BCG+下一波數(shù)字貨幣的風(fēng)險管理-Managing Risk for the Next Wave of Digital Currencies

ManagingRiskforthe

NextWaveofDigital

Currencies

July2023

ByBernhardKronfellner,StevenAlexanderKok,JamesMackintosh,andChristianN.Schmid(BCG);

MikeBalestrino(BCapital);andSamirGhosh(FalconX)

01MANAGINGRISKFORTHENEXTWAVEOFDIGITALCURRENCIES

ManagingRiskfortheNextWaveofDigitalCurrencies

Thedigital-currencymarketplacehasbeeninturmoilsincethecurrent“cryptowinter”beganinmid-2022.Holdingshavebeenbreached,fraudulentandillicitschemeshavebeenrevealed,anddigital-currencyofferingshavelostvalue,makingtherisksmoreevident.

(Foranoverviewofwhatledtothecryptowinter,andofwherethingsstandnow,seethesidebar“DeFiSummer,CryptoWinter,andtheFuture.”)RecentactionsbytheUSSecuritiesandExchangeCommission(SEC)havefurtherensuredthattherisksofdigitalcurrencywillbetopofmindforinvestorsforsometimetocome.

Atthesametime,digitalcurrenciesareheretostay.Theirprimaryfunction—toholdandtransfervaluewithoutacentralauthorityvalidatingandprocessingtransactions—willcontinuetobeattractivetoinvestorsandotherfinan-cialservicescustomers.Inaddition,therapid

paceof

innovation

continues.Financialinstitutionshaveadutytoprovidethesamelevelofasset-specificofferings,capabili-ties,andguardrailsthattheydowithothercomparableassetclasses.

Thispresentsfinancialinstitutionswithaseriesofstrategicchallenges.Chiefriskofficers(CROs)shouldbeaskingtwoquestions.First,whatarethemostimportantnewrisksassociatedwithdigitalcurrencies?Second,howtobestmanagethoserisks?Forboththesequestions,financialinstitutionsneedtopayattentiontothefactorsuniquetodigitalcurrencies—requiringnewpractices,methods,andwaysofthinking.

Inthisarticle,weaimtodescribetherisksthatcomewithsupportingandofferingdigitalcurrencies,aswellasappro-priatetoolsandmethodstomitigatethem.Aslongasclientsdemandaccesstodigitalcurrencies,frombasiconestostablecoinsandevencentralbankdigitalcurren-cies(CBDCs),theserisk-mitigationtoolsshouldbecomepartoftheoperatingmodelofmostbanksandfinancialservicesorganizations.

RisksAssociatedwithDigitalCurrencies

Whiledigitalcurrenciesareavailableinavarietyofformsandflavors

(seethesidebar“AGuidetoDigital-Currency

ProductsandServices”)

,theycanallbeassessedagainstcommonriskcategoriesrelevanttofinancialinstitutions.

Exhibit1

showsthesecategoriesarrangedroughlyinorderofthesourceofrisk—frombroadmarketforcestoparticu-laractorsinthedigital-currencyecosystemtogapsinthefinancialinstitution’sownrangeofcapabilities.

Thedigital-asseteconomyisnowinaperiodofregrouping.

BOSTONCONSULTINGGROUP+BCAPITAL+FALCONX04

MainProducts

MainServices

AGuidetoDigital-CurrencyProductsandServices

DigitalCurrencies.Thesevirtualcurrencies—Bitcoin,Ethereum,andmanymore—arecommonfinancialproductsthatallleverageblockchaintechnology.Manyofthemhavevalueprimarilyasspeculativeinvestmentvehi-cles,whichincreasestheirvolatilityandthusaffectstheirriskprofile.

Somedigital-currencyofferings(“coins”)havenon-specula-tivevalue.Theyareutilitarian,withusecasesthatincludecarrentalsandthetracingofgoodsalongasupplychain.Becausedigitalcurrenciesareonlyminimallyregulated,ahighlevelofriskmonitoringandmitigationisconsideredbestpracticeforallofthem,eventhosewithprimarilyutilitarianvalue.

Digitalcurrenciesrequireasystemofverificationtovali-datetheintegrityofeachnewcoin.Theydothisbylinkingitcrediblytotheblockchain.Therearetwoprimaryap-proaches.Inproof-of-work(PoW)verification,eachnewcoinmustbegeneratedthroughmathematicalcomputa-tion,witheachsuccessivecoinrequiringhigherlevelsofprocessingpower.Proof-of-stake(PoS)digitalcurrenciesverifythevalueofeachdigitalcointhroughaffirmationbycurrentcurrencyholders,qualifiedbythenumberofcoinstheyalreadyhave“staked”(committedtokeepilliquid).

