Financial Risk Associated with Cryptocurrency

This article examines the financial risk associated with cryptocurrency, including the instability in values, compliance risks, and more. It explores the concept of cryptocurrency, its market volatility, and the challenges and issues in cryptocurrency trading. The article also discusses the measures that should be taken into consideration while trading in cryptocurrency.

Financial risk associated with crypto-
currency

Table of content
TOPIC: “To critically examine the financial risk associated with crypto-currency.” ....................3
INTRODUCTION...........................................................................................................................3
Background.................................................................................................................................3
Research aim and Objectives......................................................................................................3
LITERATURE REVIEW................................................................................................................6
Methodology..................................................................................................................................13
REFERENCES .............................................................................................................................18

TOPIC: “To critically examine the financial risk associated with crypto-
currency.”
INTRODUCTION
Background
Crypto- currency is considered to be as a digital asset which has been prominently
designed in order to work as a complete medium of exchange (Barsan, 2019). Here, the
individual coin ownership records has been effectively stored within the ledger which tends to
exist in the computerized form of database by using significant cryptography in order to secure
the transactions records and also to control the creation of the additional units of the specific
crypto- currency (Shanaev and et.al., 2020). Decentralized technology has been used which
helps in making secure set of payment which is useful in storing money. An exchange account
has to be created for the buying and selling of the crypto- currency. There are various different
type of concurrency in which the individual can deal in which mainly includes Bitcoin, Litecoin,
Ripple, Ethereum, stellar, Cardano, etc. Volatility is considered to be as one of the major risk
which is mainly linked with the crypto- currency. Transaction error is another major risk which
is liked while trading with crypto-currency. This risk arises at the time of recording the
transaction associated with the cryptocurrency (Kethineni and Cao, 2020). The market of the
crypto- currency are decentralized which tends to state that, such currencies are not backed or
has been issued by the central authority like government. Such currencies only exist with the
shared digital record related with the ownership and has been stored within a block chain. This
study mainly focuses on examining the financial risk associated with crypto-currency.
Research aim and Objectives
Research aim
“To critically examine the financial risk associated with crypto-currency.”
Research Objectives
 To develop key understanding upon the concept of crypto-currency.

 To critically evaluate the financial risk associated with crypto-currency.
 To evaluate the key challenges and issues related with the cryptocurrency trading.
 To evaluate the key measures which must be taken into consideration while trading in
crypto-currency.
Research Questions
 What do you understand by the term crypto-currency?
 What are the financial risk associated with crypto-currency?
 What are the key challenges and issues related with the cryptocurrency trading?
 What are the key measures which must be taken into consideration while trading in
crypto-currency?
Rationale
The researcher has selected this topic for the study because this is the major issue upon
which research is considered to be necessary. The biggest issue related with the crypto- currency
is that the exchange platform tends to rise and fall dramatically over the short span of time. It is
the current issue because there seems to be range of financial risk associated with crypto-
currency. This is the current issue because there seems to be high degree of financial as well as
the security risk for the people who has been trading in the crypto-currency. In order to resolve
the issue, the researcher has focused on investigating on the key facts and variables linked with
the research study. This present study has been considered useful in bridging up the gaps and
attaining higher professional standards related with the research topic.
Research significance
This research study is going to be highly beneficial for the scholars who are further going
to carry out the research on the relevant topic. This research is going to be highly beneficial for
the people who tends to trade within the crypto- currency. This research will be highly
significant for effectively analyzing the key financial risk and issues at the time of trading in
crypto- currency. This research is going to be highly beneficial for the crypto- currency industry
which helps in effectively investigating on the specific subject matter. This study is highly

