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Perspective: Bitcoin Primer, Part 3 — Inherent Risks in Cryptocurrency

Perspective: Bitcoin Primer, Part 3 — Inherent Risks in Cryptocurrency

This IDC Financial Insights Perspective is Part 3 in a six-report series on bitcoin and digital currencies. Part 3 introduces a framework for risk management viewed through the lens of open source technology innovation and applications in value exchange systems. In other words, this framework and its future maturity aid in understanding the risks inherent in innovative technologies that can create, record, and transfer value. The technology of bitcoin, known as blockchain, involves distributed ledgers, a cryptographic protocol, and analytic functions distributed over a wide network. The result is a self-regulated system and process that functions without central control.

Developers and operators of blockchain technology have taken everything known about the Internet, security, and cryptography and created a value exchange and settlement system designed for the Internet. No party owns and controls the network, and access is available to everyone. This is a powerful concept and one that can be applied to other use cases involving electronic transactions and record keeping. The end result is an open source innovation that has the potential to change how we think about the fundamentals of value exchange in an open market. In this document, the terms virtual currency, digital currency, and cryptocurrency will be used interchangeably with the name of the leading virtual currency bitcoin. All dollar amounts are U.S. dollars unless otherwise noted.

Please Note: Extended description available upon request.


In This Perspective
Introduction
Situation Overview
Summary of Inherent Risks
Government and Regulation Risk
Market and Credit Risk
Financial Risk
Technology Risk
Participant Risk
Security Risk
Expanding on Inherent Risks
Government Intervention Risk
Market and Credit Risk
Financial Risk
Technology Risks
Participant Risk
Final Thoughts
Essential Guidance
Learn More
Related Research
Figure: Framing Bitcoin Risks

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