AtypicalPoSsystemismoreresistanttocyberattackandusesmuchlessenergythanitsPoWcounterparts.Ethere-umconvertedfromPoWtoPoSinSeptember2022,be-comingthemostprominentdigitalcurrencytodoso.

Stablecoins.Thesearedigitalcurrencieswhosevalueispeggedtothevalueofanothercurrencyorcommoditybythealgorithm.Theytendtobebackedbyotherfinancialassetsascollateralandarethusrelativelyprotectedfromsomerisks.Ifachain’stokeniscollateralized,thedigitalcurrencyislikelytobeastablecoin.

CentralBankDigitalCurrencies(CBDCs).CBDCsareaformofdigitalcurrencybeingconsideredbysomecentralbanksornationalgovernments.CBDCswouldbereleasedthroughanationalfinancialinfrastructurethatwouldmanagethedigitalledgersystemandverification.

CentralizedExchangesandBrokerages.Thesehubsandplatformsenablepeopleandinstitutionstotradedigitalcurrencieswithfiatcurrenciesorwithoneanother.Exchangesfacilitatepricediscoveryandmatchordersamongparticipants.Brokeragesfacilitatepricediscoveryandtransactionsacrossexchanges.Bothexchangesandbrokeragesprovideadditionalservicesrelatedtocreditandderivatives.

Digital-CurrencyStorageServices.Alsoknownascryptowalletservices,thesemaybeofferedbybanksorthird-par-tyentitiestofacilitatethemanagementandsafekeepingofdigitalcoins,protectingthemfrombeinghackedandenablingtherecoveryoflostkeys.Theyalsoprovidequali-fiedstoragewhenrequiredbyregulations.Coldwallets,whichhaveonlyanintermittentconnectiontotheinternet,aresaferfromcyberattackthanmore-connectedoptions.Hotwallets,whichmaintainaninternetconnection,allowformoreconvenientexchangesandtransfersoffunds.

Payment-ProcessingServices.Retailersandotherswhoreceivepaymentsindigitalcurrencyusetheseservicestomanagetheprocess.Theseservicesarealsousedforconversionfromonedigitalcurrencytoanother.

CustodyServices.Otherservicesincludedigital-currencymanagement,inwhichintermediariesactonbehalfofthecurrencyowner,andsecurityservicesthatoverseeencryp-tion,safeguardprivatekeys,andperformsomeoftherisk-mitigationfunctionsdescribedinthisarticle.

05MANAGINGRISKFORTHENEXTWAVEOFDIGITALCURRENCIES

Exhibit1-SevenCategoriesofDigital-CurrencyRisk

1

Marketrisk

Price

volatility

2

Counterpartyrisk

Anotherplayer’sdefault

3

Illicit-?nancerisk

Fraud,moneylaundering,etc.

4

Regulatoryrisk

Continuouslyevolvinglocalgovernmentthinking

5

Securityrisk

Theft,loss,andattack

6

Operationalrisk

Includingsmartcontractsandtechnologicalchallenges

7

Reputationalrisk

Damagetothepublicimage

Source:BCG/FalconX/BCapitalanalysis.

1MarketRisk:PriceVolatility

Theriskofgettingcaughtinaspeculativebubbleormar-ket-drivenpricecashdependsonhowspeculativetheactivityisinadigitalcurrency.Stablecoins,whicharepeggedtofiat-currencyvaluesandholdunderlyingcollater-al(inthepegcurrency,ormoreofteninhighlyliquidassets,suchastreasuries),areoftenmarketedasbeingrelativelyriskfree.Butevenstablecoinscanbevolatile,especiallywhenthecollateralisinadequate(forexample,usingyetanotherstablecoinascollateral),insufficient(notfullybacked),oralgorithmic(stabilizedbyautomaticbalanceagainstanotherstablecoinorunderlyingcollateralpool).

Evenstablecoinscanbevolatile,especiallywhenthecollateralisinadequate,insufficient,oralgorithmic.

