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The Bankruptcy StrategistFeaturesBankruptcyCryptocurrencyLitigation

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.

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