relevant in filling up the any knowledge deficit associated with the key aim and objectives of the
study.
Dissertation structure
Chapter 1: Introduction
This chapter is prominent in providing complete overview associated with the research
topic. It also includes research aim, questions and objectives upon which the research
investigation has to be carried out. This section of the study helps in demonstrating the key
reason behind which study has been carried out.
Chapter 2: Literature review
This section of the study mainly carry out the complete critical evaluation associated with
the study. On this chapter critical review of the various scholars, journal articles and books are
used to provide appropriate set of evaluation related with the themes.
Chapter 3: Research Methodology
The third chapter of the study is significant in the selection of the right methodology
which helps in attaining the required data sets within the prescribed manner. It helps in the
selection of right tool in order to further assist for investigation.
Chapter 4: Findings
This chapter is one of the most critical part of the dissertation because it is useful in
interpreting the each themes using specific graphs, tables with proper interpretation. This way it
helps in effectively interpreting the responses which has been gathered at the time of primary
investigation.
Chapter 5: Discussion
This chapter is useful in the better attainment of the key results by effectively supporting
the key results with the literature review. This section is useful in evaluating on what the
researcher has found and make an argumentative study based on the overall conclusion.
Chapter 6: Conclusion and Recommendations

This is the final chapter of the dissertation which is useful in providing conclusive set of
results which has been linked in order to attain the key aim and objectives related with the study.
Alongside, the recommendation section is highly useful in providing effective set of measures
which must be taken into consideration while trading in crypto- currency.
LITERATURE REVIEW
Literature review is referred to as the comprehensive summary related with the specific
topic of the research. It helps in critical review of the various scholars articles, journal and books
in order to provide appropriate set of evaluation related with the themes. It helps in relevantly
identifying the key gaps associated with the research and attaining argumentative viewpoints
related with the specific theme. Literature review is considered to be highly significant because it
helps in providing key foundation associated with the relevant set of knowledge on the topic.
This section of the study helps in prevention of the duplication of work. The literature review
section is highly prominent in effectively identifying inconsistencies and the gaps related with
the research.
Theme 1: To develop key understanding upon the concept of crypto- currency.
Altman and et.al., (2019) examined the fact that, crypto- currency is referred to as a
digital asset which has been effectively designed in order to work as a relevant medium of
exchange. The ownership of the coin has been stored in the specific form of computerized
database with the help of strong cryptography. It is useful in securing transaction and is
prominent in controlling the creation of the computerized form of database. The term crypto is
referred to as the secret or concealed. There are various distinct type of crypto- currency in
which the individual can deal in which mainly includes Bitcoin, Litecoin, Ripple, Ethereum,
stellar, Cardano, etc. Subsequently, Menard, (2019) argued that, investing within the crypto-
currency is referred to as the good investment. An exchange account has to be created in order to
buy and sell the crypto- currency. The crypto- currency procedure is significant because it tends
to use the digital safeguards which helps in ensuring the security related with the transactions.
Every transaction must be confirmed within the digital public ledger which is referred to as the
block chain. The crypto- currencies tends to effectively use the decentralized technology which
helps in making secured set of payment. Sichinava, (2019) explained that, the exchange of the