Anotherissueistherelativelackofmarketcontrolsthattraditionallyprotectparticipantsfromextremevolatilityandfromborderline-illegalmarketswings(suchaspump-and-dumpschemes).Intherealmofdigitalcurrency,marketcontrolsarestillcatchingup,andthiscanbecomeproblematicwhenafirmisofferingclientsnearreal-timeexchangeforfiatpaymentpurposes.Forexample,havingawalletthatholdsbitcoin,andconvertstofiatatthepointofpurchase,canleadtochallengesintermsofliquidityman-agement,internaltradingpools,andcustomerexpecta-tions.Thesechallengesmightresultinconstrainingtheofferingofsomeservicestoasubsetofdigitalcurrencies,ortakingothermitigationmeasures(describedlater).

2

CounterpartyRisk:DefaultfromOther

Participants

Theintrinsiccharacteristicsofdigitalcurrenciesmakethemakintoanon-transparentilliquidasset.Moreover,whileinprincipletheyaredecentralizedbydesign,liquidityischanneledviaaratherconstrainedsetofmarketpartici-pants(mostnotably,digital-currencyexchanges)thatforallintentsandpurposeshavebeensubjectthemselvestosignificantchallenges.Thechallengesforexchangesrangefromineffectiveinternalcontrolstoissuesmostlyrelatedtoproprietary-trading-stylefailures(insomecases,drivingtheseexchangestobankruptcy).Ifeithertheseexchangesorsomeholdersofadigitalcurrencycannotmeettheirobligations,orappeartobelikelytodefault,thevalueofthedigitalcurrencycandroprapidly.Aswithderivativesmarkets,lossesfromcounterpartyriskcanspreadrapidlyacrossadigital-currencyecosystem,creatingahighlevelofvolatilitythataffectsotherassetclassesaswell.Thisposesadifficultconundrumforfinancialinstitutionsfromacustomer-protectionperspective:customersareessentiallyholdinganassetthatisperceivedtooperateasacurrency(withmarketfluctuationsakintothoseintheforeign-ex-changemarket),buttheyareexposedtoaratherdifferentriskprofile,drivenbytheintrinsicnatureofthedigitalcurrencyandtheoperatingqualityoftheecosystemthatsupportsit.

BOSTONCONSULTINGGROUP+BCAPITAL+FALCONX06

3Illicit-FinanceRisk:QuestionableActors

Onecommonconcernaboutdigitalcurrenciesistheex-tenttowhichfraud,moneylaundering,pricemanipulation,anddeceptiveactivityareprevalent.Whileinabsoluteterms,theshareoffraudrelatedtocryptogloballyisnotlarge,itcanstillbematerial:accordingtotheFinancialTimes,cryptocurrencyscamsincreasedbymorethan41%inEnglandandWales(andpresumablyelsewhere)between2021and2022.Theriskofillicitfinancechallengesthecorebankingservicesofvaluecustodyandfraudprotection.

Practiceslike“rugpulls”—wherepromoterswithdrawtransactionsfromadigital-currencyofferingaftersellingit,therebydilutingitsvalue—arelikeconventionalpump-and-dumpschemes.Thedigital-currencymarket,inpartbecauseofitscross-jurisdictionalnature,doesnothavethesamelevelofprotectionsandcontrolsinplacethathaveevolvedoverhundredsofyearsinthefinancialservicesindustry.Butevenifallthesecontrolswereinplace,digitalcurrenciesaredesignedtosupportperson-to-persontrans-actions,withoutbanksorotheroversightgroupsasinter-mediaries.Thisexposesclientstotheriskoffraud.

4

RegulatoryRisk:ContinuouslyEvolvingLocalGovernmentThinking

Governmentsaroundtheworldaredevelopingnewrulesfordigitalcurrencies.TheSEC,forexample,initsJune2023lawsuitagainstBitcoinandCoinbase,named19cryptocurrenciesassecurities,therebysettingthestageforpotentialregulatorychanges.Theuncertaintiesaroundthiscasewillrequireattention,andaddincrementalcostsintheservicingofdigitalcurrencies.Moregenerally,theconstantlyevolvingnatureofdigital-currencyregulationsmeansthatcomplianceprofessionalsarepayingcloseattentiontoshiftsindirection,“skatingtowherethepuckisheaded.”

Banksandotherfinancialinstitutionshaveplayedarela-tivelylimitedrolethusfarinhelpingtoshaperegulatoryefforts.Withdigitalcurrencies,whereofferingstendtocrossmultipleregulatoryjurisdictions,theymayhavealargerroletoplayinthefuture.

