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INSURANCE RISKS OF CRYPTOCURRENCIES

05 Jul 2016, by Jeffrey Forbes in Cyber Security For Businesses, Finance

Cryptocurrencies continue to gain steam, both in terms of customer usage and mainstream acceptance.  Estimates place the daily value of bitcoin transactions at approximately $289 million.  Hundreds of thousands of merchants now accept bitcoin as valid payment.  And Bitcoin is just the most popular of these new currencies.  Yet with the transition to increased usage of cryptocurrencies come new risks on which businesses need to educate themselves.

BUSINESSES ADOPT CRYPTOCURRENCY TO LOWER TRANSACTION COSTS

Cryptocurrency enthusiast and adopters tout the ability of these currencies to lower transaction costs.  Currently, most non-cash transactions have costs that can range in the 2 to 3 percent range (especially for credit card transactions), but these costs can also be significantly higher when dealing with additional complications.  Reducing transaction costs to tenths of a percent offers the possibility for merchants to increase profit margins while lowering prices.  However, like any financial system, cryptocurrencies face certain threats – some universal to all financial systems and some unique to cryptocurrencies.

READ MORE|  WHAT BITPAY WISHES THEY KNEW ABOUT SOCIAL ENGINEERING RISKS THAT MAY COST THEM MORE THAN 3000 BITCOINS

WITH THE BENEFITS ARE SOME RISKS

A major concern for businesses choosing to do business in cryptocurrencies is embezzlement.  Most cryptocurrencies operate through the combination of a private key and a public ledger.  The public ledger of the currency records the entire chain of title for that particular “coin.”  The last entry of the ledger is the current owner.  To transfer title and add a new name to the end of the ledger, one must use the private key of the current owner.  A business of sufficient size operating in cryptocurrencies must presumably have several employees able to access that key for transferring those bitcoins.  Since the employees would often use a single key, tracing which employee may have embezzled the funds introduces new difficulties.

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