesses looking to protect themselves and their customers from fraud.

Why do hackers target cryptocurrency businesses?

The growing popularity of cryptocurrencies has inevitably attracted the attention of hackers, who target crypto businesses for a variety of reasons. 

Let’s explore the factors that make cryptocurrency businesses attractive to cybercriminals, with some real-world examples.

  • Valuable digital assets: Crypto businesses often hold large amounts of digital assets, providing an opportunity for substantial financial gains for hackers. For example, the 2014 Mt. Gox hack resulted in the loss of around 840,000 bitcoins, worth approximately $460 million. This incident highlights the immense value of digital assets held by crypto businesses and the potential windfall for hackers.
  • Relative novelty: The relative novelty of the cryptocurrency industry means that security best practices are still evolving, making some businesses vulnerable to cyberattacks. In 2016, a vulnerability in the DAO (Decentralized Autonomous Organization) smart contract enabled a hacker to siphon off Ethereum coins valued at over $50 million. The DAO hack underscores the potential security risks associated with emerging technologies and protocols in the crypto space.
  • Lack of stringent regulations: In some jurisdictions, the lack of stringent regulations governing cryptocurrency businesses offers an attractive target for cybercriminals. In 2018, Coincheck, a Japanese cryptocurrency exchange, suffered a loss of over $500 million in NEM tokens because of a security breach. This incident led to increased regulatory scrutiny and the implementation of stricter security measures in Japan’s crypto industry.

Understanding these motivations and real-world examples can help crypto businesses better prepare for and prevent attacks.

Types of cryptocurrency fraud

The world of cryptocurrency is not without its share of nefarious activities, and businesses must know the many types of fraud that can impact their operations. By understanding these frauds, businesses can take the necessary precautions to protect their platforms and customers.

KYC/Synthetic/Stolen IDs

Fraudsters use fake or stolen identification documents to create accounts on crypto platforms, bypassing Know Your Customer (KYC) checks. Sometimes, they generate entirely new, fictitious identities, known as synthetic identities, by combining real and fake information. These fraudulent accounts enable criminals to engage in illegal activities, such as money laundering, theft, and market manipulation. In late 2020, the U.S. Department of Justice charged the founders of BitMEX for operating without implementing proper KYC and AML measures, enabling widespread money laundering and other illicit activities.

Account Takeover

Criminals gain unauthorized access to user accounts, often through phishing attacks or by exploiting weak passwords, to steal funds or personal information. In 2019, a phishing campaign targeted Electrum wallet users, resulting in severe losses. The attackers used malicious servers to display fake error messages, urging users to download and install a malicious update, which subsequently stole their funds.

Fiat Penny Drop Frauds

Fraudsters deposit small amounts of fiat currency into multiple accounts to test their validity before initiating larger-scale fraudulent activities, such as transferring stolen funds or purchasing cryptocurrency with stolen credit cards. In 2018, the FBI warned about an ATM cash-out scheme that used fiat penny drops to verify card details before making larger unauthorized withdrawals.

Social Engineering

Phishing, and Vishing: Criminals deceive victims into revealing sensitive information or performing actions that compromise their accounts. One notable example is the 2020 Twitter hack, where attackers used social engineering tactics to gain access to high-profile accounts, including those of Barack Obama, Elon Musk, and Bill Gates. The hackers then tweeted a Bitcoin scam from these accounts, collecting over $110,000 in a few hours.


Hackers secretly use a victim’s computing resources to mine cryptocurrencies without their consent. In 2018, researchers discovered a crypto-jacking campaign called “Smominru,” which infected over 500,000 computers across the globe. The campaign used a botnet to spread the mining malware, generating millions of dollars in Monero for the attackers while causing increased energy costs and decreased device performance for the victims.

Liquidity frauds

Fraudsters exploit decentralized exchange platforms by manipulating liquidity pools to profit at the expense of unsuspecting users. Fraudsters can create a fake decentralized exchange, add liquidity to the platform, and then withdraw the funds once users deposited their assets, causing significant financial losses for the victims.

Money Laundering

Criminals use cryptocurrencies to obscure the origins of illicit funds, making it difficult for law enforcement to trace and seize these assets. In the infamous Silk Road case, the online marketplace enabled users to purchase illegal goods and services using Bitcoin, with funds laundered through a complex web of transactions. In 2015, Ross Ulbricht, the founder of Silk Road, was sentenced to life in prison for his involvement in the operation.

The importance of crypto businesses to become security compliant 

As cryptocurrency businesses strive to build trust with their customers, security compliance plays a vital role in their success. By adhering to these standards, crypto businesses can demonstrate their commitment to security and build a solid foundation for growth.

  • Trust factor: Crypto businesses rely heavily on the trust of their customers. Ensuring that your business adheres to security best practices and complies with relevant regulations can help build trust and foster long-term relationships with users.
  • Fraud prevention: Implementing robust security measures can help prevent fraud and protect both your business and its customers. The absence of proper security measures can expose your business to financial and reputational risks.
  • Regulatory compliance: Compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations is crucial for crypto businesses operating in regulated jurisdictions. Adhering to these policies can help businesses avoid penalties and maintain their operating licenses.

