Even though crypto is gaining ground as a viable payment method worldwide, virtual currency is a modern, low-cost, and flexible payment option. Yet, there are risks associated with using virtual money that could affect consumers in the long run, despite increasing daily use. Virtual currencies are vulnerable to two types of threats: technical and policy risks (Weaver,2018). Policy risks pertain to the potential for unanticipated modifications to governmental regulations and policies to alter the investment environment. In contrast, technological risks are associated with system design and production changes that may impact the level of performance required to meet stakeholders’ expectations. Transactions could be affected by the underlying information technology systems causing the problems. Hacking, cyber security hazards, critical private loss, and wire transfers to fictitious recipients are all examples of technological risks. Concerns about policymaking are raised when legal and regulatory requirements are not met. Acts of lawlessness, problems with laws and regulations, and fluctuations in the market are all examples. Little threats like these may make it easier for criminals to commit their acts. Thus, it’s essential to consider them while formulating a strategy to reduce their impact.
Risk mitigation strategies
The ecosystem benefits from exchange reserve requirements and other structural safeguards since they necessitate trustworthy cryptocurrency exchanges. Exchange services make it simple to convert fiat money into digital currencies like Bitcoin. Conventional cryptocurrency exchanges serve not just as an exchange but also as a custodian, brokers, and dealers (Bashynska et al.,2019). If these exchanges followed the same principles as a clearing house and kept a certain number of reserves on hand to weather any significant downturn or crash, it would provide an extra layer of security in the event of volatile and unexpected market conditions.
In addition, it is needed to launch public outreach and education initiatives concerning digital money. A comprehensive education campaign on themes including the newest security measures, backups, cold storage, strong and regular password protection, and routine software updates would help minimize fraud and cybercrime concerns and increase confidence. The strategies outlined here are just the beginning of lowering the stakes (Dyball & Seethamraju,2021). The environment and resources available when an idea is conceived significantly impact how far that concept can be taken. The risks associated with cryptocurrency and the best safeguards against them should be researched and studied, as cryptocurrency is here to stay.
Developing a robust ecosystem could mitigate some of the dangers that accompany technological advancement and government regulation. Consumers’ interest and familiarity with digital payment methods continues to rise. Expertise, information, and the ability to communicate have all profited from the widespread usage of mobile phones, especially in modern economies (Corbet et al.,2018). With the proliferation of mobile payment systems and the increasing legitimacy of alternate payment methods like PayPal, the way has been set for the widespread use of bitcoin. As mobile banking has become so widespread, there has been a corresponding surge in curiosity about banking online. The rising price of cryptocurrency exchanges is a direct outcome of the increased liquidity brought about by the rising demand for cryptocurrency. Also, it would help with price stabilization, reducing exposure to volatility in the value of one cryptocurrency relative to another and easing the load on businesses and consumers that opt out of incurring unnecessary risks by transacting in cryptocurrencies (Dyball & Seethamraju,2021). The Chicago Board of Trade (CBoT) has issued Bitcoin futures contracts (derivatives) that are settled in cash. Hence this will help cryptocurrencies adopt characteristics more common to conventional fiat currency (CBOE).
Users should utilize firewalls and intrusion detection software to protect their data. Users can better identify security risks, take preventative measures against them, and tighten up data protection due to employing these methods (Corbet et al.,2018). Insurance against cyber risks is an important extra measure. Bitcoin does not include risk insurance, but users can protect their digital and physical possessions by purchasing insurance from a reputable company. Assuming that there has been a breach in cybersecurity, the virtual currency issuer will be responsible for compensating affected users.
References
Bashynska, I., Malanchuk, M., Zhuravel, O., & Olinichenko, K. (2019). Smart solutions: Risk management of crypto-assets and blockchain technology. International Journal of Civil Engineering and Technology (IJCIET), 10(2), 1121-1131.
Corbet, S., Lucey, B., Peat, M., & Vigne, S. (2018). Bitcoin Futures—What use are they?. Economics Letters, 172, 23-27.
Dyball, M. C., & Seethamraju, R. (2021). The impact of client use of blockchain technology on audit risk and audit approach—an exploratory study. International Journal of Auditing, 25(2), 602-615.
Weaver, N. (2018). Risks of cryptocurrencies. Communications of the ACM, 61(6), 20-24.
