Digital currencies have become prevalent around the globe in recent times. There are various enterprises that are involved in the mining process which is now more difficult especially because it needs more computing power. Bitcoin’s price volatility is a major issue which has scared away investors. However, more importantly, are the security and privacy issues.
Digital currencies are usually stored in software or hardware wallets. These wallets allow the owners to store their digital currencies. There are studies that indicate hardware wallets are not as secure since hackers can use malware to intercept communications between the wallet and computer.
Hackers are always after valuable digital currencies. They are constantly trying to figure out a way to steal Bitcoin, or other kinds of cryptocurrencies, in a clandestine manner. For example, in 2014, Mt. Gox was hacked by an anonymous group and 850,000 Bitcoins were extracted without being found. There are other exchanges such as Coinbase, Binance, Kraken, or Gemini which can be targeted by the so-called “bad actors.” The hackers will use the necessary tools and techniques to shut down the major exchanges. These tools or techniques can be DDoS attacks which can cripple the computer network system. These types of attacks have been used to bring down the networks of private and public organizations.
The Bitcoin mining process has become more expensive and time consuming. This is because the number of extractable Bitcoins has decreased and will continue to decrease with time. So, in reality, miners may engage in what’s referred to “selfish mining” and block truthful miners from doing their work.
The bad actors have been known to attempt to “double spend” digital currencies. This means they will try to use the digital currency contemporaneously with two different recipients. Therefore, the transaction will be irreversible and cannot be invalidated by the victim. Also, if a Bitcoin mining pool, which comprises of powerful computers, is able to gain more than fifty-percent control over the mining process, it can engage in unscrupulous actions. This means that the group can misuse or manipulate transactions.
Privacy is a major concern for all internet and e-commerce websites. It is a well-known fact that very few cryptocurrency transactions are virtually untraceable. This is due to the nature of potential illegal activities that stem from the usage of digital currencies by the bad actors. So, state, federal, and international government agencies are constantly monitoring transactions. They are also using blockchain analytical tools (e.g., Chainalysis) for surveillance purposes. In fact, Chainalysis says on its website that it creates transparency for a global economy built on blockchains to enable financial institutions, commercial enterprises, and government agencies to have a common understanding of how cryptocurrencies are being used by the general public. In essence, it provides the tools to solve cybercriminal cases.
The cybersecurity and privacy laws that are applicable to digital currency transactions may not be uniform in all jurisdictions. There are state and federal laws that protect the privacy of individuals on the internet. For example, the California Consumer Privacy Act (“CCPA”), which is also known as AB 375, was passed to address the same issues as the European Union’s GDPR. However, this statute takes a broader view than the GDPR for its definition of private information. This law permits consumers to demand to review the information a company has stored about them and the third-parties that their information was shared with. This statute may not be directly related to digital currency transactions but it’s a step towards protecting privacy rights.
Our law firm assists clients in matters related to privacy and cybersecurity and the state, federal, and international laws. Please contact our law firm to speak with an internet attorney at your earliest convenience.