(Seethesidebar“TheCall

forDigital-CurrencyRegulation.”)

5

SecurityRisk:VulnerabilitytoTheft,Loss,and

Attack

Ifnotproperlysecured,digitalcurrenciesarevulnerabletotheft,loss,andcyberattack.(AccordingtoChainalysis,alargeblockchain-analysisfirm,$3.8billionwerestolenfromdigital-currencybusinessesin2022,especiallyfromDeFiprotocols.Overall,illicitaddressessentnearly$23.8billionworthofcryptocurrencyin2022,a68%increaseover2021.)Intruderscanstealordepletedigital-currencyhold-ings,andtheymayalsocaptureprivatekeys(thecryp-tographiccodesusedtogainaccesstoholdings).Ifprivatekeys,passwords,orwalletsarestolenorlost,theirvaluemaybeunrecoverable.Manyoftheblockchain-intelligenceandanti-money-launderingmethodsdescribedlater,intherisk-mitigationsection,haveevolvedtomanagesecurityrisk.

Illicitaddressessentnearly$23.8billionworthofcryptocurrencyin2022,a68%increaseover2021.

Intrinsically,thecustodianmodelfordigitalcurrenciesisdifferentfromcustodyforanyotherassetclass.Inotherassetclasses,abankhasasingleomnibusstructuretomanagetheaggregateexposuretothemarket(thisistypicallydonewithretailsecuritiesholdings,forexample).

Withdigitalcurrencies,atthemostbasiclevel,banksprovidecustodytosafeguardthekeytotheholdings.Atamorenuancedlevel,bankscanprovidecustomerswithanongoingviewofthedigitalcurrency’sexposuretomarketrisk.Beyondthat,bankshavelimitedrecoursetosupportcustomers,makingdepositinsurancecostspotentiallyhigher.Amodelsimilartootherassetclasses,recognizingthecustomer’sfulllevelofmarketexposure,mightbepreferable.Forthcomingevolutionsofdigitalcurrenciesessentiallyaimatahigherlevelof“selfcustody”asapreconditionforpeer-to-peertransactions.This,inprinci-ple,couldreducetransactioncostsandofferajurisdic-tionalpaymentrailatthepotentialexpenseoftransferringcustodyrisktocustomers.

6

OperationalRisk:Complexity,SmartContracts,andNewTechnologies

Digitalcurrencieshavemoreunderlyingcomplexitythanothertypesofvaluestorageandtransfermechanisms.Typically,theyaresupportedbyfoundingcompanies(argu-ably,withthenotableexceptionofbitcoin),withcomplexandsomewhatopaquegovernancestructures(suchasdecentralizedautonomousorganizations).Also,theyofteninvolvenoveltechnologiesandbehavioralpatterns.Asaresult,it’spossibletolosetrackofalltheramificationsofhowthevalueofthecurrencyshouldevolve,alongwiththeconsequencesofanygiventradethatsupportsorunder-pinsdigitalcurrencies.Somedigital-currencyinvestorsmayhavebeencaughtunawarebythiscomplexity.

07MANAGINGRISKFORTHENEXTWAVEOFDIGITALCURRENCIES

TheCallforDigital-CurrencyRegulation

EvenbeforetheSECactions,manyobserverswerecalling

forstronger,clearerregulationandmoretransparency.Reg-

ulatoryagenciesaroundtheworldareintheprocessof

finalizingsuchregulationsoratleastaredevelopingplans

forthem.Also,inOctober2022,theFinancialStability

Board,aninternationalorganizationthatmakesrecom-

mendationsabouttheglobalfinancialsystem,proposed

stricterregulationofcryptoassets—inparticular,stable-

coins—amongthenationswiththe20largesteconomies

(theG-20nations).TheGlobalFinancialMarketsAssocia-

tionexpressedsupportforthisproposal,stating:“Ina

fast-evolvingandcompetitiveenvironment,itisimportant

forglobalstandardsettingbodiestopromotethecoordina-

tionofaneffectiveandalignedglobalregulatoryframework.”

Evenamongdigital-currencyfunds,thereisacallforstron-

ger,clearerregulationthathelpsinvestorsandbanks

reduceandmitigaterisk.Stakeholdersaskthatthecodes

andapplicationsbefair,andthattheregulationsreflecta

solidunderstandingofthetechnologyanditsvalue.

