Bitcoin for Beginners

Bitcoin is a relatively new form of currency called cryptocurrency. It entered the market in January 2009 with little to no dollar value equivalency but, in July of 2010, the value of (1) Bitcoin increased by 1000% during just five days. This past June, the value of one Bitcoin reached an all-time high of $3,000 and continues to hold a value of around $2,500. Recently, lawmakers in Japan and Russia announced plans to accept cryptocurrencies such as bitcoin as legal payment methods.

For legal and financial firms, Bitcoin presents both opportunities and challenges. On the one hand, these firms are positioned to facilitate services and provide value around the creation, exchange, and use of cryptocurrency. On the other hand, as these currencies are still in the early stages of development, significant security vulnerabilities exist.

Challenges

While developers continually work to patch bugs and create a more secure platform, it is an idealistic thought that technology can eventually be made safe from all hackers. A new malware just discovered in the past months shows cybercriminals infecting a device’s Windows clipboard. This specific malware watches for a Bitcoin address. As the address is copied, the malware replaces the address with its own address before being pasted. This allows the hacker to bypass any protection provided from the server and multi-factor identification requirements. Per a sample observed by Symantec, the code stored 10,000 Bitcoin addresses and then located the closest match when copying addresses as to not be easily identified. While Symantec claims, it is “easy” to remove, it won’t be long before this malware is adapted for use with other operating systems and delivery methods.

There is no current infallible solution to protect users from this malware, but clearly there is a need for a solution. With everyone excited to move into this new digital age and leave behind physical currency, we can be quick to overlook defects. Last year alone, Bitfinex- a secure Bitcoin exchange platform- was penetrated. The cybercriminals got away with roughly $70 million worth of the virtual currency. Later that month, Fortune news released an article that reported roughly half of Bitcoin trading platforms have either been hacked or shut down over the past few years, despite the rapid growth of the cryptocurrency. If cryptocurrency wants to continue gaining traction, the biggest hurdle they must overcome is cybersecurity.

Opportunities

While significant insecurities exist with new technologies, this does not mean security will always be a problem. Prior to credit cards, people could not imagine ditching cash and coin for plastic. As cryptocurrencies become safer, early adopters will increasingly benefit. For instance, early adopters of Bitcoin have seen multi-thousand percent increases in the net value of their coin holdings.

Take as another example the law firm Thompson Hine. Chaired by James P. Jalil, the firm has built a successful business in providing complex legal services for regulatory compliance and valuation and management protocols and controls. As Bitcoin and other currencies proliferate, Thompson Hine will likely see significant growth and return on investment in this practice area.

For financial firms, cryptocurrency provides a new investment vehicle, though not without some risk at the moment. Due to the nature of traditional currency and central banking with national debt crises, investors will continue to look for new ways to hedge against inflation, austerity, and low growth. Millennials are favorably disposed to cryptocurrency, meaning financial firms that cater to this demographic may be in a favorable position to expand their net assets under management.

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