Deepfake Scams Exposed: The Crypto Industry’s New Challenge

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  • Sumsub reports that deepfake fraud is up 128% in the crypto industry in 2023. Deepfake scams increase the threat of crypto fraud.
  • Sumsub conducted an extensive survey, collaborating with over 100 crypto companies and conducting expert interviews within the industry.
  • Deepfakes are a type of artificial intelligence (AI) technology that is used to create hyper-realistic, manipulated video or audio content.

Thanks to social media, our daily lives are intertwined with the lives of countless celebrities whose influence can be both inspiring and, unfortunately, deceiving. Picture this: you’re engrossed in a video on your favorite social media platform when a well-known celebrity you admire and trust endorses a seemingly lucrative investment opportunity. Intrigued, you follow the enticing link, only to discover, to your dismay, that the entire endeavor was an elaborate hoax. Welcome to the disturbing world of deepfake scams, a burgeoning menace increasingly infiltrating the digital landscape. Sumsub reports that deepfake fraud is up 128% in the crypto industry in 2023. Deepfake scams increase the threat of crypto fraud.

State of Verification and Monitoring in the Crypto Industry 2023

The cryptocurrency industry has been a hotbed of innovation and transformation, with blockchain technology disrupting traditional financial systems. However, this rapid growth has also attracted the attention of fraudsters and cybercriminals. In response to this growing threat, Sumsub conducted an extensive survey, collaborating with over 100 crypto companies and conducting expert interviews within the industry. The resulting report, “State of Verification and Monitoring in the Crypto Industry 2023,” provides valuable insights into the evolving landscape of identity verification and fraud prevention. We will delve into the essential findings and implications of this report.

The Growing Threat of Fraud

One of the most striking findings of the report is the alarming rise in fraud within the crypto industry. In 2023, 77% of crypto companies observed new fraud patterns and schemes, signifying a dynamic and evolving landscape for malicious actors. With over 800,000 fraud attempts analyzed, the crypto industry faces an increasing risk of financial and reputational losses.

Deepfakes Take Center Stage

Another concerning trend highlighted in the report is the proliferation of deepfake technology within the crypto industry. Deepfakes, highly realistic artificial intelligence-generated videos or images, have gained popularity among fraudsters. Seventy percent of crypto companies have reported an increase in the use of deepfakes in 2023 compared to the previous year, with a staggering 128% surge. This poses a significant challenge to identity verification and fraud prevention efforts.

Shifting to Non-Doc Verification

To combat the evolving fraud landscape, the crypto industry is significantly shifting from document-based verification to Non-Doc Verification solutions. This transition has resulted in faster verification times, with some regions, like Brazil and Ghana, achieving verification speeds as quick as three seconds. This shift not only enhances the efficiency of the onboarding process but also aligns with the growing user expectation for faster and more streamlined processes.

Reducing Onboarding Times

The crypto industry is experiencing a global trend of decreasing user onboarding times, with verification times nearly halving from 2022 to 2023. This change is primarily driven by user demand for faster processes and a frictionless experience. As the industry matures, the competition intensifies, and crypto firms must adapt to these expectations to remain competitive.

Regulatory Challenges

One of the significant challenges crypto providers face is the ever-increasing stringency of regulations. Cryptocurrency transactions are subject to a complex web of legal requirements, with the Travel Rule gaining prominence globally. Various jurisdictions now mandate compliance with the Travel Rule, adding layers of complexity to the verification process. In this environment, solutions like Non-Doc Verification become essential for crypto companies seeking to remain compliant while streamlining their operations.

Inadequacy of Legacy Verification Solutions

Legacy verification solutions are no longer sufficient to combat the sophisticated fraud threats facing the crypto industry. As the report highlights, the number of fraud cases may decrease, but the methods are becoming increasingly advanced. Comprehensive solutions that cover advanced fraud protection and risk assessment throughout the customer lifecycle are becoming crucial for crypto companies to stay ahead of malicious actors.

Deepfake Threat

Deepfakes, in particular, pose a significant risk to identity verification processes. These highly convincing forgeries can manipulate and deceive even the most sophisticated verification systems. The crypto industry must develop robust strategies to detect and prevent the use of deepfakes in their verification processes.

Deepfakes represent artificial intelligence (AI) technology used to create hyper-realistic, manipulated video or audio content that portrays individuals as saying or doing things they never actually said or did. The term “deep fake” combines “deep learning” and “fake,” reflecting the underlying technology’s use of deep neural networks for this purpose.

Deepfake technology typically involves training a neural network with vast amounts of data. Data such as images and audio recordings of a specific individual. Once the network is introduced, it can generate highly convincing imitations of the person’s appearance and voice. These manipulated media can make it appear that someone is speaking or acting in a way they never have. It’s difficult for the average person to discern the forgery from genuine content.

Deepfakes have garnered attention due to their potential for misuse, including spreading false information, defaming individuals, creating convincing hoaxes, and deepfake scams. They raise concerns about the erosion of trust in media and the potential for their use in various forms of misinformation, disinformation, and cyberattacks. As a result, researchers and technology companies are also developing methods to detect and mitigate deepfake content to combat the potential harm it can cause.

Forced Verification

A concerning trend in the report is “forced verification,” where individuals are verified against their will on behalf of fraudsters. This method underscores the extent to which malicious actors are willing to exploit identity verification processes. Preventing such instances is crucial to maintaining the integrity of the industry.

Document Fraud

While there is a shift from document-based verification, document fraud remains a challenge within the crypto industry. Fraudsters are now turning to using printed documents and entirely forged ID documents to circumvent existing verification measures. Crypto companies must continuously adapt their strategies to address this evolving threat.

Regulatory Challenges Persist

Despite progress in the industry, the report underscores the challenges related to the lack of clear guidance and expectations regarding the Travel Rule. Operational readiness remains a concern for organizations in the crypto space as they navigate the evolving regulatory landscape.

The Need for Ongoing Improvement

The “State of Verification and Monitoring in the Crypto Industry 2023” report sheds light on the dynamic and evolving landscape of identity verification and fraud prevention. The crypto industry faces the dual challenge of increasingly sophisticated fraud methods, such as deepfake scams, and a complex regulatory environment. To thrive in this landscape, crypto companies must invest in advanced solutions. Concepts like Non-Doc Verification to expedite onboarding processes, enhance pass rates, and mitigate the threat of synthetic fraud.

As the industry matures, the need for ongoing improvement in user verification, anti-fraud measures, and compliance with regulatory changes becomes even more apparent. Only through adaptation and innovation can the crypto industry maintain its integrity. And continue to flourish in a secure and trusted environment.

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Kudzai G Changunda
Kudzai G Changundahttp://www.about.me/kgchangunda
Finance guy with a considerable interest in the adoption of web 3.0 technologies in the financial landscape. Both technology and regulation focused but, of course, people first.