A Utrust original on why sufficient security is impossible to achieve using centralised technology
Why We Build is a series. The first chapter is about the relationship between fiat money and debt, and how true ownership of fiat is impossible to prove. You can find it here. If you’d rather watch the short video we made to illustrate this concept, go to our YouTube channel, right here.
The second chapter of the series is about inflation, and why the fiat system needs money to lose value over time to function. It too is already out, and you can find the blog post here, and the video here.
If you’d rather start with this article, they are not narratively linked, so go right ahead!
Let’s talk about skimming. Or phishing. Maybe physical theft? How about data breaches. Malware. There are so many ways fraudsters and other miscreants can get a hold of your funds exploiting obsolete technology it becomes hard to keep track.
But why is that?
Credit card technology hasn’t changed in decades
We’ve written about this in the past (you can check it out here), but here’s the gist of it:
The first internationally accepted credit card was introduced in 1948. In 1966, BankAmericard became the first licenced all-purpose credit card. Not a lot has changed since in terms of the underlying processes.
Some technological advances made the usage of credit cards easier or safer, such as the introduction of the magnetic band in the early ’60s or the first chip-based credit cards, introduced in Europe in the ’80s, but those are nothing but the mechanics on the buyer’s side. What happens on the bank’s side has remained virtually unchanged.
The same banks run the same operations and verify transactions in the same way.
Whether you are using your chip or contactless, whether you’re verifying your purchase with a PIN code or a fingerprint scan, it all leads back to your credit card account, which hasn’t changed in 60 years (regardless of whether it’s being run manually by a person or digitally by a computer).
This means that, no matter how you show your banking information in public, you really do have to share it.
Fraud is more prevalent than you may think
Credit card fraud occurs when someone uses a stolen or counterfeit credit card to make unauthorized purchases or withdraw cash. There are a number of ways this can happen, and it probably happens more than you think.
Credit card fraud has more than tripled its damage in the United States just in the last few years. In terms of money, the situation is even more dire.
What we are seeing is a sixfold increase in the amount of money lost to credit card fraud from 2020 to 2019, which followed a four times increase in the previous year as well.
Cold hard numbers? $28.58 billion lost globally in 2020.
Why is this happening?
There are too many gaps in the armor
Let’s take a quick look at some of the more common methods:
One of them is skimming, where a small device is placed on a credit card reader, such as an ATM or gas pump, to capture the credit card information of unsuspecting customers. Criminals can then use this information to make fraudulent purchases or create counterfeit credit cards.
Another method is phishing, where a criminal sends an email or text message posing as a legitimate organization, such as a bank or retail store, and asks for personal information, including credit card numbers. Once the criminal has this information, they can use it to make fraudulent purchases.
Criminals can also obtain credit card information through data breaches, where hackers gain access to a company’s database and steal sensitive information, including credit card numbers. This type of fraud has become increasingly common with the rise of online shopping and the use of mobile devices to make transactions.
Furthermore, criminals can also use malware to infect a person’s computer or mobile device and steal credit card information stored on the device. This type of fraud is particularly prevalent among users who make purchases online or enter credit card information into mobile apps.
Another common way credit card fraud happens is through the physical theft of credit cards, such as pickpocketing, mail theft, and “dumpster diving” where criminals go through trash to obtain discarded credit card applications or statements.
Fraudulent chargebacks are also a hugely significant form of fraud that doesn’t affect the credit card owners, but the merchants they deal with. By having the bank cancel a payment after a merchant has already sent the product through the mail, fraudsters can keep what they ordered and the money.
Time for an important disclaimer: Is crypto a magical solution for all of this?
Will using crypto make you immune to scams if someone manages to trick you?
What crypto does, though, is provide you with extremely potent security that is built into the very core of blockchain technology.
We need Internet-native security
If you are using a payment service like Utrust (soon to be xMoney) to take care of your payments with crypto, you are skipping a number of intermediaries that have a huge amount of power over your activities.
Let’s take them one by one:
Skimming or physical theft of cards – no physical cards, no skimming or stealing. You can have a debit or credit card if you like, but crypto makes it an option, not a necessity.
Phishing – no intermediaries means no “legitimate organization” will ever ask you for your private keys. Never share them, period.
Data breaches – if you keep your funds in a centralized exchange, you may be vulnerable to this. Centralized exchanges, by their very nature, aren’t taking full advantage of the protection of decentralization. If you keep your funds in a custodial wallet or in cold storage, however, you are as safe as anyone can possibly be.
Malware – If your private keys are stored in a machine that is online, the risk exists. Fortunately, crypto allows for something called cold storage. If you choose to go down this path, you will never share your private keys online at all, and your funds will be almost impossible to reach.
Chargebacks – They don’t exist. Transfers are final, and recorded on an immutable ledger.
We have said this in every chapter of this series, and we will repeat it: the issues we have discussed over this article aren’t circumstantial or easily fixable.
We understand and are sympathetic to the reasons why banks and centralised institutions ended up operating in the way they do. The current system has been built over decades of trial and error, of trying very hard to get things right with the technology and the resources available at any given moment.
What we are saying is that we can do better now. We now have the technology to revolutionise these systems.
What we are building at Utrust is a necessary evolutionary step. As our digital lives become more mature and significant, so too must our dealings with the Internet. Our system was born in the Internet, not adapted to it.
If you own a business and you are ready to experience the speed, reliability, and security of crypto payments, here is where you can find all the information you need.
If you don’t but you are ready to embrace true ownership of your financial future, we recommend the Maiar wallet as a starting point.
We hope you enjoyed the article! Follow us on socials for part 4, where we will discuss why the banking system is leaving so many people behind and how we can and will do better.