Regulatorsarewellplacedtoconvenetheconversations

thattheindustryneedsmost,withtherightpeopleinthe

room,readytolistentooneanother.Crypto-nativeinstitu-

tionsshouldbeincludedinearlydiscussions.Theyhave

theexpertiseandhands-onexperiencetorecommenda

feasibleapproach.

Regulatorswilldiscoverwithdigitalcurrencieswhatthey

havediscoveredwithmanyothertechnologies.Forevery

majornewtechnologicaladvance,abalancemustbestruck

betweenconflictingpriorities.Inthiscase,thosepriorities

includeinnovation,customerprivacy,andthetransparency

neededbylawenforcementtotrackillicitactivity.

Evenamongdigital-currencyfunds,thereisacallforstronger,clearerregulationthathelpsinvestorsandbanksmitigaterisk.

09MANAGINGRISKFORTHENEXTWAVEOFDIGITALCURRENCIES

Considerforking,whichtakesplacewhensomepartici-pantschoosenottofolloworrecognizetheoriginalcon-sensusprotocol.Instead,theyspinoutacompetingrecordoftransactions,asifcreatinganalternatetimeline.Eachpathmayhaveitsowntransactionrecord,controlledbyitsowncommunity.Insomecases,thisisdonedeliberately—tocreatenewcurrencies,forexample.Nonetheless,thepathsshareacommonhistoryandoftenassets.Thisproducesariskoflosingvalueorcontrol.

Anotheroperationalriskisanerrorinasmartcontract,acoretenetofmanydigital-currencyandotherblock-chain-relatedapplications.Insimpleterms,asmartcon-tractrepresentstheintentiontocodifyautomaticexecu-tionandprovidethecodesomesortofpowerofattorney.Forexample,asmartcontractmightspecifythatanauto-maticsaleofdigitalcurrencieswilltakeplaceunderpre-es-tablishedconditions(likeacomplexstandingorder).Ingeneral,derivativecontractscanbelinkeddirectlytodigi-tal-currencyinvestmentssothatoptionscanbeexecuteddirectlyandautomatically.Amistakeinthedraftingandcodingofthatcontractcouldleadtoanautomatictransac-tionthatwasnotintentional—andthatcouldleadtosubstantialaccidentallosses.Onceexecuted,thereisessentiallynorecourse.

7

ReputationalRisk:DamagetothePublicImage

Biglossesandmajormisstepsindigitalcurrencytendtobewidelyreportedevents.Withdigitalcurrencies,lossesresultfromexposuretotheecosystem,andunlikefiatcurrencies,theirperceivedstabilityisunrelatedtohowacountryorgovernmentperforms.Reputationaldamagemayresultfromthesuddencollapseofavendororex-change,theexposureofaminingscamorPonzischeme,amalwareoutbreak,therapiddeclineofutilitytokens,orbacklashagainstafraudulentinitialcoinofferingorwalletservice.Althoughsomethreatstoabank’simagemaycomefrompublicmisperception,muchreputationalriskreflectsdecisionsmadebyemployeesateverylevelofthehierarchy.

HowtoMitigateRisks

Bankscanmitigatetherisksofdigitalcurrenciesattwolevelsatonce:specifictoeachinvestment(“bottomup”)andoverall(“topdown”),withorganization-widecapabili-ties.

Exhibit2

showsrisk-mitigationstrategiesthatcanbedeployed.Typically,thesemeasuresaretablestakes,anditisunusualtoseeabankorotherfinancialservicesinstitu-tionadoptmorecomprehensivemeasuresanddosocon-sistently.Byputtingacomprehensivesetofcomplementa-rymitigationsinplace,financialinstitutionscanensurethatdigitalcurrenciesareofferedandleveragedeffectively.

Let’stakeacloserlookatinvestment-levelstrategies,andthenwe’llexaminemeasuresthatcanbetakenatanorganizationallevel.

BlockchainIntelligence(BI).Alsoknownasblockchainanalytics,BIisacornerstonecapabilityintrinsictodigitalcurrenciesandblockchainingeneral.Toalargeextent,itisthefoundationofdigitalcurrencies’enhancedcapabil-ities,especiallywhenitcomestogranulartransparencyandtraceability.

BIisusedbyCROs,riskexecutives,lawenforcement,andgovernmentregulatorstodetectandmitigateillicit-financeandcounterpartyrisks.Third-partyvendorsofferincreas-inglysophisticatedAI-basedtoolsandanalyticpracticesformonitoringdigitalcurrencies’blockchaintransactions.