crypto- currency is classified into three parts which mainly includes transaction, public ledger
and mining. Transaction stage is where the transferring of the currencies between the two digital
wallets tends to take place. The transaction is further submitted within the public ledger in order
to await the confirmation. After the transaction has been confirmed by the miner then it has been
sorted within the public ledger which is known as block chain. However, the public ledger is
significant because it helps in verifying the ownership of the crypto- currency. The last process is
mining which is useful in confirming transaction before entering the same to the public ledger.
Foccroulle Menard, (2019) stated that, the market of the crypto- currency is at the urge
of gaining traction across various facets of the personal financial activity, business and
government. The key transaction characteristics related with the crypto- currency are it is
anonymous, secure, fast, no geographical barrier, irreversible and free to use. Bitcoin and there
are other block chain crypto- currencies which tends to rely on the cryptography method which is
useful in the maintenance of fidelity and security. However, Fadeyi and et.al., (2020) stated that,
cryptography is referred to as the computational and mathematical practice related with the
decoding and encoding of the data. Encryption keys in turn are considered to be as the key
prominent aspect related with the cryptography. The market of the crypto- currency is highly
volatile because there is varied degree of fluctuation. Initial coin offering has played the key role
in the generation of interest within the crypto- currency market. It is an effective mean which
helps in raising fund with the help of new crypto- currency venture.
Hrytsiuk, Babych and Bachyshyna, (2019, September) stated that, the transactions which
has been carried out by the company are highly confidential. This helps in guarding the financial
security and is also relevant in protecting the individual person from any sort of threat and is also
relevant in identifying theft. However, digital currencies transfer are considered to be as the
effective mode for the exchange of crypto- currencies. The key benefit associated with these
currencies results in easier international trade transaction. Bakar, Rosbi and Uzaki, (2017)
examined the fact that, crypto- currencies is one of the prominent measure where it is not
subjected to the interest rate, exchange rate, levies and transaction charges which has been
specifically imposed by the specific country. It has strong encryption technique which has been
effectively employed across crypto- currency transaction process and distributed ledger. It is
useful in safeguarding against the fraud which is useful in carrying out specific set of agreement
with the buyer and the seller associated with the refunds. Rise within the price of Bitcoin in turn

has effectively established crypto- currency as one of the most viable option for investment.
With the key positive hype associated with the block chain technology helps in imposing positive
set of impact upon the trading practices and wallents for the mainstream investors across the
globe. Yi, Xu and Wang, (2018) argued that, the crypto- currency market is considered to be
highly volatile. The price of such currencies can swing up or down hundreds of dollars within a
single day. Scalability is considered to be as one of the biggest concern associated with the
crypto- currencies. Crypto- currencies are considered to be as the key financial medium for the
terrorists, fraudsters and criminals. Involvement within the ransomware scams are considered to
be as the major issue for the people who has been dealing in such currencies. Issues related with
the cyber security is considered to be as one of the key biggest concern related with the crypto-
currencies. Crypto- currencies tends to lack inherent set of value which is another major
drawback related with such currencies. There are no specific regulation and lack of government
support is another major issue associated with crypto- currencies.
As per the views of Fry, (2018) stated that, crypto- currency is a prominent virtual or
digital currency which has been effectively secured by the cryptography. This way it makes it
impossible to double spend or counterfeit. Block chains are useful because it helps in ensuring
the key level of integrity within the transactional data and associated technology. Crypto-
currencies has been effectively praised because they are highly inflation resistant, transparent,
portable and divisible. Subsequently, Sovbetov, (2018) argued that, crypto- currencies tends to
face wide set of criticism because of involvement within illegal activities. Vulnerability of the
key infrastructures which has been underlying them and also exchange rate volatility are
considered to be the key reason of criticism for crypto- currencies.
Theme 2: Critical evaluation of financial risk associated with the cryptocurrency.
As per the views of Kethineni and Cao (2020) there are many different types of risk
which are attached with the use of cryptocurrency. Out of different types of the risk the most
common type of risk is the instability in the values of the currency. The major reason underlying
this fact is that when the cryptocurrency is used for purchasing the goods and services then it
includes certain risk attached with it. The price or the value of the cryptocurrency is decided by
the working of the economic market and it is not necessary that the price of the cryptocurrency is

