FEDERAL UNIVERSITY OFDUTSINMA,

KATSINA STATE

FACULTY OF MANAGEMENT SCIENCE

DEPARTMENT OF BUSINESS MANAGEMENT

NAME: ANDREW REACHEL BOSE

MATRIC NUMBER: MAN/2024/35616

COURSE CODE: ENT 124

COURSE TITLE: BASIC FINANCIAL LITERACY

QUESTION
ANALYSE THE PROS AND CONS OF BITCOIN
CRYPTO CURRENCY AS A MEANS OF ONLINE
BUSINESS FINANCY
EXPLAIN THE RISK ASSOCIATE WITHIN BIT
COINS AND CRYPTO CURRENCY AND HOW TO
PROTECT YOUR FUNDS FROM HACKERS
Introduction
The use of crypto for conducting business presents a host of opportunities and challenges. As
with any new frontier, there are both strong incentives and unknown dangers. That’s why
companies intent on using crypto in their businesses should have two things: a clear
understanding of why they are undertaking that action and a list of the questions they should
consider
What Is Cryptocurrency?
A cryptocurrency is a digital or virtual currency secured by cryptography, which makes it
nearly impossible to counterfeit or double-spend. Most cryptocurrencies exist on
decentralized networks using blockchain technology—a distributed ledger enforced by a
disparate network of computers.
A defining feature of cryptocurrencies is that they are generally not issued by any central
authority, rendering them theoretically immune to government interference or manipulation.
Cryptocurrencies are digital or virtual currencies underpinned by cryptographic systems.
They enable secure online payments without the use of third-party intermediaries. "Crypto"
refers to the various encryption algorithms and cryptographic techniques that safeguard these
entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.

Types of Cryptocurrency
Many cryptocurrencies were created to facilitate work done on the blockchain they are built
on. For example, Bit Coin (BTC), Ethereum's ether was designed to be used as payment for
validating transactions and opening blocks. When the blockchain transitioned to proof-of-
stake in September 2022, ether (ETH) inherited an additional duty as the blockchain's staking
mechanism. Ripple's XRP is designed to be used by banks to facilitate transfers between
different geographies.
Most of the time, when we hear about cryptocurrency types, you hear the coin's name.
However, coin names differ from coin types. Here are some of the types you'll find with
some of the names of tokens in that category:
Utility: XRP and ETH are two examples of utility tokens. They serve specific functions on
their respective blockchains.
Transactional: Tokens designed to be used as a payment method. Bitcoin is the most well-
known of these.
Governance: These tokens represent voting or other rights on a blockchain, such as Uniswap.
Platform: These tokens support applications built to use a blockchain, such as Solana.
Security tokens: Tokens representing ownership of an asset, such as a stock that has been
tokenized (value transferred to the blockchain). MS Token is an example of a securitized
token. If you can find one of these for sale, you can gain partial ownership of the Millenium
Sapphire.
Risk Associated with Crypto currency (Bit Coin)
Cryptocurrencies have attracted a reputation as unstable investments due to high investor
losses due to scams, hacks, bugs, and volatility. Although the underlying cryptography and
blockchain are generally secure, the technical complexity of using and storing crypto assets
can be a significant hazard to new users.

In addition to the market risks associated with speculative assets, cryptocurrency investors
should be aware of the following risks:

● User risk: Unlike traditional finance, there is no way to reverse or cancel a

cryptocurrency transaction after it has already been sent. By some estimates, about
one-fifth of all bitcoins are now inaccessible due to lost passwords or incorrect
sending addresses.18
● Regulatory risks: The regulatory status of some cryptocurrencies is still unclear, with
many governments seeking to regulate them as securities, currencies, or both. A
sudden regulatory crackdown could make it challenging to sell cryptocurrencies or
cause a market-wide price drop.
● Counterparty risks: Many investors and merchants rely on exchanges or other
custodians to store their cryptocurrency. Theft or loss by one of these third parties
could result in losing one's entire investment.
● Management risks: Due to the lack of coherent regulations, there are few protections
against deceptive or unethical management practices. Many investors have lost large
sums to management teams that failed to deliver a product.
● Programming risks: Many investment and lending platforms use automated smart
contracts to control the movement of user deposits. An investor using one of these
platforms assumes the risk that a bug or exploit in these programs could cause them to
lose their investment.
● Market Manipulation: Market manipulation remains a substantial problem in
cryptocurrency, with influential people, organizations, and exchanges acting
unethically.

