Crypto investors are exposed to cyber-attacks and fraud despite the anonymous security the blockchain technology promises its users. This raised the question of digital asset vulnerability. Users now seek advisors for effective ways to engage crypto without losing their funds (or investment).
Given the technological development of blockchain, they are intrinsically secure because blockchain processes new sets of data into blocks connected into chains that are widely distributed across a network, known as an online ledger. Regardless of this security proposition, blockchain is vulnerable to cyber-attacks and privacy spying.
Identity of Token Users
The early years of crypto advent brought Bitcoin to the limelight and made it more popular and utilized across the dark web to perform illicit activities which are untraceable on the internet. This feature is one reason some financial advisors kept a distance from engaging crypto because of its anonymous transactional properties.
Another major concern is the regulatory policy surrounding cryptocurrency. Individuals or users want to be aware of where their Bitcoin utilization is going into.
This regulatory question came with understanding the stance of an individual in crypto distribution (or redistribution). Users want to know when a bitcoin unit or some other crypto they own gets circulated back into the system after going through the cycle of illegal activities.
For instance, a drug baron owns some crypto tokens, but I now have a part of those tokens. The next question users want answers to is whether they are also contributing to their acts, if they need to delete the crypto or are complicit due to their purchasing activities.
How Regulation is Protective
One other vulnerability engulfing the crypto world is the regulatory policies evolving in the digital currency space. The absence of financial regulation makes cryptocurrency a riskier investment. Participants are exposed to fraud risk, and this may go beyond the old security establishment approach. This approach involves creating a firewall using a single building setup.
Today, the approach is different because users deal basically with data, and they can access their portfolio across their devices with login credentials. Plus, individuals can now work from virtually anywhere. This makes it possible for some artificial intelligence to collate transactional data from banks to identify customers prone to crypto fraud.
This artificial intelligence obtains critical data from banks, analyzes them, and single out users vulnerable to crypto fraud due to their demography and lock-away crypto assets. As a result, wealth managers can now contact them while presenting investment options that have more control over them.
Suppose financial advisors can have an artificial intelligence that can predict the vulnerability of crypto investors to crypto fraud. In that case, it will help them propose better crypto investment options to their clients. With that, they will manage their clients’ portfolios efficiently while cutting down large risks.
One other issue that increases crypto vulnerability is the absence of keys or key theft that happens around us. Keys are an important component of conducting a transaction on an exchange. But wrong access can make individuals manipulate the system, reverse engineer transactions and cart away coins in users’ portfolios.
Another feature that makes crypto more vulnerable is code exploitation and dependence on technology. Any code can be manipulated.
There is also a system structural weakness due to the code transfer happening at different points and across other regions. Crypto transactions depend heavily on servers that are located far away from most users. The reliance of blockchain on users with access and computer devices also increases its vulnerability.
Every second, loads of data are transported across the server from one system to another system to another system, and the chain extends like that. But if hackers decide to attack the network by disrupting its network transmission instead of decoding the communications, the network becomes vulnerable.
This will challenge the performance of blockchain networks and may relinquish blockchain of its promises. Likewise, there is routing network vulnerability.
How Advisors Can Manage the Situation
The major advice for an advisor in this regard is self-education. Advisors should research to educate them and present their findings to their clients in very digestible pieces. They should study to learn more about phishing and how it is attempted. This is because blockchain transactions are made public like Venmo’s, and everyone knows who you are engaging with.
As an end-user, you’re vulnerable because people will know what kind of coin you transact. And you—as a user—are the weakest link in a cybersecurity perspective. But clients are the weakest link in the wealth management cycle. Meanwhile, the regulatory bodies will pass the responsibilities to the financial advisors.
Advisors should pay attention to the risks associated with clients trying to hold their crypto assets themselves. As an advisor, you may be tempted to offer your client a crypto account managed separately. Most of your clients would prefer owning their wallets.
One leverage you can have over other advisors is to offer your clients education about crypto. Show them that you care about their wealth management. Explain the risks associated with crypto and help them make informed decisions.
Don’t fall prey to trying to convince your clients to invest in a more secure investment. It won’t always satisfy your clients that want to participate in the crypto economy. The best you can do is to educate them.
Is Crypto Secure to Invest?
The answer to this question is “YES.” Aside from the bad publicity given to cryptocurrency, it is a worthy investment when you are well-informed about its performance and how it can multiply your returns. All you necessarily need is crypto education to understand the risks attached to it, how you can manage those risks and be an educated investor.