Chapter 7: Operational Risk in Cryptocurrencies Flashcards
What is the definition of operational risks in cryptocurrencies?
Risks arising from inadequate processes, system failures, human errors, or external events in cryptocurrency transactions.
Why is understanding operational risks important for organizations?
For security, compliance, and risk management.
What is a key vulnerability associated with decentralized governance in cryptocurrencies?
Higher exposure to coordinated attacks.
What risk is associated with peer-to-peer verification in cryptocurrency transactions?
Potential for double-spending fraud.
What is a significant characteristic of transaction irreversibility in cryptocurrencies?
Once processed, transactions cannot be undone.
How does anonymity in cryptocurrencies affect financial crime risks?
It makes it difficult to track users, increasing financial crime risks.
What is a challenge posed by the multiplicity of jurisdictions in cryptocurrency?
Compliance complexity due to varying global regulations.
What does the multiplicity of micropayments refer to in the context of cryptocurrencies?
High volume of small transactions increases system strain.
What are the risks associated with hardware and software reliability in cryptocurrencies?
Mining failures, wallet security, and hacking.
What are core risks in cryptocurrency transactions?
- Internal Fraud Risks
- External Fraud Risks
- Business Disruptions
- Governance Risks
What was the outcome of the Mt. Gox Exchange Hack in 2014?
$450M worth of Bitcoin stolen due to weak security controls.
What led to the theft of $60M in the Ethereum DAO Hack of 2016?
A smart contract flaw.
What are key mitigation strategies for cryptocurrency risks?
- Regulatory Compliance
- Cybersecurity Measures
- Incident Response Plans
- Private Key Protection
What do KYC and AML stand for in the context of regulatory compliance?
Know Your Customer and Anti-Money Laundering.
What is resilience in risk management?
Ability to recover from crises and continue operations.
What factors drive reputation risk?
- Regulatory Non-Compliance
- Product & Service Failures
- Cybersecurity Breaches
- Crisis Mismanagement
What was a consequence of the Wells Fargo Scandal in 2016?
$3B settlement due to damaged reputation from fake accounts.
What are key strategies for building and maintaining a strong reputation?
- Proactive Risk Management
- Stakeholder Engagement
- Transparency & Ethics
- Crisis Preparedness
What is the ‘Golden Rule’ of crisis communication?
Regret, Reason, Remedy.
What are key components of resilience in organizations?
- Strong Governance
- Business Continuity Planning
- Stakeholder Trust
- Risk Forecasting
What future trend involves using AI and big data in risk management?
Advanced algorithms can detect fraud and cybersecurity threats in real-time.
What is a potential benefit of using blockchain for transparency?
Secure transaction tracking through distributed ledgers.
What should learners focus on regarding cryptocurrency risks for exams?
Governance, fraud risks, and mitigation strategies.
True or False: Crisis management requires speed and transparency.
True.
Fill in the blank: The _______ framework is an example of jurisdictions enforcing stronger regulatory oversight.
[EU’s MiCA]
