Could Cryptocurrency Reduce Frauds? Could Replace Credit Cards?

Does Cryptocurrency Payment Reduces Fraud? Credit Card payments still safe to sellers and the best way for buyers? Which Transaction is Cheaper?

Merchants and Acquirers

Merchants and acquirers lost the remaining $6.12 billion or 28% of the total.

The US accounted for 38.7% or $8.45 billion of gross card fraud losses worldwide, while generating only 22.9% of total global purchase and cash volume. US fraud reached 11.76¢ per $100 last year.

Fraud losses occur from counterfeit cards at the point of sale and automated teller machines (ATMs), card-not-present (CNP) transactions (made online or via mail, telephone, a social network, or mobile app), fraudulent applications, lost and stolen cards, and other smaller categories.

Instances of identity theft and credit card fraud climbed to record levels last year, according to a new study from research firm Javelin Strategy & Research.

The study found that the number of identify fraud cases rose 16 percent in 2016, costing victims a record-setting $16 billion in loses. The firm estimates that around 15.4 million US consumers were affected by fraud — nearly 2 million more than in 2015.

Fraud losses to merchants and their acquirers occurred overwhelmingly from CNP transactions, and the problem is aggressively worsening. Losses to CNP fraud exceeded $5.65 billion last year, with growth in nearly every country. In the US, CNP already accounts for more than 50% of total fraud losses.

By 2020, card fraud worldwide is expected to total $31.67 billion. Even though fraud has worsened every year this decade, it is still lower than the peak years of the 1970s when measured as basis points of total volume.


How fraud victims are affected
The Identity Theft Resource Center’s report, “Identity Theft: The Aftermath 2016” found that nearly 20 percent of Americans surveyed were the victim of some kind of criminal identity theft in 2015. Of those, 9.2 percent said their identity was used to commit a financial crime that resulted in an arrest warrant.9

The effects of this criminal identity theft are staggering. Fifty-five percent of victims missed time from work, and 44 percent said they lost out on an employment opportunity. Additionally, 60.7 percent had to borrow money, and 29.5 percent had to request government assistance, such as welfare or food stamps.

Additionally, as a result of criminal identity theft, victims tapered their use of online accounts (33.3 percent), had to close existing financial accounts (34.3 percent), took out a bank loan (3.5 percent) and even took out payday loans (8.1 percent).9

In 2015, 60 percent of respondents reported they were victims of new account fraud, which occurs when a criminal opens a new account in the name of the victim. Of those, 38.5 percent reported new credit card accounts were opened in their names, while 19.1 percent reported new checking or savings accounts were opened.

Nearly half, 46 percent, of respondents reported fraudulent activity on existing accounts. Of those, 25.7 percent said charges were made to an existing credit card, 21.4 percent said transactions were made using an existing checking or savings account, 15.9 percent said transactions were made using an existing debit account, 10.5 percent said transactions were made on an existing loan or line of credit, and 18.5 percent said transactions were made using another type of financial account, such as PayPal.9

Of those who experienced fraud on existing accounts, 22.4 percent said they changed credit card companies following the fraud.9

When asked how being a fraud victim made them feel, most respondents (69 percent) said they felt fear regarding their personal financial security. Twenty-three percent said they now feared for their physical safety, and 8 percent reported feeling suicidal.

How Could Cryptocurrency be Able to Help?

The typical organization loses five percent of revenues to fraud each year, according to a study by the Association of Certified Fraud Examiners. Unfortunately, fraud in a business can go undetected for a long time and is often hard to uncover. The following three features of blockchain can help make business networks less susceptible to fraud.

Blockchain is distributed

A blockchain is a type of distributed digital ledger containing transaction data that is shared across a peer-to-peer network and continually reconciled. There is no central administrator or centralized version, so there is no single point of failure. Instead, management and authorization is spread across the network, so there is no obvious place for someone to instigate a fraud scheme.

