Virtual currencies have become popular in recent times with the widespread digitalization of services leading to currencies like Ethereum, bitcoin and more. The recent development has also seen a negative impact with the rise of cybersecurity issues hampering privacy. The decentralization of cryptocurrencies has provided facility for cybercriminals to hack into platforms stealing funds (Reddy & Minnaar, 2018). The paper clearly defines the background of the topic describing virtual currencies and the problem statement is thus defined. The cybersecurity concerns on virtual currencies are described along with their opportunities and risks. Further, discussion is made on the use of encryption technologies and the need for cost-benefit analysis of the system. The impact on the customers is described. Lastly, the financial decisions and the policies of the system are defined along with the proper recommendations for mitigation of the cybersecurity issues.
Virtual currencies are mainly issued by private authorities and used within specific virtual regions. It is a sort of unregulated currency that is transacted digitally; not being controlled or issued by the central banks. Few types of cryptocurrencies that are found include Bitcoin, Ethereum, PolkaDot, Litecoin and more (Kozlovskyi et al., 2021). Centralized currencies are controlled by a central admin. Decentralized currencies mostly rely on cryptography-based Blockchain networks (Holtmeier & Sandner, 2019). These are known as cryptocurrencies. The absence of a central admin helps decentralized currencies to have more transparency between the parties and a lower cost of transactions. The payments and transactions are conducted with convenience and faster due to their nature of being network-based. The virtual currencies connect the international customers for conveniently conducting business giving better options of generating revenue (Knewtson & Rosenbaum, 2020). Virtual currencies have reduced the use of physical banks reflecting directly to customer satisfaction.
The primary problem that is going to be focused on is the issues of cybersecurity in virtual currencies. Modern digitization has shifted people towards the usage of virtual currencies over physical banks as they offer better services (Hadad & Bratianu, 2019). However, this has also given rise to concerns about cybersecurity and digital frauds all around the globe. The report should guide the senior management in understanding opportunities and risks along with various financial aspects and policies of virtual currencies. The other problems to be analyzed are the use of encryption technology in the company other than virtual currency, confirmation of cost-benefit analysis and the effect of cybersecurity issues on the customers.
Virtual and digital currencies are the new normal in the recent days of digitization and modernization. People are often seeking digital currencies as the popular and growing option for investing. However, this leads them to get swept by a large amount of misinformation and lack of factual knowledge. Misunderstanding about this new innovative form of financial asset is common. Cryptocurrencies like Bitcoin, Ethereum have become significantly popular in the financial marketplace. People are relying on using cryptocurrencies for being authentic, scalable, fast, durable and portable in nature (Vaz & Brown, 2020). Unfortunately, this rise in use has attracted criminal activities, financial frauds and scams to unethically utilize the gaps in the system leading to catastrophic losses for the individual unknown of these effects. Cybercrime when conducted by professional hackers leaves almost no digital footprints or evidences to understand who the perpetrator was. The cryptocurrencies are decentralized, without the presence of any governing central administrator overseeing management. Thus, transactions are unregulated leading to the theft of currencies (Hossain, 2021). Digital currencies lack the level of audibility and governmental regulations as traditional physical banks. The system of virtual currencies runs on the latest innovative technologies like blockchain which are difficult to be understood due to their level of complexity making investments volatile in nature.
The rise of using financial technologies and globalization in modern times has also had its own sets of cybersecurity risks attached to it. Virtual currencies being decentralized, are substantially vulnerable to potential money laundering and funding terrorist organizations. Virtual currencies allow them to have maximum anonymity to trade over the internet. Virtual currency accounts are almost clean from the identity of the users, as no records are created being associated with any real-life identity (Rysin & Rysin, 2020). Thus there is no approach for monitoring or identifying suspicious activities. Virtual currencies tend to be extremely volatile, with potential risks from the fluctuation of prices. Predicting the future value of the currencies is difficult as new cryptocurrencies are entering the market every year (Patel et al., 2020). The latest cryptocurrencies are built with the inclusion of encryption using a private and a public key. The loss of the private key can lead to loss of control and access to financial accounts making it almost impossible to recover. The platform used for trading and exchanges is at times unsafe, built without preventive measures to control suspicious activities and unregulated exchanges.
Virtual currencies have been on the rise in recent days with a huge shift of individuals attracted towards its faster and easier approach. The major benefits and opportunities of using virtual currencies are its lower cost of transactions during international usage. There is no option available for fraudulent chargebacks where individuals tend to ask for false cashbacks for unfair reasons leading to loss of the company. The legacy institutions offering financial activities tend to fall slowly in front of virtual currencies as the receivable funds reach their destination faster than ever. There are no random inflations in virtual currencies like central banks where currencies tend to inflate to keep things at par. International businesses tend to run using virtual currencies as it is a fast way to transact funds and requires a lower transaction fee (Adrian & Griffoli, 2019). The virtual currencies are applying laws and regulations to mitigate the risks, making them more transparent and preventive to threats.
Virtual currencies have been using encryption as their backbone known as cryptocurrencies. Encryption is the main step of cryptography which in simpler terms means securing messages between participants using a kind of key or algorithm. It starts from sending the message in an encrypted form to a receiver intended, to be decoded by the receiver for the generation of the primary message. Many digital currencies nowadays predominantly use encryption being privacy-oriented to disorient and obscure the values and the receiver of the transactions making it difficult to be traced back.
