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Media

Verified Identities and Reputations to Decrease Fraud

Matthew Warner | April 2020

As people are staying at home and carrying out business online more frequently during the COVID-19 pandemic, law enforcement is warning about an increase in threats that are accompanying the change in activity.

Agencies such as the FBI and the UK Police are warning the public about cryptocurrency scamming. Intergovernmental coalitions like the J5 are updating laws and ramping up operations against cybercriminals that are using cryptocurrency for theft and money laundering. Cryptocurrencies have a bad reputation with the general public, despite the fact that some, including bitcoin, have been used to track criminals who falsely believe that their transactions are completely anonymous. 

Nevertheless, there are plenty of ways to scam people out of money that may go unnoticed, and whilst these can be carried out with online methods that have nothing to do with cryptocurrency, fraudsters certainly use cryptocurrencies as one of their avenues for scamming people, possibly due to the fact that it is still relatively new and misunderstood by many. Even though it is not the safe haven for criminals that many think it is, there is still evidence that cryptocurrency is used for illicit activities, and governments are taking measures to combat this. 

With any scam, the primary targets are often the elderly or special needs individuals in society – those who are vulnerable and need the most help. Traditionally, financial institutions or law agencies may be able to reverse the impact of scams when they are noticed and reported, but, with blockchain-based systems, the design of decentralization makes getting back control of illegally obtained funds problematic. Whilst bad actors may eventually be identified and caught as their activities are traced through the transparent and auditable system, it might not be of much use to the victims of these crimes in terms of getting their money back. 

Until scammers and other criminals realise that they will eventually be caught if they use pseudo-anonymous cryptocurrencies, there will still be innocent people who lose out. 

One solution to this is to provide verifiable identities for everyone involved in the blockchain and cryptocurrency space. With cryptographic techniques such as homomorphic encryption and zero-knowledge proofs, these identities do not necessarily need to be public and the personal data does not need to be shared, but, if transactions online can be accompanied by the verification that the person on the other end has been through identity regulations such as KYC and AML then it builds a level of trust. The profile could be applied to any online transaction or interaction the person made, linking their online life to their physical person – though there would not necessarily be any way to identify them without them choosing to share their information. This could be enhanced by the addition of a reputation value that could be added to the anonymous but verified profile, much as can be seen in use on many internet sites such as eBay or Amazon. The addition of a trust rating system would be an extra measure for individuals – and businesses – to demonstrate to one another that they are trustworthy (depending on their score) without divulging any personal information. 

Blockpass provides just such a possibility, with a user-centric mobile application which users can download to create a verified identity in mere minutes. Users can then choose if they wish to share information to gain access to services or special offers, and can decide whether to engage with them based on the information they require. In conjunction with Edinburgh Napier University, Blockpass set up the Blockpass Identity Lab in 2018, and the work being carried out there will lead to privacy-focused solutions where individuals can prove they are legitimate whilst not having to share any personal information – opening up identity verification between individuals who wish to interact whilst maintaining anonymity and privacy. 

Setup your KYC Connect service in minutes with pay-as-you-go, no setup fee, and free testing – click here!