Despite these risks, cryptocurrencies have seen a significant price leap, with the total market
capitalization rising to about $1.2 trillion.19 Despite the asset's speculative nature, some have
created substantial fortunes by taking on the risk of investing in early-stage cryptocurrencies.
Are Cryptocurrencies Safe Investments?
Cryptocurrencies have attracted a reputation as unstable investments due to high investor
losses due to scams, hacks, bugs, and volatility. Although the underlying cryptography and
blockchain are generally secure, the technical complexity of using and storing crypto assets
can be a significant hazard to new users.
In addition to the market risks associated with speculative assets, cryptocurrency investors
should be aware of the following risks:
User risk: Unlike traditional finance, there is no way to reverse or cancel a cryptocurrency
transaction after it has already been sent. By some estimates, about one-fifth of all bitcoins
are now inaccessible due to lost passwords or incorrect sending addresses.18
Regulatory risks: The regulatory status of some cryptocurrencies is still unclear, with many
governments seeking to regulate them as securities, currencies, or both. A sudden regulatory
crackdown could make it challenging to sell cryptocurrencies or cause a market-wide price
drop.
Counterparty risks: Many investors and merchants rely on exchanges or other custodians to
store their cryptocurrency. Theft or loss by one of these third parties could result in losing
one's entire investment.
Management risks: Due to the lack of coherent regulations, there are few protections against
deceptive or unethical management practices. Many investors have lost large sums to
management teams that failed to deliver a product.
Programming risks: Many investment and lending platforms use automated smart contracts to
control the movement of user deposits. An investor using one of these platforms assumes the
risk that a bug or exploit in these programs could cause them to lose their investment.
Market Manipulation: Market manipulation remains a substantial problem in cryptocurrency,
with influential people, organizations, and exchanges acting unethically.
How to protect Crypto currencies from Hackers
Crypto currencies can protected from hackers Even though the cryptocurrency industry has
only gone mainstream over the past decade, it has already produced a narrative so well
known it's almost a cliche. An individual, or perhaps even a digital currency exchange, is
subjected to a malicious hack.

As result, a large sum of digital currency goes missing. The hackers seem to vanish into the
void of internet anonymity, taking with them digital assets impossible to trace or recover.

Cold Wallets Are Key

Many investors buy a popular digital currency like Bitcoin or Ether on an exchange, only to
keep the currency on that platform. Digital exchanges take safety precautions to prevent
thefts, but they are not immune to hacks.

One of the best ways to protect your investment is to secure a wallet. There are two primary
types of cryptocurrency wallets. Of the two, "cold storage" or "cold wallet" hardware devices
are the safer option.
These wallets look like USB drives and act as a physical store for tokens or coins. Because
they're not connected to the internet, cold wallets cannot be hacked online. Each hardware
wallet comes with a private key: a password-like bit of code that decrypts the wallet, giving
access to the coins or tokens that it stores. While hardware wallets are tremendously effective
against digital thieves, the carry a different risk: Lose your password key, and you'll never
recover the contents of the wallet.

Other Types of Wallets

Those a bit squeamish about relying on a device that can be taken or misplaced to store
digital currency can use secure online wallets instead.

Like cold wallets, online wallets tend to have private keys that are not recoverable if missing,
so it's absolutely essential that you store your private key in a secure location that you'll
remember. Individuals have gone to extreme measures to safeguard their keys—keeping them
in safe deposit boxes or as encryptions in graphic files. Some users have gotten tattoos with
their key information.