BIisusedtodetectandmitigateillicit-financeandcounterpartyrisks.

Forexample,BIsystemscanusemachinelearningtodetectpatternsintransactionhistoriesthatareconsistentwithmoneylaunderingorillicitfinance.Thesesystemsoftenconnectdirectlywithlawenforcement,regulators,andcomplianceprofessionals,givingtheseauthoritiesvisibilityintoreal-timefinancialflows.Whenthereisaproblemwithacounterparty,investigatorscanidentifytherelatedtransactions.Thisgivesbanksmoreabilitytore-duceriskstotheircustomers.

Anti-money-laundering(AML)techniquesarewell-estab-lishedformsofBIorientedtowardcounterpartyandillicit-financerisks,includingthefinancingofterrorismandsanctionsnoncompliance.TherearesomespecificwaysinwhichkeyAMLcontrolsoperatedifferentlyinadigital-

currencyspace:

BOSTONCONSULTINGGROUP+BCAPITAL+FALCONX10

Exhibit2-StrategiesforMitigatingInvestmentRisks

Blockchain

intelligence

Asset

research

Assessment

ofvendorand

partner

relationships

Proof-of-stakeparticipation

Safestorage

Broader

mitigationstrategies

Buildinginstitutionalcapabilities

1.Marketrisk

2.Counterpartyrisk

3.Illicit-?nancerisk

4.Regulatoryrisk

5.Securityrisk

6.Operationalrisk

7.Reputationalrisk

Source:BCG/FalconX/BCapitalanalysis.

?KnowYourCustomer(KYC).KYCevaluatescompa-niesandinvestorswhentheyjointheblockchainordigitalcurrency.Itcontinuallycompilesknowledgeofen-tities’backgrounds,transactionalhistories,andexpectedfutureactivity.

?KnowYourTransaction(KYT).KYT,arecentlydevel-opedapplication,evaluateseachblockchaintransactionasithappens.Thisisessentiallytheprocessoftransac-tionmonitoring,extendedtotheecosystemlevel.Anef-fectiveKYTsystemcanverifyinrealtimethatatransferisnotgoingtoabadactororaknownsanctionedwallet.

Platformsanddashboardsfordigitalcurrencies,anotherimportantBIoffering,bringtogetherinformationrelatedtoallsevenriskcategories.Forexample,adashboardmightcomparecounterpartiestoseewhicharehighlyleveragedandcross-checkthosefindingsagainsttheseparties’KYCandKYTrecords.Thesedashboardsenablecontinuousimprovementofcrypto-relatedoperations.

BIalsoplaysaroleinthedeploymentofautomatedcon-trols.Theseallowbanksandotherfinancialservicesfirmstocontinuallymonitorandimprovetheirpractices.Auto-matedcontrols,forexample,canhelplimitexposure.Insomedigital-currencyinvestments,rapidliquiditymaynotbeavailable.Therefore,banksandinvestorsneedtokeeptheirexposurewithinthelimitsofacceptablerisk—evenifallthefundspassmusterafterassetresearch(discussednext).Asdiscussedpreviously,digital-currencyholderscanbehurtbythedominoeffectfromanotherfund’sorex-change’sfailure,eveniftheydon’tholdthatfundordobusinessonthatexchangedirectly.Thus,aswithanyriskyinvestment,anautomaticstop-lossandhedgingshouldbeconsideredasoptions.

AssetResearch.Alsoknownas“doyourownresearch”(DYOR)processes,assetresearchinvolvesexaminingtheintegrityofthebusinessbehindadigitalcurrencytoseewhetherinvestinginitisworththepossiblerisk,especiallygiventhepotentialvolatility.Thereshouldalsobefail-safeinternalauditsforalltransactionsandsmartcontracts,beforetheyarefinalized.

11MANAGINGRISKFORTHENEXTWAVEOFDIGITALCURRENCIES

Thoseconductingassetresearchshouldcloselyexaminethebusinessfundamentalsofthedigitalcurrencyanditssources(forexample,foundinginstitutionsoreventheexchangesthemselves),thefinancialhealthofthefirm,itssoftwareandagreementarchitecture,itsbalance-sheetstructure,provenance,andbusinessmodel.Oneindicatoroffinancialhealthisarobustancillaryrevenuestream.Thismightbeablockchain-as-a-ser