Cryptocurrency exploded onto the scene in the last decade, revolutionising the way we store and transfer wealth. As the use of digital currencies becomes more widespread, the risks associated with storing and transferring wealth have become alarmingly apparent. In 2019, hackers successfully made off with $196 million from a popular exchange after they accessed the private keys of just two hot wallets. Unfortunately, this is just one of the countless examples. Over $3.9 billion is estimated to have been lost through data breaches and fraud in 2022. In order to secure our digital assets, it’s crucial to adopt the latest and greatest in security technology. Enter biometrics.
Biometrics refers to the use of unique physiological and behavioural characteristics, such as the face, fingerprints, and irises, to verify a person’s identity. The use of biometrics in the digital currency space has become increasingly popular, and for good reason. This technology provides a level of security far superior to that of traditional authentication methods with passwords, PINs, security questions, etc.
This blog takes a closer look at the symbiotic relationship of biometrics and digital currencies, exploring its various benefits for both hot and cold wallets. Finally, it’ll assess the future of biometrics in this exciting and rapidly growing market.
Streamlined AML compliance, customer experience, and trust
Biometrics is changing the game when it comes to user onboarding and authentication. Conventional registration methods are often plagued by high abandonment rates, but biometrics provides a fast, frictionless experience that keeps customers engaged, boosting conversion rates.
This is particularly the case with the KYC verification process, which is traditionally demanding and cumbersome. But with biometric technology, a customer’s identity is instantly verified by accurately comparing the ID photo with a selfie image of the person in front of a camera, expediting the registration process from hours and even days to mere seconds.
To streamline compliance further, biometrics offers real-time AML screening by comparing the data of an individual to sanction lists, government data sources, watchlists, adverse media, and PEP lists. This provides a quick and efficient way for crypto exchanges to improve their risk management and enhance their reputation as trustworthy institutions.
Secure authentication for digital wallets
Most will be aware that hot wallets and crypto exchanges are by virtue of being connected to the internet more susceptible to unauthorised access and hacks. Although hot wallets are self-custodial in the management of private keys (unlike exchanges), neither scenario is ideal. Instead, cold wallets are considered the most secure, as they’re both offline and self-managed. However, the situation becomes dire if the owner loses or forgets their private key, making access near impossible. The consequences can be even more severe if their credentials fall prey to phishing scams or data breaches.
Thankfully, biometric technology provides a safer and more convenient alternative to traditional authentication methods, such as passwords and keys. Biometric authentication uses unique and virtually irreplicable characteristics, such as fingerprints or facial biometrics, instead of easily forgotten or attainable information. By eliminating the need for passwords or keys, biometric identity verification removes commonly the weakest link in a user’s or organisation’s security and makes authentication far more convenient.
This is especially the case with biometric authentication technology that incorporates passive liveness technology. Unlike active liveness checks, passive liveness is able to detect the genuine presence of a user (as opposed to a spoofed photograph or video, which may be used to trick the system) without requiring any specific actions or gestures, making it more secure and less prone to fraud.
In the event that a user loses access to their digital wallet, biometric authentication can be used to verify the user’s identity and restore access to the wallet. This eliminates the need for traditional recovery methods such as security questions (which are forgettable and easier to breach), providing a much more secure and convenient solution.
Transaction approval and e-signatures
As in fintech and other industries, biometric authentication is already undergoing widespread adoption for crypto, enabling users to safely log into their accounts in seconds. But biometric technology also enables the secure authorisation of cryptocurrency transactions and the option to sign digital documents, combining facial biometric data with the user’s information. Not only does this enable a higher level of security and transparency when conducting commercial transactions, but it also prevents illicit behaviour by requiring users to sign transactions with a combination of their biometric data and personal information.
The future of biometrics in digital currency
In the near future, we can expect to see new advancements and technologies in the use of biometrics in digital currencies. This could include improvements in facial recognition technology and the advent of other biometric authentication methods.
With investments in digital currencies skyrocketing, and major companies already starting to accept Bitcoin and other cryptocurrencies as payment, governments may require all transactions to be validated using efficient biometric authentication through digital IDs. This will help developing countries legalise and tax digital money.
With the ability to provide a high level of security, accuracy, and convenience, biometric identity verification is set to become a key factor in legitimising digital currencies, helping to protect users and transactions, prevent illegal activities, and boost adoption.
Learn more about how biometrics facilitates secure and user-friendly identity verification for digital currency here.