same as always. Hence, the instability in the values of the cryptocurrency is the major type of
financial risk.
As against of this Gazali, Ismail and Amboala (2018) argues that this risk can also have a
positive impact over the working of the cryptocurrency. This will create a positive impact as
when the values within the financial market will be high of the cryptocurrency then this will
increase the values of the currency. Thus, this will be beneficial for the holder of cryptocurrency.
The major reason underlying this fact is that when the value within the market will be on hike
then this will have a good impact over the working and the value of the cryptocurrency.
In addition to this Østbye (2018) articulates that another major risk at time of use of
cryptocurrency is compliance risk. The major reason behind this risk is that some countries
prevent the use of the currency and this result in money laundering. The major reason behind this
is that if the country is not permitting the use of the cryptocurrency and then if the people are
dealing in that then this will have a negative impact. The reason behind this is that when the
country does not allow and then also people deal in cryptocurrency then this is treated as
unlawful and illegal.
Further, in contrast to this Cocco, Concas and Marchesi (2017) criticizes that the major
risk for the use of cryptocurrency is the market risk. This is due to the reason that the rates of the
cryptocurrency is decided by the market running. If the market will be diminishing then the rates
of the currency will also be according to that. On the other side if the market condition will be
good and at boom then the prices of the cryptocurrency will also be high. Thus, this is the risk
because the market condition of any of the economy cannot be predicted. Thus, the people
dealing in cryptocurrency cannot predict the future and cannot work in accordance to the future
working of the market. Along with this Abubakar, Hassan and Haruna (2019) argues that the
transaction errors can also be the financial risk associated with the cryptocurrency. This is the
risk which may arise at time of recording the transaction relating to the cryptocurrency.
Transposition of the numbers is one of the major reason related with the transaction error.
Narayanan and et.al., (2016) sought to evaluate that, crypto- currency use encrypted
security transaction even though it has resulted in hacking of key information and data which led
to substantial losses. Hacking of the key financial information of the person impose greater risk
while making transaction in the crypto- currency. Hackers can easily hack or stole the passwords

which results in the hacking of information. Moreover, hardware can be corrupted which
eventually results in the key financial losses when the transaction has been made related with the
trading in crypto- currency. Hackers and thieves have the key potential to easily get access to the
digital currency. This eventually heightens the major risk associated with the crypto- currencies.
Cyber theft crimes is one of the major risk which has been involved within the crypto- currencies
and makes it harder resolve. Crypto- currencies is not backed up by the bank or any other
government body. Change within the value of the crypto- currency makes it easy for the
individual to gamble onto the money by holding it. Subsequently, Chuen, Guo and Wang,
(2017) argued that, crypto- currency is considered to be as the cash currency which tends to
eventually attract large number of criminal community. However, these criminals tends to break
within the cyber exchanges, infect the computers of the investors or traders and also draining of
the crypto- wallets are considered to be as the financial risk by stealing of the crypto- currencies.
All the trading of transaction is usually carried out over the internet where the hackers tends to
target the storage or the service handling areas with the key means of phishing, malware and
spoofing. Crypto- currencies in turn are highly reliant on the unregulated companies which has
resulted in the lack of the appropriate set of internal controls. This in turn eventually results in
susceptible degree of fraud.
In addition to this Canh and et.al., (2019) articulates that, crypto- currencies on the other
hand has not been backed up by the central government or any other financial institution.
Criminals can easily break into the exchange platform of the crypto- currency. It is of key
relevance importance to update the software on the regular basis. This is one of the easy way in
order to get access to the money. Instability within the values can result in significant degree of
loss which in turn has been faced by the individual person. There is an increased level of risk
which has imposed greater degree of financial threat upon the individual who has been trading
within crypto- currencies. Further, in contrast to this Cocco, Concas and Marchesi (2017)
criticizes that, Crypto- currencies are most often relian on the unregulated companies which
resulted in the lack of the appropriate set of internal controls and are also highly susceptible to
the theft and fraud. It is very crucial in updating the software on the regular basis. However, such
risks tends to impose high degree of inherent risk upon the business. There seems to be increased
degree of risk which is mainly associated with the anti- money laundering. Moreover, the
taxation risk is also one of the major financial risk which is linked with the crypto- currency. It

