Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Cryptocurrencies are a subset of alternative currencies, or specifically of digital currencies. Bitcoin became the first decentralised cryptocurrency in 2009. Since then, numerous cryptocurrencies have been created.
On one level, cryptocurrencies function just like cash - all that’s different is their entirely virtual nature. On another level, these new currencies, which use peer-to-peer payment technology, remove the long-time players from the equation.
Central banks, mints, financial institutions and regulators, and established transaction networks such as SWIFT, NACHA and existing card platforms are out of the picture and are figuring out how to adapt to stay current. The resulting environment is uncertain and risky as decentralised cryptocurrencies such as bitcoin now provide an ability to gather personal wealth that is beyond restriction and out of reach.
Vigilant, agile, relevant
Virtual and cryptocurrencies have suffered many high-profile failures over the years, criminality and controversy has stalked the idea of cryptocurrencies. But it’s not just the marketplaces and currencies that are subject to misfortune. Malware created specifically to steal bitcoin and any of the 200 other cryptocurrencies currently in circulation has emerged, fuelled by a rapid increase in value of bitcoins in 2013 and 2015 as the currency became more popular. Attacks are commonly aimed at bitcoin wallets and the compromise of private keys.
But one thing is perfectly clear: criminals have already adapted their attacks to include these platforms wherever and whenever the opportunity arises. Financial institutions need to remain vigilant and be agile to stay ahead of nefarious actors and ensure they remain relevant in an increasingly virtual, mobile and hyper-connected world.
Prepare and protect against vulnerabilities
The paper below discusses how Cryptocurrencies like bitcoin have forever changed business and personal finance, the compliance risk, and how to stay alert to the cyber risk and pitfalls of virtual currencies
Financial institutions need to prepare and protect themselves against both direct and indirect vulnerabilities, by understanding the AML, fraud and cyber risks associated with cryptocurrency and by monitoring the evolving guidance, registers (for example of licensed bitcoin businesses), and attack vectors. By integrated monitoring of social and risk media in relation to the activity of their own account holders a financial institution can more effectively mitigate cryptocurrency risk.