Encryption technologies are vital for businesses that are looking to secure their data from unauthorized access, breaches and loss. In recent days, large organizations are facing trouble from targeted cybersecurity attacks making small businesses potentially vulnerable. Security of data is an important aspect for the company to take care thus implementation of simple encryption solutions can help to protect the data. The encryption technologies are easy to be implemented with rise of efficient software that offers encryption features for data security. There are regulatory fines attached to loss of confidential data by the company, which can be easily mitigated by the application of the encryption facilities. Encryption reflects directly on the integrity of the data it is protecting as data can be changed and manipulated with ease. Encrypted data are protected with digital signatures to prove its integrity. Encryption technologies have two approaches to be selected from, starting from symmetric key encryption which uses the same key for encrypting and decryption and the other is asymmetric or public-key cryptography having two keys, public and private. Data security is vital these days; thus, using encryption technologies without virtual currencies is also beneficial for the business.
The cost-benefit analysis must be conducted in the organization before implementation of use of virtual currencies as the analysis should help with comparison of the implicit and explicit costs. Cost-benefit analysis done on the virtual currency use should help weigh the benefits and threats analyzing the data for taking complex decisions following a structured manner. The cost-benefit analysis done on the use of virtual currencies for the business can help them understand the need for capital investments, the process of change in the business and changes in the operations (Osmani et al., 2020). The prices of implementation can be adjusted according to the need of the company. The company can understand the applicability of the virtual currencies in the business to determine whether it needs any merger, divestiture or acquisition to create shared value.
The use of virtual currencies opens the domain to connect with various demographic groups around the world with gaining individuals that value transparency. The use of virtual currencies by the company will create general awareness among the audience. Customers can now access new liquidity and capital pools of tokenized investments. Cryptocurrencies tend to be much faster and more straightforward, as digital wallets can be controlled using the internet and transactions need less time to be transacted (Mora et al., 2019). However, customers might face the disadvantages with loss of digital wallet or password can lead to deletion of currencies. There is no predicted future value for the currencies making them volatile in nature. The latest criminals are actively connecting unethical activities over the internet making virtual currencies vulnerable to cyber-attacks (Lee & Choi, 2021). The level of anonymity attached to virtual currencies is a benefit and a risk as it makes transactions impossible to be traced, if not ethical. The cryptocurrencies that are widely popular these days cannot be used everywhere and are mainly used as a form of investment.
Financial technologies or Fintech is on a rise with globalization and digitization with the inclusion of virtual currencies using encryption and Blockchain technologies. Decentralized Finance is getting enhanced every day as it has become a major factor of investment. Virtual currencies are providing forms of payment without presence of a third party for transaction. The privacy and the anonymity offered by cryptocurrencies have led to its adoption. Digital financial ownership has helped the users to gain power of the content without the access of any central bank (Mabunda, 2018). The payments are getting transacted over the borders at a minimal cost of transaction within lowest possible time. The implementation of virtual currencies can help to provide a new model of finances for people without access, efficiency of services, privacy and security of personal data allowing countless opportunities for investment around the world (Dumitrescu & Dumitrescu, 2020). Many currencies around the world are available in a scarce amount and require a lot of effort to be created, thus the scarcity of these currencies leads to influence their values. Virtual currencies contain similar attributes like real money like a medium for exchanging currencies, account units, and value.
Policies and regulations are important to be formed around virtual currencies as these currencies have started to overlap with the vital parts of the global financial and monetary system. The growth of cryptocurrencies rapidly around the world has made it necessary for policymakers around the world to regulate the use of cryptocurrencies according to their level of fit in the system. Traditional financial systems are needed to be changed by the use of decentralized Blockchain currencies. The monetary policies of cryptocurrencies can be set by policymakers. Governmental policies are not directly reflected in the use of cryptocurrencies (Pirvu, 2019). Policymakers are concerned with regulation of sales, data security, anti-money laundering, unfair taxation, testing and promotion, testamentary succession and estate planning, ownership and licenses, unethical mining and cross-border restrictions (Uyduran, 2020). The tax rules are meant to mitigate the problems of tax evasion and reduction of governmental revenues.
The company should be motivated for using the best practices for using virtual currencies as an asset. There should be a regulation of the things to be done and not done while using cryptocurrencies. The best practices to be followed are the proper ownership of the encrypting keys, using a hardware wallet, having strategies for backup, checking transactional data, data security measures and regular audits if necessary. There should be proper knowledge on the best practices for the use of virtual currencies to mitigate the chances of unethical practices. The investors on the virtual currencies must not brag about their possession and holdings to attract unnecessary attention of criminals. The data that is not protected by encryption should be secured online as a backup. Organizations should not fall for suspicious currencies and scams and conduct unethical transactions that can lead to loss. The company must have a focused strategy for investment in cryptocurrencies diversifying its portfolio to be sustainable for a longer period. The company should not buy currencies just because of the low prices or go all-in with confidence as the market is too volatile to decide any predictive values. The concerns that mainly surround the uses of cryptocurrencies can be mitigated with proper knowledge and understanding of the use of virtual currencies in organizations.
Conclusion:
Virtual currencies are getting adopted around the world with widespread digitization and globalization. The recent rise of new virtual currencies has made transactions and investments to be transacted in a faster and more regulated manner. The negative aspects of digital currencies have become common with the rise of cybersecurity practices. This paper carefully guides through the background of the virtual currencies to clearly define the various security concerns that are attached to the virtual currencies. The various risks and the opportunities attached to the use of digital currencies are narrated. Further, discussion is done on the use of encryption technologies without the use in virtual currencies. The need of cost-benefit analysis of the system is necessary to determine the financial positing of the bank in implementation of virtual currencies. Virtual currencies have significant impact on their customers as narrated, along with the financial decisions and policies needed for virtual currencies. Finally, recommendations are given to mitigate the concerns of virtual currencies to the system.
References:
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