There are several methods fraudsters use to conceal their criminal activities, including altering or deleting information in a company’s accounting systems, changing electronic or paper documents and creating fraudulent files. Using a shared digital ledger can help reduce fraud because it increases the visibility and transparency of the transactions made throughout a supply chain and between members of a business network. Participants can see the history and transfer of assets, so fraudulent transactions are easier to identify. Plus, to tamper with the transaction records on a blockchain, an individual or group of individuals in collusion would have to control a majority of the system.

Blockchain is immutable

Transactions recorded on blockchain are immutable because they cannot be deleted or changed. Before a “block” of transactions can be appended to the blockchain, network participants must agree the transaction is valid through a process called consensus. The block is then given a timestamp, secured through cryptography and linked to the previous block in the chain. Though you can create a new transaction to change the state of an asset, it will simply be added to the chain, and the original record will still be accessible. So, by using blockchain you can see the provenance of an asset, including where it came from, where it’s been, and who’s had ownership of it.

Counterfeiting is a global problem that affects a wide range of industries such as luxury goods, clothing, food products, pharmaceuticals and more. Proving or disproving the authenticity and quality of an asset can be a challenge because traditional supply chains are long, complex and lack transparency. However, if a producer or manufacturer’s goods are placed on blockchain, those goods will have provenance due to their immutable transaction history, and that will make it difficult to pass off fake products as real.

Blockchain can be permissioned

Businesses deal with a lot of confidential data; they can’t let just anyone have access to it. There must be some way to ensure outsiders can’t get in to the network and insiders can’t corrupt the records. This is where permissions come into play. But unlike the previous features I’ve discussed, not all blockchain networks are permissioned. However, permissioned networks can be great for fraud prevention because they restrict who is allowed to participate and in what capacity. Members of a permissioned network must be invited and validated before they can contribute.

Controlling access and identity management are key in a permissioned network. With Hyperledger Fabric, a blockchain implementation framework hosted by the Linux Foundation, participants are issued cryptographic membership cards to represent their identity. That membership card grants access to see the transactions that pertain to them. However, even credentialed users can’t add to the blockchain without consensus, and no one can tamper with records on the blockchain because they are encrypted. Without a way to hide their tracks, fraudsters have a much higher chance of getting caught.

Blockchain against fraud

As one of the top operational risks of 2017, fraud isn’t a problem you can ignore. In addition to being costly, it can decrease employee morale and create an unstable business environment as well as undermine your business and consumer relationships. Use blockchain to take a stand against fraud in your business network. Explore IBM Blockchain and the new IBM Blockchain Platform to see how you can get started.

In February 2016, a central bank was hacked and $81 million was stolen. The hackers sent authenticated messages via the Society for Worldwide Interbank Financial Telecommunications’ (SWIFT’s) messaging service from the Bangladesh central bank to the New York Federal Reserve Bank (NY Fed). The messages authorized transfers via the Fedwire payment processing service to a variety of recipients. Much of the money disappeared; so far, little has been recovered.


As, fraud is getting more and more sophisticated credit cards are not following fraud update speed, it seems that more and more sellers and buyers will choose cryptocurrency instead of credit cards, once they realize it is less risk. But, cryptocurrencies are still too volatile, and that is not safe as well.

So, it is very clear that at some point that will happen, but everything will depend on cryptocurrency stability, and less price fluctuation.

As you can check, sources defending blockchain technology to help prevent fraud are IBM and American Express, and that is a sign, that big companies already see this usage coming from that, and do not want to stay behind.

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Moving Water


  1. Identity Theft Resource Center “At Mid-Year, U.S. Data Breaches Increase at Record Pace” July 2017
  2. USA Today “Top hacks and data breaches” December 2016
  3. CreditCards.Com poll: “1 in 4 Americans checked their credit after Equifax breach” September 2017
  4. EMVCo Worldwide EVM Deployment Statistics
  5. NACS “Mastercard reports decline in counterfeit fraud” May 2016
  6. US Payments Forum “CNP Fraud around the world” March 2017
  7. Experian “Protecting your Financial Future with IdentityWorks” May 2017
  8. Federal Trade Commission “Consumer Sentinel Network Data Book January-December 2016” March 2017
  9. Identity Theft Resource Center “Identity Theft: The Aftermath 2016”