becomes highly difficult for the individual person in mitigating with the risk of cyber threat. This
in turn becomes much harder to resolve the issue and leads to high degree of financial loss for
the investor who has been trading in the crypto market. Such crypto- currencies has not been
backed up by the any government authority and legal authority. This in turn becomes risky
because such currencies might not have any value and investors might face great degree of
financial losses.
To evaluate the key challenges and issues related with the cryptocurrency trading.
Hrytsiuk, Babych and Bachyshyna, (2019, September) sought to evaluate that, blockchain
technology and cryptocurrency are in turn often considered to be as one of the key biggest
challenge linked with the present financial system. It has been imposing high degree of difficulty
in increasing the financial inclusion, fighting corporate red tape and building of the transparent
economy. One of the key biggest problem linked with the crypto market is mainly associated
with the lack of security. It is of key relevance importance to protect the investors from breach
and hacking. Manipulation within the price is one of the major issue related with the
cryptocurrency trading. Subsequently, Liu, Tsyvinski and Wu, (2019) argued that,
decentralization of the crypto currency are considered to be as one of the major pursuit for the
maximization of the security which is linked with the trading of such currencies. It s of key
relevance importance to ensure regulation mainly because of ensuring protection and
transparency.
In addition to this Canh and et.al., (2019) articulates that, loss of confidence within the
digital currencies is considered to be as one of the major concern related with the trading of
crypto- currencies. These digital currencies in turn are not backed up by the international or
national companies, central banks or other assets. Operational risk on the other hand is
considered to be as one of the major issue or challenge related with the trading of crypto-
currencies. Hybrid crypto exchanges is useful in effectively representing the viable set of option
in order to bridge the gaps associated with the key benefits of centralized and decentralized
exchange. Market valuations related with the crypto- currency remains wildly erratic. One of the
key pressing concern related with the crypto- currency is to develop effective set of guideline
which tends to regulate the use of crypto- currencies. High trading fees is considered to be as
another challenge and issue at the time of trading of crypto- currency. Liquidity is one of the key

element related with the crypto market. There seems to be decreased level of liquidity and the
volatile market results in surging of prices.
Borri, (2019) sought to evaluate that, the block chain technology which undergrides the
crypto- currencies is highly revolutionizing various different part of financial as well as the
banking sector. One of the biggest problem which is mainly linked with the crypto market is that
it tends to lack security. Breach and hacking are one of the major issues which has been faced by
the investor while trading in the crypto- currency market. One of the most pressing concern
related with the majority of regulators is to effectively eliminate the use of ICO for terrorism and
money laundering. Crypto- currencies tends to effectively represent the new class of asset. They
are digital commodities which are taxable properties. One of the key significant problem which
is mainly linked with the crypto- currencies is that, there seems to be diverging set of regulation
which tends to undermine innovation and also suppresses risk taking. Hrytsiuk, Babych and
Bachyshyna, (2019, September) stated that, lack of credibility and and delay within the
transaction is considered to be as one of the key major issue which is linked with the crypto-
currency. It is very crucial for the exchanges to be highly stringent and careful which helps in
listing down of the crypto coins in a reliable and efficient manner.
Literature review summary
It has been summarized that, The term crypto is referred to as the secret or concealed.
Crypto- currency is a digital asset which has been designed to work as a relevant medium of
exchange for the successful transaction. There are range of crypto- currency which includes
Bitcoin, Ethereum, Litecoin, Ripple, stellar, Cardano, etc. Bitcoin and other block chain crypto-
currencies relies on the cryptography method in order to maintain fidelity and security. Crypto-
currencies is not subjected to the exchange rate, interest rate, levies and transaction charges
which has been specifically imposed by the specific country. Hacking of the key financial
information of the person impose greater risk while making transaction in the crypto- currency.
Crypto- currencies is not backed up by the bank or any other government body which is
considered to be another financial risk related with the crypto- currency. Cyber theft crimes is
one of the major risk which has been involved within the crypto- currencies. The biggest
problem associated with crypto market is lack of security. Manipulation of the price is another
major issue linked with crypto- currency trading.

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