The gold standard: blockchain technology and security in the crypto-currency market

Should we be surprised by CNBC’s latest news onBlockchain technology? That is, as reported bysenior research analyst at Bernstein, Lisa Ellis, the potential for Blockchain to make institutional financial markets more efficient is rapidly growing. To quote Ellis on this mainstream topic “Blockchain is getting a tremendous amount of momentum independent of bitcoin in core banking…”

 

Crypto-currencies and New Markets

While Bitcoin is perhaps the best known digital token currency, a myriad of others exist and can be mined mathematically, or purchased online with relative ease. Etherium, Litecoin, andUnikoin Gold are similar to Bitcoincan be purchased and invested in online in minutes with only an online wallet and an security identification code. The sheer number of people investing in crypto-currencies is a point in the favour of their security and popularity, and as they become more and more popular, their value increases. Names, social security numbers, and other measures aren’t necessarily, or even regularly enforced, even though Israeli courts have ruled that Bitcoin is considered a taxable asset, affirming its concrete value despite the debate over it’s legitimacy. The implications of crypto-currencies in terms of e-commerce, online banking, and international money markets are broad and unpredictable, but investors and technology thought leaders.

The rate at which these currencies crop up and accrue value makes it almost impossible for an inexperienced regulator to keep up with, let alone master the currencies. However, given the undeniable popularity to those investors who take on the challenge, the reward potential is astronomical. In fact, many crypto-currencies carry fewer fraud-related risks than traditional currencies because they operate in a very new and open market. That’s not to say that investing in crypto-currency means going rogue, but rather that as a new market, the ability to ‘get in on the ground floor’ offers a serious pioneering advantage.

While any investment has its associated risks, crypto-currencies are exchanged in a very clear and simple way, making it much more difficult to conceal illegal behavior within the actual marketplace. The digital birthplace of these currencies can be frightening to those unfamiliar with evolutions in the economy, but as much of our world moves online safely and securely, certain portions of our money market will as well.

 

Law Enforcement and Blockchain Technologies

This sort of exchange of value has particularly troubling implications for law enforcement officials who regulate financial transactions to prevent those funding terrorists or laundering ‘dirty money’ from illegal activities. Forensic accountants tracking illegal transactions run into trouble when it comes to tracking accounts because some crypto-currencies are pseudo-anonymous. They can track money from virtual wallet to virtual wallet, but cannot always prove that a wallet belongs to a specific person or organisation.

However, newer methods of tracking transactions can prevent criminal activity, like blockchain technology, which is acomprehensive, collaboratively maintained database of secure transactionsthat resists deceptive editing and hiding of financial records.

Because these technologies are still so new, it will inevitably take time for law enforcement to be able to effectively use them for good. However, the normative pressure of the community’s regulations help to create a feeling of responsibility. If crypto-currencies become insecure, or de-valued, those who hold them stand to make huge financial losses, thus it is in their best interest to protect the integrity of the crypto-currency market, and clear efforts have been made on this front to secure the market.

The more crypto-currencies are invested in, the more mainstream they will become, and while they do pose a new challenge for law enforcement, they also carry a new form of self-regulation and internal policing that is uncommon in traditionally crime-ridden finance and investment sectors. The contrast between old and new, fast and slow, and in extreme cases, right and wrong is one that is clearly highlighted by the debate surrounding crypto-currencies and security.


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