Usually it’s a good thing when numbers go up. For crypto platforms, rising transaction volumes mean more transactions, more customers, and more revenue. But there’s another number that’s been going up, and it’s not one to celebrate: fraud losses. Crypto-related crime reached $46.1 billion in 2023 and have reached $40.9 billion in 2024.
For platforms serious about sustainable growth, robust security isn't just a feature. It's a necessity. When investors choose where to invest their money, they don't just look for the best rates or the most tokens. They look for platforms they can trust with their assets. In an industry worth billions, security is what separates the platforms that last from those that don't.
As the industry has grown, we’ve seen a rise in sophisticated exploits that directly target the customers of crypto platforms. Case in point: phishing attacks that mimic legitimate platform communications have become increasingly convincing, leading to a 48% surge in crypto fraud cases in 2024.
When investors fall victim to these attacks, they can lose their entire crypto holdings in minutes. Scammers drain their wallets or trick them into authorising transactions they didn't intend to make, often with no way to reverse them.
These attacks not only devastate the affected, but create ripple effects of distrust that impact the entire crypto ecosystem. For platforms that want to build long-term customer relationships, protecting users from these sophisticated attacks has become a business imperative.
When individual customers fall victim to fraud, platforms must investigate, and often face pressure to reimburse the customer’s lost funds. These aren't infrequent, trifling costs. A platform might handle dozens or hundreds of fraud cases each month, with each case requiring investigation, customer support resources, and potential compensation.This drain of operational resources and cost of compensation can become a serious additional liability.
Security concerns directly impact transaction volumes. Investors who experience crypto fraud reduce their investments by approximately 36.5% for at least a year. For platforms operating on thin margins, this reduced activity represents a significant opportunity cost.
While the immediate financial losses of crypto fraud are quantifiable, the deeper damage lies in what you cannot quantify. The invisible numbers of crypto fraud add up as well. Here are some of the biggest consequences of crypto fraud.
Once a platform becomes associated with its customers losing money due to fraud, it’s likely to see an exodus of customers. New monthly investments in crypto and traditional markets decrease by 34.7% from the average before fraud occurred. And once an investor loses confidence in a platform, they tend to not return. Trust is hard to come by and almost impossible to win back.
Experienced Web2 investors who are crypto-curious are less likely to invest if there’s even a slight chance of them losing their money to fraud. According to CoinCover's research, security risks are the second-most significant barrier for crypto adoption. The Web3 platforms they choose to invest with will be those that have ironclad security guarantees.
It’s not just about customers. VCs and other investors are also wary of platforms with high levels of fraud. A platform’s ability to secure funding and strong partnerships depends to a certain extent on its ability to demonstrate an unshakeable commitment to security.
VC funding dropped precipitously after investors lost significant amounts of money to fraud in 2022 (source)
Regulatory scrutiny increases dramatically after each fraud incident. Increased scrutiny leads to higher compliance costs, legal fees, and potential fines and sanctions. For example, after Binance suffered a series of compliance failures related to customer verification, U.S. authorities fined them $4.3 billion in November 2023, and their CEO had to step down.
For crypto platforms, the message is clear: security isn't optional, it's existential. As the market grows and attacks become more sophisticated, platforms must evolve from reactive security to proactive protection of their customers.
Discover how CoinCover can help your company thrive in a dynamic market while safeguarding your customers. Contact us today to learn more.