Risk Assessment

Bitcoin is a new, anonymous way to buy things over the internet, but there are some major risks for IVK to consider before investing in this new currency. Bitcoins are stored within a wallet online. There are keys associated with these wallets and if they are stored on a hard drive, it makes the user more vulnerable to hard drive failures, malware, and user error (Lee, 2013). IVK would need a backup system and enhanced encryption to protect from the risk of hackers. Also, there can be fraudulent individuals operating the wallet service. Bitcoin financial institutions have lost customer funds in the past due to hackers and this is one of the biggest risks. Since there are no banks or middlemen involved in these transactions, when bitcoins are lost or stolen, they are gone for good. Also, after a payment is made, the transaction is irreversible and bitcoins cannot be returned back to the user. At such a high cost, they are a high risk asset. Also, there is a limit on how many transactions can be processed per hour over the network. Overall, some people use bitcoin as a money-laundering plan since so many customers are using it for illegal activities since there is no government regulation, yet. It is still experimental and not as secure, but more and more customers are using it each day because of the ambiguity of their personal information. If IVK entered the market to accept bitcoins, there is a chance that customers who don’t already use bitcoins will switch over and the market for the current bitcoin users may be too small for success.

Bitcoin may seem very private as there are only numbers to associate people with transactions, but privacy is actually a big issue surrounding the currency. It actually isn’t as anonymous as it is publicized to be because all transactions are able to be viewed in a public transaction ledger or a blockchain. There is an address associated with each transaction and once it is pushed to the blockchain, anyone can see the balance and transactions of that bitcoin address forever. In order to try to protect your wallet, a new address should be used every time a payment is received. Also, using multiple wallets to isolate transactions is important so addresses can’t be associated with one another. IVK may need many different addresses and wallets when doing transactions so they don’t get linked to one another and hackers can’t trace and see the balance and use the remaining bitcoins. Also, people can listen to transactions’ relays and log IP addresses (Protect your money, 2014). IVK would need to use a tool like Tor which hides a computer’s IP address. Hackers and very tricky and smart when it comes to getting what they want. With all of this information public, it is an easy way to get bitcoins when people are not careful or ignorant.


After going through the major risks and privacy issues, there are some security issues with bitcoin as well. Over the years there have been different attacks as you can see in the diagram below.

Many bitcoins vanish or get stolen because it’s pretty easy to do when the owner isn’t  paying attention. There are cryptography issues. Java SecureRandom class generates random numbers that create transaction signatures that are recorded in the public ledger of bitcoin (Kirk, 2013). When the random numbers are associated with different transactions, a hacker can determine someone’s private key and steal their bitcoins. Then a server can be configured to be irretrievable upon shutdown resulting in a loss of thousands of bitcoins which has happened in the past. DDoS attacks can affect the transactions of bitcoins like in February when at least 4 sites had to suspend transactions for a day or two to secure the bitcoins and figure out the issues. They told customers their bitcoins were safe, but in other cases they weren’t. Then there is something called bitcoin mining. This is a program that silently uses more than half of a user’s computer power to perform complex calculations required to generate bitcoins (Arthur, 2013). The malicious hacker gets payment, but not the owner, whose computer is being used. Overall, malware and hackers are targeting bitcoin wallets and the exchanges. With no regulations or protection for the bitcoins, it can be a deterrent for new customers to enter the market. IVK has to determine whether or not they want to risk being innovative, or play it safe like many other companies are currently doing.

Being educated of all the risks that come with this new technology is important. There is value in bitcoins for IVK. If done right with the correct encryption, backups, constant monitoring, and support for the customers using bitcoin as a currency is a viable option. Many people in the market are using bitcoins for gambling and purchasing illegal drugs, but there are more than 30,000 legal businesses accepting bitcoins right now. IVK has the means to take the risk of being more profitable with this risk. It may open up a larger customer base because they accept this new currency. The more options you give customers will increase the number of customers and overall increase profits and growth. I think that after the company is educated, IVK should do a test run of bitcoins offering to the first 10 customers. Since it was be so different and big for financial institutions, the media will cover it and hackers will be aware. IVK can then monitor any activity that may be fraudulent in investing in bitcoins. This way they won’t lose too much money and can decide whether to further implement it permanently in the future.

 
References:

Austin, R., Nolan, R., & O'Donnell, S. (2009). The Adventures of an IT Leader. Boston: Harvard Business School Publishing Corporation.

Arthur, C. (2013, Dec 2). Bitcoin mining malware could be hidden in app, security researchers warn.

Retrieved Jun 5, 2014, from The Guardian: http://www.theguardian.com/technology/2013/dec/02/bit coin-mining-malwarebytes-app-pc

Bitcoin And The Future Of Money. (2013, Apr 15). Retrieved Jun 8, 2014, from Forbes: http://www.forbes.com/sites/groupthink/2013/04/15/bitcoin-and-the-future-of-money/

Bitcoin’s Security Challenges. (2014). Retrieved Jun 7, 2014, from IT Business Edge: http://www.itbusinessedge.com/slideshows/bitcoins-security-challenges.html

Ducklin, P. (2014, Mar 6). Where have all the Bitcoins gone? Retrieved Jun 7, 2014, from NakedSecurity: http://nakedsecurity.sophos.com/2014/03/06/where-have-all-thebitcoins-gone/

Grant, K. (2014, Mar 20). Regulators: Consumers, be careful with Bitcoin. Retrieved Jun 5, 2014, from CNBC: http://www.cnbc.com/id/101508458

Hornyak, T. (2014, Feb 11). Bitcoin Exchanges Hit By DDoS Attacks. Retrieved Jun 6, 2014, from CIO: http://www.cio.com/article/748124/Bitcoin_Exchanges_Hit_By_DDoS_Attacks

Kirk, J. (2013, Aug 14). Bitcoin Wallets Upgraded After Android Cryptography Problem. Retrieved Jun 5, 2014, from CIO: http://www.cio.com/article/738080/Bitcoin_Wallets_Upgraded_ After_Android_Cryptography_Problem

Lee, T. (2013, Apr 3). Four Reasons You Shouldn't Buy Bitcoins. Retrieved Jun 6, 2014, from Forbes: http://www.forbes.com/sites/timothylee/2013/04/03/four-reason-you-shouldnt-buy-bitcoins/

Protect your money. (2014). Retrieved Jun 4, 2014, from Bitcoin: https://bitcoin.org/en/protect-your-privacy

Some things you need to know. (2014). Retrieved Jun 6, 2014, from Bitcoin:https://bitcoin.org/en/you-need-to-know