While cryptocurrency has exploded in popularity among savvy investors over the last few years, 2022 also saw an uptick in crypto-related fraud and criminal activities. According to data from blockchain analytics firm Chainalysis, the amount of cryptocurrency entering wallets with known criminal connections surged to a record USD 14 billion in 2021. Additionally, scams and hacks targeting high-profile cryptocurrency investors have increased in 2022.
In an effort to combat fraud and criminal activity at the financial institution level, Mastercard has debuted a new software: Crypto Secure.
What Does Crypto Secure Do?
Crypto Secure helps banks and other financial institutions identify fraudulent transactions and cut off the activity resulting from risky crypto exchanges. The system employs AI algorithms to determine the possibility of illegal activity related to bitcoin trades on the Mastercard payment network. It makes use of data from other sources, including the blockchain, which serves as a repository for all cryptocurrency transactions.
CipherTrace, a blockchain security startup acquired by Mastercard last year, powers the service. CipherTrace is a startup based in the United States that assists businesses and government agencies in investigating suspicious cryptocurrency transactions.
How Does it Work?
On the Crypto Secure platform, banks and other card issuers are presented with a dashboard that displays colour-coded ratings based on the risk of suspicious behaviour, with the severity of risk ranging from red for high to green for low. However, Crypto Secure does not decide whether to reject a certain cryptocurrency merchant—that choice is left up to the card issuers.
Mastercard representatives have said that they want to be able to offer consumers, banks, and merchants the same level of trust for digital asset transactions as they do for digital commerce transactions.
Mastercard already employs similar technology to combat fraud in fiat money transactions. Through Crypto Secure, it is extending this functionality to Bitcoin and other virtual currencies. According to Ajay Bhalla, Mastercard’s president of cyber and intelligence business, the change is intended to assist partners in maintaining regulatory compliance.
Compliance has recently taken on increased importance in the cryptocurrency space as more banks and payment providers enter the market with their own facilities for trading and holding digital assets. In September 2022, Nasdaq signalled its first significant foray into the cryptocurrency space by introducing custody services for institutional clients.
Meanwhile, governments on both sides of the Atlantic are looking to impose new restrictions on the crypto sector, which has been largely unregulated. The Biden administration has released the first-ever framework for regulating the cryptocurrency industry in the United States, while the European Union has passed landmark crypto legislation of its own. While Canada still hasn’t passed any regulatory laws concerning cryptocurrency, we’re not that far behind.
Security for Financial Institutions and Customers
While cryptocurrency trading carries risks just like any other trading option, Mastercard’s implementation of Crypto Secure will make it simpler and more convenient for banks, financial institutions, and card issuers to identify and track fraudulent transactions. You can rest easy knowing that there’s another set of eyes guarding your investments.
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