Cryptocurrencies and Blockchain: Getting Down to Basics
Important risks associated with crytocurrencies and blockchain technology as well as with initial coin offerings (ICOs):
- blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits;
- cryptocurrencies and blockchain systems and ICOs could be vulnerable to fraud and cyber security risk;
- investing in cryptocurrencies is highly speculative and an investor can lose the entire amount of their investment;
- if a cryptocurrency or ICOs is deemed to be a security it may be deemed to violate federal securities laws;
- there may be a limited or no secondary market for cryptocurrencies and ICOs; and
- there are risks posed by a lack of regulation in this space.
Glossary of Terms
According to PwC, blockchain is a decentralized ledger of all transactions across a peer-to-peer network. Using this technology, which employs digital tokens that are built on a distributed ledger infrastructure, participants can confirm transactions without the need for a central certifying authority. (Per the World Bank, distributed ledgers use independent computers to record, share and synchronize transactions in their respective electronic ledgers, instead of keeping data centralized as in a traditional ledger.) Potential applications of blockchain include fund transfers, settling trades, voting, and many other uses. Cryptocurrency is a type of digital token, and is designed as a medium of exchange. Other digital tokens provide rights to use assets or services, or in some cases represent ownership interests.
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