Law Technology Today From the ABA Legal Technology Resource Center
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Digital currencies are rising up 400% on the market, turning the heads of businesses, employers, governments, and financial institutions across the globe. As a Distributed Ledger Technology (DLT), Blockchain has become a thriving technology as it provides a secure method of payment transactions. Cryptocurrencies are the most common example of tools used in DLT, as we’ve only scratched the surface of applications for this fundamental technology. However, cryptocurrency is opening the door to a whole new breed of security fraud.
Within five sectors, 1,579 breach cases were reported in 2017, a 44.7% increase from the previous year. In fact, 23% of law firms reported experiencing some sort of breach, based on the American Bar Association’s Legal Technology Survey Report. Security is a vital benefit, as each block authenticates across the network. The blocks are immutable and cannot be changed once added to the algorithm with the previous hash. Here are some of the most common security risks that law firms must understand to protect crypto clients.
Run By Communities with Limited Oversight
One risk that must be understood is how cryptocurrencies are developed and organized. In truth, communities have the power to decide when to change rules of the network, making it incompatible with other segments. This is called a ‘hard fork,” as anyone who does not follow the new rules can no longer take part in the network.
So what happens if the community cannot agree on new changes? When only a fraction of the community agrees, the structure splits. When this happens, the network is duplicated and a new currency is formed.
Data Privacy Protection
With the appropriate protection, Blockchain technology has the potential to fundamentally change how trust and security are established online. This includes the variety of potential applications in divisions including healthcare, payments, financial services, energy, property management, and intellectual property. In 2016, a hacker compromised the Ethereum network, (ETH), stealing 3.6 million ether that’s worth more than $2.8 billion today.
When the community wanted to restore the ether to the rightful owners, others chose not to violate a core tenet of digital currency, which means that the transaction can never be reversed. In 2017, an Ethereum newbie under the alias “Devops199,” took control of over 900,000 worth of Ether, earning $300 million. Once he realized what had happened, he tried to reverse the transaction and locked the coins – which effectively destroyed them.
Encryption Keys
Unlike other methods of investment, cryptocurrencies require the use of encryption keys, known as “private keys,” to gain access. However, only the owner can gain access and overlook the complete funds in the account. As a result, if the key is lost, the cryptocurrency is destroyed.
Earning Income Online
Cryptocurrency has a lucrative return on investment as stock market experts are starting to notice. For example, Bitcoin has gone through the roof, going from $370 to over $14,000 in a single year. Through the use of innovative consensus methods and smart contracts, more clients are looking to earn an income with cryptocurrency through the following:
- Smart Contracts
- Mining
- Crypto forks
- Proof of Stack
- Master Nodes
- Investment in digital lending services
Based on these methods, individuals can build their earnings every month – making the digital currency a great option for passive income. However, be sure to do your research and invest smartly. As the crypto market is booming, major drops can happen overnight – after all, any investment is risky.
What Lies Ahead?
As clients adapt to the use of digital currency, one thing is clear: regulation, litigation, and enforcement of cryptocurrency remain uncertain. However, the potential for Blockchain and cryptocurrencies are growing hard to ignore, making the current legal aspects require careful and informed decision-making. Thus, businesses and individuals must stay educated regarding cybersecurity and the threats in this thriving industry.
So, should your law firm bother with Bitcoin? Consider asking your clients about their views on digital currencies and how they plan to incorporate it into their business and employment. Perhaps discuss the risks and how you can explore the potential opportunities cryptocurrencies may bring.
