Cryptocurrencies are the new form of digital money that has taken the financial world by storm and provided people with a decentralized means of exchange. But as the usage and importance of cryptocurrencies have grown, so have the risks that exist to them.
Cryptocurrency is widely used in the United States, and it is essential for investors, developers, and regulators to know these threats. This article defines the five significant threats to cryptocurrency security in the U. S. and their characteristics and possible solutions.
Cyberattacks and hacking
Another emerging risk to the security of cryptocurrency is cyberattacks, hacking. These threats can be directed to exchanges, wallets, and even the blockchain which is the basis of these platforms.
Another popular type of cyberattack is phishing in which the attackers impersonate someone and get the victim to disclose the private key or login information. Once hackers are able to obtain these keys, they are able to easily steal the victim’s cryptocurrencies and the theft cannot be reversed.
Malware is another type of attack that can be launched. This malware can enter and manage devices, and thus, hackers can manage transactions and obtain confidential data. For example, there is a malware type known as keyloggers which capture all the keystrokes made on the computer to get the private keys or the passwords.
Moreover, there are ransomware attacks in which hackers encrypt files and User Data and demand to get a certain sum in cryptocurrencies as a ransom for the decryption key, which also poses an additional threat to users.
Risks also include exchange hacks which are also quite common. As the places where people can buy, sell, and store their cryptocurrencies, exchanges are considered to be high-risk targets for cybercriminals. Instances like the Mt. Gox hack for instance saw over 850,000 bitcoins disappear from the exchanges, which demonstrates the risks involved.
However, due to continuous innovations made in ensuring the security of exchanges, exchanges are still exposed to complex attacks, which are detrimental to the users and a threat to the credibility of the cryptocurrency market.
Regulatory and legal challenges
Another major threat to cryptocurrency security in the United States is the regulatory and legal problems. The present work aims at identifying the challenges that exist due to the regulatory frameworks for cryptocurrencies which are still not well-defined.
SECT and CFTC, the main regulatory authorities, have different perceptions and rules towards cryptocurrencies which creates a rather chaotic and uncertain framework. This question mark can be manipulated by individuals who practice their activities at the edge of legal aspects for the purpose of carrying out fraud.
For instance, initial coin offerings (ICOs), which is a way of soliciting funds via cryptocurrencies, has been employed by fraudsters whereby developers vanish with the investor’s money. Without the proper regulation, it becomes difficult for investors to differentiate between the trustworthy and the fraudulent projects.
Also as measures that are put in place to curb a particular act affect the general cryptocurrency trading. Excessive or wrong regulation hampers creativity and pushes businesses that are operating within the legal frameworks into the shade, which makes it difficult to enforce laws and protect the consumers.
The weighing of the level of regulation and innovation is always a tough one and errors made can lead to the emergence of weaknesses that can be capitalized on by offenders.
Another legal problem is the variation in the enforcement of rules between the states. Even some of the states like New York has formulated well-structured regulatory measures for cryptocurrencies; some states have not defined their policies yet.
Such a system of regulation can lead to the regulatory gap and the search for the less stringent requirements in other states, where the company will relocate its activities.
Technological vulnerabilities
Technological risks that are directly associated with the blockchain and the cryptocurrency also present a tremendous threat. This paper has also identified that although the blockchain technology is secure it is not immune to attacks.
Among them, the 51% attack can be singled out, which occurs when an entity or a group of entities acquires control over more than half of the network’s mining computing power. This control enables them to change transaction, spend coins twice, and affect the network’s functionality.
Smart contract issues are also a major problem since they can easily be exploited. A Smart Contract is an autonomous contract which contains the conditions of the contract in the form of codes. Although they bring in the automation and quicker processing, they are prone to bugs or flaws in the code that can be easily misused by hackers.
The case of The DAO hack in 2016 in which a smart contract was exploited to steal $50million worth of Ether from the DAO is a clear example of the risks that are associated with smart contracts.
Technological factors also pose a threat to the security of systems and data. Scalability issues for instance are a known threat. With more users and transactions being incorporated into a blockchain network, the network can get crowded and this slows down the rate of processing of transactions and increases the cost of the transactions.
This congestion can lead to denial of service attacks where the attacker floods the network with the excessive transactions which slows down the network to the extent of making it unresponsive. Also, issues with scalability may prevent people from using some cryptocurrencies, and they will turn to the less secure options.
In addition, the environment of developing technologies in the sphere of cryptocurrencies is dynamic, and new risks appear more often. To counter the newly found vulnerabilities, developers need to release updated versions and bug fixes in the systems.
However, since many of the blockchain networks are decentralized, it becomes difficult to mobilize and counteract security threats, thus making the systems open to attacks for longer periods.
Conclusion
The security of cryptocurrencies in the United States is under risk due to the following factors such as risk of cyberattack, hacking, risk linked to regulations and laws, and risk associated with technology.
Thus, the cryptocurrency market is dotted with risks and challenges that affect the various stakeholders, including the investors, trading platforms, and even the regulators, calling for everyone’s vigilance and efforts to prevent them.
There are several factors that have to be put in place to ensure that the cryptocurrency system is secure these include; strong security measures, clear regulation and lastly, constant innovation in technology. Thus, recognizing and combating these threats, one can unleash the potential of cryptocurrencies in the financial sphere.