By Allison Raley, Partner, Arnall Golden Gregory
Cryptocurrency has opened unprecedented opportunities for businesses to streamline transactions across global markets, revolutionizing the traditional financial landscape. By leveraging blockchain technology, businesses can conduct borderless transactions with greater speed, security, and efficiency. Cryptocurrency eliminates the need for intermediaries, such as banks or payment processors, reducing transaction costs and processing times. Moreover, the decentralized nature of cryptocurrency enables businesses to bypass regulatory hurdles and access markets that were previously inaccessible or prohibitively expensive. With cryptocurrency, businesses can expand their reach, facilitate cross-border trade, and tap into new revenue streams, fostering greater economic growth and global connectivity.
Potential Security Risks
However, as with any new technologies, cryptocurrency is not without its risks. The decentralized and pseudonymous nature of cryptocurrency transactions can create opportunities for illicit activities, such as money laundering, fraud, and cybercrime. Additionally, the volatility of cryptocurrency markets presents inherent risks for businesses as prices are subject to sudden fluctuations and market manipulation. Numerous high-profile hacking incidents resulting in substantial financial losses for businesses and investors have also shown that security vulnerabilities in cryptocurrency exchanges and wallets can pose significant risks. Regulatory uncertainty and compliance challenges further compound the risks associated with cryptocurrency, as businesses must navigate evolving regulatory frameworks and ensure compliance with anti-money laundering (AML) and know your customer (KYC) requirements.
Phishing
The rise of cryptocurrency adoption brings an increased risk of phishing attacks targeting businesses. Phishing, the fraudulent attempt to obtain sensitive information such as usernames, passwords, and financial details, presents a significant threat to businesses operating in the cryptocurrency space. Understanding the nature of these risks and implementing robust security measures is crucial for safeguarding against potential threats.
Phishing attacks against businesses in the cryptocurrency sector can take various forms, ranging from deceptive emails and fake websites to social engineering tactics. These attacks often leverage social engineering techniques to manipulate employees into disclosing sensitive information or transferring funds to fraudulent accounts. For example, attackers may impersonate trusted individuals or organizations, such as cryptocurrency exchanges or wallet providers, to deceive employees into divulging login credentials or authorizing unauthorized transactions.
One common type of phishing attack targeting businesses in the cryptocurrency sector is known as a “fake ICO” or Initial Coin Offering scam. In these scams, attackers create fraudulent websites or social media profiles offering investment opportunities in fake ICOs. Unsuspecting businesses may be lured into investing in these scams, only to discover that the ICO is non-existent or fraudulent, resulting in financial losses and reputational damage.
Another prevalent phishing tactic targeting businesses in the cryptocurrency space is the creation of fake cryptocurrency wallets or exchange platforms. Attackers may create counterfeit websites that closely resemble legitimate cryptocurrency wallets or exchanges, tricking users into entering their login credentials or transferring funds to fraudulent accounts. Once the attackers access the victims’ accounts, they can steal funds or manipulate transactions for their gain.
Additional Cybersecurity Concerns
There are additional risks outside of phishing attacks when a business decides to address cryptocurrency on its platform, including:
Payment Fraud: Accepting cryptocurrency payments opens businesses to the risk of payment fraud, where malicious actors attempt to initiate fraudulent transactions or exploit vulnerabilities in payment processing systems to steal funds or digital assets.
Wallet Compromise: Businesses that hold cryptocurrency in digital wallets are susceptible to wallet compromise, where attackers gain unauthorized access to the wallet’s private keys or credentials, allowing them to steal or manipulate funds.
Ransomware: Businesses that accept cryptocurrency must be vigilant of ransomware attacks, where attackers encrypt critical data or systems and demand payment in cryptocurrency as ransom for decryption keys.
Compliance Risks: Businesses accepting cryptocurrency must ensure compliance with legal and regulatory requirements governing cryptocurrency transactions, including customer due diligence, transaction monitoring, and reporting suspicious activities to regulatory authorities.
Risk-Mitigation Best Practices
To mitigate the risks associated with phishing attacks and other security issues in the cryptocurrency landscape, businesses must implement robust security measures, conduct thorough due diligence, educate employees about the importance of vigilance and caution, and adhere to best practices for engaging with cryptocurrency.
Some essential strategies for safeguarding your business include:
Employee Training and Awareness: Provide comprehensive training to employees on how to recognize and respond to phishing attempts. Educate them about common phishing tactics and the importance of verifying the authenticity of websites and communications before disclosing sensitive information or authorizing transactions.
Multi-Factor Authentication (MFA): Implement multi-factor authentication for accessing cryptocurrency wallets, exchanges, and other sensitive accounts. MFA adds an extra layer of security by requiring users to provide additional verification, such as a one-time passcode sent to their mobile device, in addition to their login credentials.
Secure Communication Channels: Encourage the use of secure communication channels, such as encrypted email and messaging platforms, to conduct business-related discussions and share sensitive information. Discourage the use of personal email accounts or unsecured messaging apps for work-related communication.
Regular Security Updates and Patch Management: Ensure that all software and applications used by the business, including operating systems, web browsers, and cryptocurrency wallets, are kept up to date with the latest security patches and updates. Regularly review and update security policies and procedures to address emerging threats and vulnerabilities.
Due Diligence and Verification: Before engaging with any cryptocurrency-related platform or investment opportunity, conduct thorough due diligence to verify the legitimacy and reputation of the entity. Beware of unsolicited investment offers or requests for sensitive information and always verify the identity of the sender before responding to any communication.
The Importance of Cross-Departmental Training
Training multiple people from different departments on managing a company’s digital asset account is essential for combating cybersecurity risks associated with employee turnover, which is a common occurrence in organizations. When individuals with specialized knowledge of digital asset management leave, it can create vulnerabilities in the security and integrity of the asset management system. Cross-departmental training on managing digital assets can mitigate the risk of knowledge silos and ensure continuity in asset management processes, as well as allow a diverse team with varied skill sets to bring different perspectives to cybersecurity practices, identify potential vulnerabilities, and implement strong security measures to safeguard against threats. Further, it promotes collaboration and knowledge sharing, empowering employees to collectively address cybersecurity challenges and uphold the integrity of the company’s digital assets, even in the face of employee turnover.
By implementing these proactive security measures and fostering a culture of cybersecurity awareness, businesses can effectively mitigate the varying risks present in the cryptocurrency environment.
About the Author
Allison Raley is a partner at Arnall Golden Gregory LLP. She serves as co-chair of the Emerging Technologies industry team and AGG’s Women in Tech Law initiative. A former global tech general counsel and chief compliance officer, she serves clients in spaces related to the blockchain ecosystem, AI, payments and fintech, traditional banking and financial services institutions, medical technologies, and industries regulated by the SEC. She can be reached at [email protected].