Paper wallets are a particular type of online wallet. They are generated by web platforms such
as BitAddress or WalletGenerator. These applications create Bitcoin addresses and private
keys that can then be printed out. Once the paper wallet's key is printed, it is removed from
the online wallet and network. The CryptoHex wallet takes the process a step further by
stamping the key information on a strip of metal.

Desktop wallets are another option. There is no direct interface between them and the
internet. However, there are viruses that are designed to retrieve information for these wallets
from a desktop computer, so such wallets may not be as secure as the options above.

Digital Currency Exchanges

Most transactions involving cryptocurrencies are done via a digital currency exchange. These
platforms are typically accessible via a web browser or a mobile application and allow users
to acquire tokens and digital coins using either a fiat currency or a different cryptocurrency.

Cryptocurrency security experts recommend against keeping any digital currency holdings on
an exchange for two primary reasons. First, if the exchange is hacked, you may lose your
holdings. Second, if the exchange were to fold for any reason, you may not have recourse to
recover your holdings.

There is no cryptocurrency equivalent of the Securities Investor Protection Corporation

(SIPC), which protects clients of failed brokerages against losses of up to $500,000 per
account, including up to $250,000 for cash balances.1 Nor is any cryptocurrency wallet
insured directly by the Federal Deposit Insurance Corp. (FDIC), which provides up to
$250,000 of protection for deposits at qualifying banks and credit unions.2

Instead, many cryptocurrency exchanges let customers hold their U.S. dollar balances in
linked accounts at partner banks insured by the FDIC. But that protection doesn't extend to
client crypto balances.

To safeguard their customers' holdings of cryptocurrency, exchanges rely on a mix of

security precautions and insurance coverage. Although savvy cryptocurrency investors
typically move their holdings off the exchange platform once they've completed a transaction,
trading on a digital currency exchange still entails custody risk. That makes it all the more
important to choose one's exchange carefully.

Popular digital currencies like Bitcoin, Ether, Cardano, and Ripple are available on a wide
variety of crypto exchanges. These providers are not all the same with regard to safety and
security; a bit of due diligence is required on the part of the investor to be sure that they are
not running unnecessary risks in the transaction process by operating on an unsafe exchange.

In the case of other digital currencies, particularly those that are less popular or newer to the
scene, the exchange options may be more limited. Still, if an exchange seems to lack security
or can't convincingly explain how it safeguards client funds, it's best to avoid it.

In conclusion, cryptocurrency can be a valuable means of finance for online businesses today,
offering numerous potential benefits alongside certain risks. The growing adoption and
integration of cryptocurrencies in various industries demonstrate its potential to provide
businesses with more diverse payment options, potentially attracting tech-savvy customers
and expanding international reach.

However, the volatility of cryptocurrency prices requires careful risk management and
strategic planning. Businesses must stay informed about market trends and regulatory
changes to ensure compliance and minimize potential legal and financial issues. The security
and reliability of payment processing systems must also be prioritized to maintain customer
trust.

Moreover, understanding tax implications and conversion strategies is crucial for efficient
and cost-effective financial management. As emerging technologies like DeFi and NFTs
evolve, online businesses can explore these innovations to stay competitive and create new
revenue streams.

Ultimately, while cryptocurrency presents both opportunities and challenges, its use in online
business can offer flexibility and advantages that may lead to growth and success. A
thoughtful, well-informed approach to integrating cryptocurrency can position businesses
favorably in the dynamic landscape of online commerce.

Reference
"The Bitcoin Standard: The Decentralized Alternative to Central Banking" by Saifedean
Ammous
"Cryptocurrency: How Bitcoin and Digital Money are Challenging the Global Economic
Order" by Paul Vigna and Michael J. Casey
"Blockchain Revolution: How the Technology Behind Bitcoin and Other Cryptocurrencies is
Changing the World" by Don Tapscott and Alex Tapscott"