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Risk Considerations when Using Digital Currency (Cryptocurrency)

Article
2 minute read
July 26, 2017

You may have noticed some household named companies that now accept Bitcoin (or other cryptocurrencies). These include Overstock.com, Subway, Microsoft, Newegg.com, Expedia.com, Dell, Dish Network, Rakutan and Intuit. With digital currency, we can now purchase goods, services, food and software.

This investment and use of cryptocurrency, also referred to as ‘digital currency’ or ‘alternative currency,’ has advantages and disadvantages. The unique nature of cryptocurrency provides a user anonymity and exists outside traditional laws, rules or regulations of any entity (government, corporations or financial institutions). Outside of a seizure of digital currency in conjunction with the arrest/conviction of illegal activity, as in the instance of the Silk Road (and founder Ross William Ulbricht) and more recently Alpha Bay Market (and site operator Alexandre Cazes), the owner of the coin is able to access their digital currency.

These advantages to digital currency also introduce risks to users and holders of digital currency, which include extreme market fluctuations, future threats of regulation, and lack of protection (such as FDIC). In addition, there are specific IT risks that impact digital currency. Each individual maintains a private key, which when attached to the public key of the digital currency, identifies that individual as the owner.

As with all private information, the individual or organization that is maintaining and trading digital currencies is best served by having a strong control environment around the IT systems that maintain the private key. These information technology general controls include:

A system, and private key, that is compromised may result in the loss of your digital currency. At this time, there is little to no recourse an individual or organization has to recover a lost private key (and the loss of their digital currency).

Have questions? Contact Weaver’s IT Advisory Services team.