As an analyst with a background in technology and finance, I’ve closely followed the cryptocurrency market’s growth and development over the past few years. The current user base of approximately 425 million is impressive but falls short of the optimistic adoption estimates we were seeing just a few years ago. This slow growth has negatively impacted the value of cryptocurrencies and hindered their widespread adoption.

As a crypto market analyst, I’ve observed that the global user base of cryptocurrencies has grown to around 425 million, representing about 8% of the world’s estimated 5.44 billion internet users. However, this figure pales in comparison to the bullish adoption predictions circulating among investors only a few years ago. For instance, Crypto.com had projected a market surpassing one billion users by 2022.

As a researcher studying the cryptocurrency market, I have observed that a sluggish growth in user base has negatively affected the worth of digital currencies. The diminished liquidity in smaller markets poses challenges for traders looking to execute significant orders, which subsequently causes price fluctuations and amplifies volatility. This heightened instability makes investing in cryptocurrency an uncertain proposition for the average individual.

Efficient markets operate at their best when they are fully populated, leading to a more authentic market value for assets. This situation fosters greater possibilities for diversification, enhances the process of identifying fair prices (price discovery), and broadens the array of available cryptocurrencies.

As a crypto investor, I’ve come across various reasons that hinder some people from exploring cryptocurrency opportunities. Some of these reasons include a lack of familiarity with blockchain technology, concerns about security, and regulatory uncertainty. However, there is another less-discussed factor that could be hindering wider adoption: the mandatory Know Your Customer (KYC) procedures that are implemented to prevent fraud. While these protocols are important for maintaining trust and security within the crypto ecosystem, they can create additional barriers to entry for potential investors who may find the verification process time-consuming or intrusive.

A fraud-frightened environment

For a novice signing up to a cryptocurrency exchange, the experience ought to be straightforward, swift, and uncomplicated. Ideally, purchasing digital currencies with a credit card should only take a few seconds. Regrettably, this streamlined process is seldom feasible for new clients because of fraud prevention measures.

As a analyst, I would rephrase it as follows: I’ve noticed that new users often encounter lengthy and intricate Know Your Customer (KYC) procedures. These procedures encompass various steps such as email and phone verifications, solving captchas, submitting picture IDs for verification, and recording face videos.

As an analyst, I’ve observed that not all credit card transactions are approved, and there are limitations to the amount that can be transferred via ACH. Consequently, many transactions are directed through 3DS (3-Domain Secure), which unfortunately results in unnecessary rejections by issuers or trading platforms with stringent rules designed to prevent expensive chargebacks and penalties.

Know-your-customer (KYC) is an interesting example of an often unnecessary rule. Exchanges are required by law to comply with KYC regulations. However, many go beyond the requirements of the law, hoping that more KYC will protect them against fraud. For example, in the United States, KYC has a $3,000 threshold before it is required. Any cryptocurrency purchase below that threshold doesn’t require KYC. Yet, all crypto exchanges put new customers through their KYC protocols for purchases as low as $100.

As a researcher, I’ve discovered a disconcerting truth: approximately 80% of fraudulent activities originate from accounts that have already undergone Know Your Customer (KYC) verification processes. This unfortunate fact poses an additional challenge for new investors trying to enter the market. Criminals have devised ways to circumvent KYC protocols, often acquiring such verified accounts for as low as $50 on the dark web.

KYC (Know Your Customer) is an essential instrument for governments in combating money laundering, but it merely gives a false sense of security to exchanges against fraud. In truth, this regulation facilitates more fraudulent transactions while introducing added complexity that frequently deters new crypto investors. Ultimately, this leads to lost business opportunities, significant fraudulent chargebacks, and unintentional hindrances in the broader adoption of cryptocurrencies by a larger audience.

In a regular situation, a 27-year-old account executive named Jennifer L. came across an article about Ethereum and felt intrigued to explore the crypto market. She visited Coinbase with the intention of buying $20 worth of this digital currency. However, upon providing her payment information, she was required to upload images of both sides of her driver’s license or passport as verification. Subsequently, she was asked for a photograph holding the ID in hand. Finding the process cumbersome for such a small investment, Jennifer cancelled the purchase and is less inclined to attempt it again anytime soon. Cryptocurrency platforms encounter numerous abandoned carts due to these stringent verification processes.

Regrettably, many payment systems decline transactions from suspect customers without prior notice. New users are disproportionately affected by this, as they have yet to establish a reliable track record with the payment system.

Raising the market and its ecosystem

In every sector, there exists a complex network of businesses and suppliers that thrive or struggle depending on their success, with the cryptocurrency market following suit. A shrinking investor base translates into a diminished audience for publications, advertisers, investment advisors, and blockchain developers. Additionally, it limits the possibilities for creating new digital currencies or technological innovations, designing marketing strategies, and conducting in-depth market analyses.

If cryptocurrency manages to streamline the process of bringing in millions of potential users who are currently being deterred by fraud concerns, it has the potential to expand its market reach, foster a larger ecosystem, and enter a period of unprecedented innovation. This could be achieved by lessening the reliance on Know Your Customer (KYC) procedures beyond regulatory necessities, transitioning from traditional rule-based credit approval systems, and implementing advanced AI screening solutions based on user behavior.

As a researcher in the field of artificial intelligence (AI) and financial technology, I can tell you that AI systems are designed to make precise transaction approvals in an incredibly short amount of time – often within 300 milliseconds. This speed is essential for keeping up with the fast-paced world of cryptocurrency purchases. Not only do these AI systems approve transactions from a large number of first-time users, but they are also adept at detecting and rejecting fraudulent activities. The integration of AI into crypto exchange platforms signifies a significant step forward in realizing the full potential of the market.

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2024-07-04 17:04