Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

Bankruptcy Risk and Fraud In Cryptocurrency

By J. Eric Wise
September 01, 2023

Cryptocurrency is indeed the result of the intersection of communications, computers, and cryptography. From the Greek word kryptos, meaning hidden, cryptocurrency establishes security over transactions in coins synthesized in cyberspace, permitting only those persons controlling the private keys (a number, often described as "alphanumeric," reflecting its high radix or base) to an address on a public distributed ledger to transact in the coin. This cryptographic process permits the party controlling a public address to remain anonymous and undetectable, while at the same time secure from most risks other than loss of the private key.

Cryptocurrency can be a little hard to understand for those not acquainted with the field. Some definitions of terms are helpful. A "cryptocoin" is a unit recorded on a cryptographic distributed ledger. A "distributed ledger" is a digital ledger that is recorded on many nodes or computer databases on the internet at once, for which transactions may only be made by someone using the cryptographic private key. Transactions on the distributed ledger are verified either by third parties solving an algorithm for which they are rewarded a coin, a process known as "mining," or by using a "consensus" system in which nodes are compared and outliers (which represent likely fraud) are eliminated. "Cold storage" is keeping one's private key either on a personally controlled hard drive or in a secure writing. The permanent loss of a private key locks an address on the distributed ledger so that the coin can no longer be transferred, essentially permanently eliminating it from circulation and reducing its value to zero.

The seminal idea behind cryptocurrency, as expressed in "Bitcoin: A Peer-to-Peer Electronic Cash System" by Satoshi Nakamoto, was to eliminate the cost of mediation and the ability of third-party intermediaries to "reverse" transactions, making trust an unnecessary feature of transacting, without the burdens of using a physical currency.

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Major Differences In UK, U.S. Copyright Laws Image

This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.

The Article 8 Opt In Image

The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.

Strategy vs. Tactics: Two Sides of a Difficult Coin Image

With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.

Legal Possession: What Does It Mean? Image

Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.

The Anti-Assignment Override Provisions Image

UCC Sections 9406(d) and 9408(a) are one of the most powerful, yet least understood, sections of the Uniform Commercial Code. On their face, they appear to override anti-assignment provisions in agreements that would limit the grant of a security interest. But do these sections really work?