Overall, people hopped on the cryptocurrency ecosystem quickly. With the right measures and forethought this means the blockchain has the potential to change financial services forever.
It may have the power to revolutionize the payments industry, but cryptocurrency has to get through it’s growing pains first. The expansion of mobile payments will help. As more consumers use online and mobile banking, experts will find ways to incorporate blockchain solutions into everyday user experiences.
Users will understand the risks and become intimately involved with cryptocurrency because it will become part of their worlds. They will learn to safely access, trade, and own multiple currencies because they will know it, understand it, and love its benefits.
Risks Associated with Cryptocurrency
Though cryptocurrency has many advocates, they also recognize their problems.
How to Protect Something Intangible
The illiquid nature of cryptocurrencies hinders their insurability, therefore most are either uninsured or under-insured.
Users Create Their Own Risks
Humans make mistakes. Humans forget things. With cryptocurrency, forgetfulness can be costly. Getting locked out of your account, losing hardware, or knocking a glass of water on your keyboard can lead to major financial losses. Furthermore, the high-profile nature of large asset holders may leave them vulnerable to direct security threats, like extortion.
Too Many Legal, Regulatory, and Tax Uncertainties
Cryptocurrency is still pretty new. Therefore, many governments or authorities haven’t gotten around to regulating the asset, and any that are toying with the idea aren’t coordinating with others. This has basically left countries and jurisdictions making things up as they go along. Like with other systems and services in the payment industry, coordination and coherence can go a long way in reducing risks.
Ways to Reduce Risks
Tokenization is a trusted, proven technology already used to secure billions of payments in-store and online, so it also can be used for cryptocurrency.
Tokenization reduces fraud risk and protects the underlying value of credentials by replacing sensitive information, such as private keys for blockchain, with a specific token that can limit use to a certain device or channel. Tokens are very valuable because third parties can’t use them when payments are intercepted.
Security also can be enhanced by requiring multiple signatures. Requiring at least two signatures to confirm transactions not only boosts security but prevents fraud. Most importantly, it allows a user to safely recover a lost public or private key.
The most secure approach includes tokenization and multi-signature functionality, because using the signature option alone still relies on the use of original keys. Original keys are more vulnerable to cyberattacks. Using both security measures is the best way to ensure original keys are safe.
When it comes to storage, using segregated wallets is the safest option. It uses a combination of cold and hot wallets.
Exchange-provided online storage services are hot wallets, and cold wallets are offline storage options, which can be anything from USB devices to paper. Hot wallets are troublesome because they are always connected to the internet, which makes the private keys less protected. Cold wallets are pretty safe from hackers, but they cut down on usability. Also, if the cold wallet becomes corrupted or misplace, the cryptocurrency is forever lost.
With all this being equal, segregated wallets offer the benefits of both hot and cold wallets. Segregated wallets provide an extra security layer, a two-factor authentication protocol, that a cold wallet doesn’t offer. This little bit of additional security makes a wallet warm.
In Conclusion
Cryptocurrency has many benefits, as well as risks. As more people continue to embrace mobile payments, users will better understand the blockchain and how to use it. As banks and companies integrate more into everyday life, it will help the technology, as well.
All of these factors will encourage mobile users to be more cognizant of threats and risks, and those who create the technology will come up with even better ways to ensure storage and security continue to evolve.
For cryptocurrency to become transformative, all of the parties will need to do their parts, but it starts with a safe foundation that is trustworthy and transparent. The technology only reaches its full potential when solutions allow for the safe storage and transfer of assets, while providing open access and an improved user experience.
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