Digital currency is in its “wild, wild west stage of development”. Like any classic Spaghetti Western, the standard narrative in the cryptocurrency market is one of extreme volatility and dramatic plot swings, with crypto-cowboys herding cyber bandits away from their digital cash.
Virtual sheriffs are needed in the wild, wild west of digital currency, to reassure traditional financial experts, investors, and other invested parties like insurers and brokers, of the cybersecurity of the market.
One way to test the security of these platforms is to give ethical hackers (or researchers) free reign to test for vulnerabilities. This is called a ‘bug bounty’ program. Cryptocurrency platform Dash has a bug bounty program directed by Jim Bursch, which offers monetary incentives for hackers to identify points of weakness in the security of Dash’s digital cash.
“There are two main vulnerabilities with regards to digital currency that insurers and brokers should be aware of: double spend and theft,” Bursch told Insurance Business. “A double spend is when two different transactions are sent into the network to spend the same digital currency. However, most systems are designed to prevent this.
“If cybercriminals were able to double spend bitcoin, they would exploit this vulnerability straight away and it would soon lose all value. Theft of digital wallets is slightly more common, but generally, digital currency platforms are very secure.”
Dash digital cash, Bitcoin and other cryptocurrencies have generated huge interest in the past year. They’ve been at the core of a number of global news stories – some good and some drastically bad. Most recently, Bitcoin has been deemed a “failed currency” by Bank of England Governor Mark Carney, on the basis that “it’s not a store of value because it is all over the map [and] nobody uses it as a medium of exchange”.
“Investment professionals and advisory agents like insurance brokers need to be aware that the digital currency market is extremely volatile and risky,” Bursch commented. “The industry is prone to wild swings with upside risks and downside risks surfacing within relatively short periods of time.
“It looks very enticing when you consider the last year of pricing, but when you inspect the market more closely, you start seeing the big swings that are present. It’s all so new and the risk landscape is always changing.”