Forms of security compliance to protect your crypto business

Protecting your crypto business against fraud requires a multifaceted approach that incorporates both technical and procedural measures. Let’s look at some unique ways in which you can protect your business against crypto fraud.

Secure, seamless identity proofing

Robust identity verification processes help prevent fraudsters from using fake or stolen IDs. Incorporating document verification, biometric authentication, and liveness detection can add layers of protection. 

  • Document verification involves validating government-issued identification documents, such as passports or driver’s licenses, for authenticity.
  • Biometric authentication uses unique physical traits like fingerprints, facial features, or voice patterns to verify users. 
  • Liveness detection confirms that the person submitting biometric data is present and not using a spoofed image or video.

Educate customers

Increase customer awareness about potential threats and share best practices for maintaining account security. Send regular security updates via email or in-app notifications, provide educational resources such as blog posts or guides, and host webinars on security topics. If you empower your customers, they are more likely to recognize and avoid scams, phishing attempts, or account takeover attempts.

Deploy Data Enrichment Tools

Data enrichment tools help gather more information about your customers, enabling better identification of suspicious behavior. These tools cross-reference data from various sources, like social media profiles, public records, and databases, to pinpoint user behavior. Anomalies or inconsistencies in the data may indicate potential fraud, allowing you to act swiftly and protect your platform.

Improve ID-Proofing Without Adding Friction

Advanced identity verification methods as biometric authentication, can increase security while reducing friction for customers. Other than that, decentralized identity solutions can give users control over their identity data, allowing them to share only the information with service providers. This approach not only enhances security, but also streamlines the onboarding process.

Identify patterns of suspicious behavior with ML and AI tools

Machine learning and artificial intelligence tools can analyze vast amounts of transaction data to detect unusual patterns that may indicate fraudulent activities. These tools can identify trends, establish baselines for normal user behavior, and flag deviations that warrant further investigation. Continuous monitoring and real-time analysis can help you stay ahead of emerging threats and adapt your security measures accordingly.

Use Behavioral biometrics

Behavioral biometrics solutions analyze unique behavioral patterns, such as typing speed, mouse movement, or device usage, to identify suspicious actors. By comparing real-time user behavior to establish profiles, these solutions can detect anomalies that suggest account takeover attempts or fraudulent activities. However, this method is best used in combination with other methods and cannot be fully accurate.


Understanding the factors that make cryptocurrencies attractive to fraudsters, the fraud prevalent in the industry, and the importance of security compliance is crucial for crypto businesses looking to protect themselves and their customers. Implementing robust security measures, such as AML and KYC policies, can effectively prevent fraud and enhance your business’s credibility in the market.

As the crypto industry continues to grow and mature, businesses need to prioritize security to maintain customer trust and protect their assets. By becoming security compliant and adopting best practices, crypto businesses can effectively mitigate risks, foster confidence in their users, and drive sustainable growth in this rapidly developing market.


Can your customers get a crypto charge-back?

No, cryptocurrency transactions are irreversible. Once a transaction is confirmed, it cannot be reversed or charged back.

How to mitigate crypto fraud?

Mitigate crypto fraud by implementing robust security measures, including KYC and AML policies, secure identity proofing, customer education, data enrichment tools, and advanced ID verification methods.

Ways of keeping your crypto funds secure

To keep your crypto funds secure, use strong, unique passwords, enable multi-factor authentication, keep software and hardware up-to-date, and store funds in reputable hardware wallets.

Can cryptocurrency wallets get hacked?

Yes, cryptocurrency wallets can be hacked, especially if they are not adequately secured. Using strong passwords, enabling multi-factor authentication, and keeping software up-to-date can help prevent unauthorized access to your wallet.

Why do hackers target crypto startups and crypto businesses?

Hackers target crypto startups and businesses because they often hold large amounts of digital assets, providing an opportunity for significant financial gains. The decentralized nature of the industry and the lack of stringent regulations in some areas make crypto businesses vulnerable to cyberattacks.

What is multi-factor authentication and how does it enhance security?

Multi-factor authentication (MFA) adds an extra layer of security by requiring users to provide two or more forms of verification when accessing their accounts. MFA can include a combination of something the user knows (like a password), something they possess (like a hardware token or a mobile device), and something they are (biometrics such as fingerprints or facial recognition). Implementing MFA can help prevent unauthorized access to user accounts, even if a password is compromised.

How can crypto businesses monitor and respond to regulatory changes in the industry?

As the cryptocurrency landscape evolves, regulatory changes can impact the way businesses operate and the security measures they must implement. To stay informed about regulatory changes, businesses should actively monitor news from relevant regulatory bodies, subscribe to industry newsletters, and join industry associations or forums. Engaging legal counsel with expertise in cryptocurrency and blockchain can also be beneficial.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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