People & Money

Crypto Crime Rise to $14 billion As Crypto Payments Hit $15.8 trillion

Luno says its security is “better than bank-grade”’.

The Head of Financial Crime at Luno, a leading global cryptocurrency platform, Eva Crouwel, has said that the company’s security is “better than bank-grade”’.

She was commenting on a report by leading blockchain analysis firm Chainalysis which found that while criminal transactions involving bitcoin and other cryptocurrencies totaled $14 billion in 2021, a rise of 79% from 2020, illicit transactions amounted to only 0.15 percent of total cryptocurrency transactions. Cryptocurrency payments rose by 567 per cent to $15.8 trillion in the same period.

Crouwel added that in 2019, 2.1% of global crypto transactions globally were categorised as illicit but by 2020, the proportion of fraudulent cryptocurrency transactions had dropped to 0.34%, roughly USD 10 billion globally. The incidence of crypto fraud had thus more than halved between 2020 and 2021.

Crouwel said, “while it is a bold statement, based on these numbers Luno can confirm that our security is better than bank-grade.” According to her, “traditional financial service providers like banks would generally consider overall fraud loss thresholds of 5% or even as high as 8% as acceptable”. She compared this risk appetite to Luno’s which she said is “much lower at between 0,5% and 1,5% depending on the region”. She cited a PwC report on fraud losses which found that traditional financial service firms do not further investigate most fraud.

Rising Financial Crime in Africa

Crouwell however noted the rising incidence of financial crime in Africa, citing The 2020 UN Report on Trade and Development which estimates that Africa loses about USD 88.6 million every year.

According to Crouwel, there is a perfect storm of three main reasons for the rise in financial crimes across the continent. “First, financial education levels tend to be lower in Africa, and combined with financial hardship caused by Covid-19, citizens are seeking good returns. Second, crypto is a new technology, so users are uncertain about how it works and how to protect themselves. Finally, personal data in Africa has not been well protected compared to Asian and European markets, even though POPIA was recently introduced in South Africa, one of the continent’s largest economies. This makes it easy for people with bad intentions to get hold of personal information,” she explains.

Also Read: Bitcoin: Most Common Myths Busted

Among its 9 million customers across 40 countries, in around 95% of Luno’s current financial crime cases, customers have been scammed. This varies from traditional ‘get-rich-quick’ scams to cases where customers are scammed into surrendering their login information to fraudsters, who sometimes pretend to be from Luno.

Regulation, or the lack thereof, is a significant factor. “Luno fully supports regulation of crypto and believes that it will help to combat fraud. But the reality is that even highly regulated sectors experience financial crime, especially scams,” she says.

Given that crypto is so new, crypto businesses have a significant role to play in teaching customers how to stay safe and protect customers. Luno uses external blockchain monitoring companies and restricts crypto movements when the data indicates that customers are at risk.

Says Crouwel, “Interestingly, there is no specific demographic for victims, despite widely-held perceptions that scammers target either the ignorant elderly or young mavericks looking to make a quick buck or previously disadvantaged users.”

Luno Keeping customers safe

Crouwel disclosed that Luno recently underwent the rigorous process of independently verifying the existence of customer funds using a proof of reserves report prepared by Mazars South Africa. “The proof of reserve report confirms to crypto holders that their wallets do contain the cryptocurrency stated and avoids the dangerous situation of thinking they have digital assets which don’t exist”, she said.

In addition, Luno conducts financial audits, security audits, audits of reserves, and compliance audits. “We invest heavily in advanced technology that allows our dedicated investigations team to access real-time, tech-driven insights, which means we can respond much more quickly to behaviour that has been identified as risky. We have always said that Luno is a safe platform to secure and store cryptocurrency and we now have external validation of this,”.

Crouwel urged customers to be alert and careful, saying “We also count on our customers to keep the best interest of their funds in mind when dealing with cryptocurrency. We recently embarked on an email campaign to our customers to explain the risks and what to look out for.”

Governments and Regulators see it differently

Regulators are more likely to focus on the fact that cryptocurrency scams grew by 82% last year than on the fact that illicit transactions amounted to 0.15 percent of the total. According to the Chainalysis report, “criminal abuse of cryptocurrency creates huge impediments for continued adoption, heightens the likelihood of restrictions being imposed by governments, and worst of all victimises innocent people around the world”.

The report noted that “Rug pulls”, a term which refers to the phenomenon of scammers suddenly disappearing with investments in newer cryptocurrencies, is significantly responsible for cryptocurrency’s bad reputation. Last year, the creators of “Squid coin”, named after the Netflix hit Squid Game, disappeared with investors’ $3.38 million, erasing all footprint on social media.

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