Mastercard will launch for the first time on Tuesday a new software to help banks identify and cut transactions from fraud-prone cryptocurrency exchanges called Crypto Secure, which uses the "complex" artificial intelligence algorithm to determine the risk of crime associated with cryptocurrency exchanges on the Mastercard payment network. The system relies on the data of the blockchain, a public record of cryptocurrency transactions.
The service is provided by CipherTrace, a blockchain security startup acquired by Mastercard last year. Based in Menlo Park, California, CipherTrace helps businesses and government agencies investigate illegal transactions involving cryptocurrencies. Its main competitors are New York company Chainalysis and London-based Elliptic.
MasterCard launched this service in the context of the rising digital asset market. The amount of cryptocurrency entering wallets related to known crimes surged to a record $14 billion last year, according to blockchain analytics firm Chainalysis. In 2022, a series of high-profile hacking and scams targeting cryptocurrency investors occurred.
On the Crypto Secure platform, banks and other card issuers will see a dashboard with a color-coded rating representing the risk of suspicious activity, with the severity of the risk ranging from "high" to "low" in red to "high" in green. Crypto Secure does not make a judgment on whether to reject a specific cryptocurrency merchant. This decision is decided by the card issuer itself.
Mastercard has used similar technologies to prevent fraud in fiat currency transactions. With Crypto Secure, it is expanding this capability to Bitcoin and other virtual currencies .
Recently, as more banks and payment companies enter the battlefield with their own digital asset transactions and storage services, compliance has become an important focus of cryptocurrencies. Last month, Nasdaq became the latest mature financial company to join Wall Street to embrace cryptocurrency, launching custody services for institutional customers.
Meanwhile, governments on both sides of the Atlantic are seeking new containment measures against the cryptocurrency sector, which so far has mostly lacked regulation. Last month, the Biden administration released its first ever framework on regulation of the U.S. cryptocurrency industry, and EU has approved its own landmark cryptocurrency law.
At a time when digital currency prices fell and transaction volumes dried up, the payment giant is redoubled its efforts to develop cryptocurrencies. Since the peak in November 2021, the entire market has reduced its value by about $2 trillion.
Bitcoin is now worth less than $20,000 — a plunge of about 70% from an all-time high of nearly $69,000 — and Bitcoin has been struggling to climb above meaningful levels in recent weeks.
Despite the sluggish price of digital tokens, the industry's criminal behavior has shown no signs of abatement. A particularly popular way to defraud crypto investors of funds this year is to use blockchain bridges, a tool used to exchange assets from one cryptocurrency network to another. According to Chainalysis, these cross-chain bridging vulnerabilities have caused about $1.4 billion in losses since 2022.
In this context, major financial services companies and cryptocurrency platforms are investing in ways to reduce the risk of transferring illicit income through their systems. Cryptocurrencies are often criticized for being used for money laundering and other forms of illegal activity – a problem stems in part from the anonymous nature of participants on the blockchain network.
However, the development of new software tools makes it easier to track ill-gotten gains from cryptocurrency criminals. Companies are using sophisticated data science and machine learning techniques to analyze data on public blockchains. Mastercard is also looking to keep pace with its main rival Visa. The latter has made clear investments in the cryptocurrency space. In the first quarter of 2022, Visa said it facilitated $2.5 billion in transactions through cards linked to cryptocurrency platforms’ accounts.
Last year, Visa launched a cryptocurrency consulting business that provides customers with advice from launching cryptocurrency features to exploring non-cryptocurrency tokens.
MasterCard declined to disclose the overall dollar value of fiat to cryptocurrency in its 2400 cryptocurrency exchange network, only mentioning that the number of transactions generated by the credit card giant is now at "thousands" per minute.
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