The cryptocurrency industry has provided many opportunities for both businesses and individuals – from borderless transactions to lucrative investments. However, due to their decentralized nature, cryptocurrencies have also brought with them many challenges.
With an anticipated 900 million users by 2028, it’s no wonder that cryptocurrency transactions are slowly becoming a prime target for hackers. But as the saying goes, every problem has a solution, and in this case, this solution is known as advanced transaction monitoring.
It’s an approach that will help you prevent and detect suspicious activities, as well as comply with the ever-changing cryptocurrency regulations. So, let’s see more about how you can implement it and, more importantly – how your cryptocurrency firm can benefit from its use.
Why cryptocurrency transaction monitoring is important
You see, in the past, traditional financial institutions and cryptocurrency businesses were worlds apart. Cryptocurrencies have never been properly regulated, so many associated them with financial freedom. But this has all changed, and crypto regulations now state that cryptocurrency providers must implement robust security measures. That is, monitor transactions.
Simply put, if you do happen to fall victim to fraud, you’ll be experiencing both financial and legal consequences. This is exactly why transaction monitoring rules like the ones used from SEON, help you not only safeguard your business against fraud but also ensure compliance with crypto regulations.
It all comes down to:
- Enhancing security. In a world where everything is within our reach, is there such a thing as being 100% secure? As technology advances, so do the techniques of cybercriminals. It’s an ever-going cat-and-mouse game. So basically, monitoring cryptocurrency transactions in real time is your way to fight back.
- Regulatory compliance. Cryptocurrencies have become so popular that it’s impossible for governments not to take measures into their own hands. However, due to their changing nature, the laws and regulations surrounding them are also subject to changes – the reason why transaction monitoring is designed to keep up with these changes.
A secure business is a successful one, not because it knows how to deal with risks but because it knows how to build trust. When you prioritize safety, you’re showing your customers their money and information are in the right hands, leading them to see you as a reliable provider.
Cryptocurrency transaction risks
If you’re looking to safeguard your company, then you must know what you’re safeguarding it from. You must know that in 2023, hackers managed to steal almost $2 billion in cryptocurrencies. We keep talking about hackers, but what do these hackers actually do?
Fraudulent activities
Fraudulent activities are illegal. They’re practices that individuals conduct in order to gain something, in this case, cryptocurrencies, at the expense of others. They’ve existed even before the internet was invented. The first ever cyber attack happened in 1834 when criminals attacked the French telegraph system and stole financial market information.
Fast forward to today, and this is what cryptocurrency companies have to deal with:
- Exchange and wallet hacks. Yes, hackers have been known to target cryptocurrency exchanges to gain access to user accounts and wallets. While not always successful, exchange hacks are common and can lead to huge financial losses. They often do this by using fake emails or websites to trick them into revealing their login credentials.
- Money laundering. The idea behind cryptocurrencies has always been anonymity. However, hackers can use this to their advantage. They can use cryptocurrencies in order to hide the origin of their illegally obtained funds, which is why monitoring your transactions is important.
- Insider trading. Sometimes, the problem could be coming from within. For example, there are individuals who’d use their access to privileged information to make trades. Insider trading has always been an issue, which is why many companies have turned to transaction monitoring in order to flag suspicious behavior.
Now, there are so many ways in which hackers could attack a cryptocurrency business, or an investor, for that matter. However, the biggest risk you’re currently facing as a cryptocurrency company is failing to comply with legal regulations – not only because you’ll be suffering financially but also because a company that’s been fined can easily lose its reputation.
How cryptocurrency transaction monitoring works
Whether it’s traditional or cryptocurrency transactions we’re talking about, the goal of transaction monitoring stays the same – analyze transactions in order to detect and prevent potential fraudulent activities. How does it do this? Let’s break it down in the section below.
Monitoring transactions in real-time
Advanced transaction monitoring will help you analyze cryptocurrency transactions as they occur, so you’ll never have to worry if something slipped through your fingers. Even if it’s a false alarm, you can rest assured that the software will inform you in a timely manner.
In the case of a 51% attack, for example, where a group gains control over the majority of the cryptocurrency network, monitoring transactions in real-time can make all the difference. These attacks are almost impossible to detect when they’ve put down roots, which is why it’s better to observe them at the time of the attack.
This is how it works. When new information is incoming, the transaction monitoring system will start analyzing it right away, looking for any suspicious behavior. If something happens to deviate from the pattern, it will trigger an immediate alert, giving you enough time to investigate.
Now, who decides on this pattern? Translation monitoring systems are designed to learn from historical transaction data in order to learn more about the transaction, but more advanced transaction monitoring systems might use machine learning to adapt to evolving patterns. So, instead of relying on predefined patterns, you’ll be making decisions based on adapted patterns.
Understanding user transaction patterns
What you need to understand about user transaction patterns is that every user has their own unique ones. This pattern is what the software considers normal behavior, and if something seems to be off, it immediately suspects that a fraudulent activity might be going on.
Here’s what the transaction monitoring software takes into account:
- Transaction frequency. It observes how frequently users conduct transactions – is it daily, weekly, or monthly? If there’s a sudden drop or an increase in the frequency of transactions, then it will immediately flag it as suspicious.
- Transaction amount. Based on our budget, we all tend to stick to a certain transaction amount. This is what the transaction monitoring software takes into account and exactly why it finds transactions where users spend more than usual suspicious.
- Location. It’s completely normal for people to change locations, but the software can easily find this suspicious when it comes to cryptocurrency transactions. This is why you need advanced transaction monitoring software. One that can adapt to the users’ variations in behavior.
The transaction monitoring software can also trigger alerts in case someone changes the device or conducts a transaction at an unusual time of day. While this can be a valid reason to raise suspicion, the software can sometimes be mistaken. However, more advanced systems are more accurate and designed to mitigate false positives.
Adhering to cryptocurrency regulations
In the competitive cryptocurrency market, you don’t want to find yourself on the wrong side of the law. Unfortunately, due to the changing nature of cryptocurrencies and the regulations surrounding them, this can happen even without you being aware of it.
For example, you might focus on advertising your company and attracting customers while forgetting to get yourself familiar with the latest cryptocurrency regulations. You know, we’re human. We all make mistakes, but such a mistake can cost you a lot.
Not only will you be fined on top of already suffering financially, but you’ll also be known as the company that doesn’t prioritize regulatory compliance. And once again, in a competitive market, the last thing you want is to have a negative reputation.
Lucky for you, advanced transaction monitoring systems are designed to help you stay compliant with cryptocurrency regulations. They’re continuously checking if the transactions are in accordance with the latest cryptocurrency regulations.
Safeguarding cryptocurrency transactions
Yes, the cryptocurrency industry is definitely challenging, especially due to the ever-changing regulations, but there’s always a way to deal with these challenges. At the time of writing, advanced transaction monitoring is your ticket to preventing fraud and adhering to regulations.
Cryptocurrency companies like Coinbase, are responsible for the money and information of thousands of customers, so not only is it currently mandatory, it’s absolutely necessary to implement robust security measures, such as transaction monitoring. But don’t just take my word for it; look at the facts and decide for yourself.
Author bio
Makedonka Micajkova is a freelance content writer and translator, always bringing creativity and originality to the table. Being multilingual with professional proficiency in English, German, and Spanish, it’s needless to say that languages are her biggest passion in life. She is also a skilled communicator, as a result of having three years of experience as a sales representative. You can find her on Linkedin.
Disclaimer: The statements, views and opinions expressed in this article are solely those of the content provider and do not necessarily represent those of CoinChapter. CoinChapter will not be responsible in any way for the content of the same. Do your research and invest at your own risk.
