Chapter 19: Operational Risks in Cryptocurencies Flashcards
What framework is proposed for virtual and cryptocurrencies?
A risk identification and assessment framework from a banking regulation perspective.
What are the key operational risk vulnerabilities of cryptocurrencies?
Decentralized governance, peer-to-peer verification, transaction irreversibility, and handling of sensitive information.
What is the blockchain in Bitcoin?
A shared public ledger of transactions maintained by network members.
What is the role of digital signatures in Bitcoin?
To ensure non-repudiation and verify the originator of a message.
What are the exposures associated with cryptocurrencies?
Multiple jurisdictions, multiplicity of micropayments, and reliance on hardware and software.
What is the process of mining in cryptocurrencies?
Solving cryptographic problems to introduce new currency units into the economy.
What is the risk of decentralized governance in cryptocurrencies?
Vulnerability to coordinated attacks and changes in protocols.
What is the risk of peer-to-peer verification in cryptocurrencies?
Delays in transaction processing leading to fraud, double spending, and fake transactions.
What is the risk of transaction irreversibility in cryptocurrencies?
Unrecoverable losses and mistakes due to data entry errors and cybercrime.
What is the risk of anonymity in cryptocurrencies?
Financial crime, money laundering, and difficulty in identifying transaction controllers.
What are the risk exposures associated with cryptocurrencies?
Multiple jurisdictions, micropayments, hardware reliance, and software reliance.
What is the risk of multiple jurisdictions in cryptocurrencies?
Legal complexity, tax avoidance, and compliance issues.
What is the risk of micropayments in cryptocurrencies?
Stress on what?
Stress on processing systems and potential for internal fraud.
What is the risk of hardware reliance in cryptocurrencies?
Dependence on external entities for blockchain verification and currency creation.
What is the risk of software reliance in cryptocurrencies?
Vulnerability to protocol changes, software updates, and malicious code.
What are potential mitigating actions for operational risks in cryptocurrencies?
Codifying network governance, cybersecurity measures, and compliance with tax laws
What is the conclusion on operational risks in cryptocurrencies?
Despite mitigation measures, cryptocurrencies carry significant operational risk exposures.
