Mastercard steps up cryptocurrency efforts with fraud prevention tool

The company exclusively told CNBC that on Tuesday, Mastercard will launch new software that will help banks identify and block transactions from rogue cryptocurrency exchanges.

CipherTrace, a blockchain security startup that Mastercard bought last year, operates the service. CipherTrace, a Menlo Park, California-based company, assists organizations and government agencies in investigating unauthorized cryptocurrency transactions. Its main competitors are New York-based Chainalysis and London-based Elliptic.

Known as Crypto Secure, the system assesses the risk of criminal activity related to cryptocurrency exchanges on the Mastercard payment network using “advanced” artificial intelligence algorithms. The system leverages information from multiple sources, including the blockchain, a public ledger of cryptocurrency transactions.

The solution is being introduced by Mastercard amid an increase in crime in the burgeoning digital asset market. According to statistics from blockchain analysis firm Chainalysis, the amount of cryptocurrency entering wallets with known criminal connections rose to a record $14 billion last year. The year 2022 has also seen a wave of high-profile cyberattacks and scams targeting cryptocurrency investors.

Crypto Secure does not decide whether to reject a specific crypto trader. This decision rests with the card issuers.

Banks and other card issuers are presented with a dashboard on the Crypto Secure platform that includes color-coded ratings for the likelihood of suspicious behavior, with red representing “high” risk and green representing “low” risk.

Similar technology is already being used by Mastercard to stop fraud in fiat money transactions. It extends this functionality to Bitcoin and other virtual currencies via Crypto Secure.

According to Ajay Bhalla, Mastercard’s president of cyber and intelligence business, the move is designed to help its partners “stay compliant with the complicated regulatory landscape.”

In an exclusive interview with CNBC ahead of the product launch, he explained that “the whole digital asset industry is a really huge, significant market now.” “The idea is that we want to be able to offer customers, banks and merchants the same kind of trust in digital asset transactions that we do in digital commerce transactions.”

With more and more banks and payment providers entering the market with their own facilities for trading and holding digital assets, compliance in the cryptocurrency space has become increasingly important. With the launch of custody services for institutional clients this month, Nasdaq became the latest reputable financial institution to follow the launch of cryptocurrencies on Wall Street. What you should know before investing in cryptocurrencies
Governments on both sides of the Atlantic are working to enact new restrictions on the cryptocurrency industry, which until now has largely eluded regulation. While the European Union passed groundbreaking crypto rules of its own, the Biden administration unveiled its first-ever framework to regulate cryptocurrency business in the United States last month.

The world’s largest payments company is investing more heavily in cryptocurrency at a time when its prices are falling and volumes are drying up. Since the peak of a significant increase in November 2021, the market has lost about $2 trillion in total. Since its all-time high of nearly $69,000, the value of one bitcoin has fallen to less than $20,000, and it has been difficult to break that level significantly in recent weeks.

Bhalla responded that the company is “focused on providing long-term solutions to stakeholders” when asked how cryptocurrency price declines have impacted Mastercard’s digital asset strategy. These are market cycles, he added, and they come and go. “I think you need to take the longer perspective because this is a huge business right now, it’s changing and it’s likely to get much, much bigger in the future,” the author said.

Despite the fall in value of digital tokens, crime in this sector has remained stable. Exploiting blockchain bridges, devices used to exchange assets from one crypto network to another, has been a particularly popular means of cheating cryptocurrency investors out of their money this year. Since early 2022, breaches on these cross-chain bridges have cost about $1.4 billion, according to Chainalysis data. In light of this, major financial services companies and cryptocurrency platforms are making investments to reduce the possibility of illegal profits being transmitted through their systems. Partly due to users’ use of pseudonyms on blockchain networks, cryptocurrencies are sometimes condemned for their use for money laundering and other illegal activities.

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