Challenges Faced when Auditing a Digital-Currency Financial Institution

Author: Marion Keyes, CAMS-Audit

The most widely known example of digital currency is the “bitcoin,” created in January 2009 by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified. To date, the promises of bitcoin proponents have mostly been realized in alternative payment systems where bitcoin has provided almost nonexistent transaction fees, nearly instantaneous processing times and accessibility to the billions of persons who do not have banks, but who do have cellphones. Tarnishing this outstanding feature of bitcoin are two things: (i) public perception that bitcoins are used by criminals to launder money and commit other financial crimes; and (ii) the very real threat of hackers who have shut down and/or collapsed several high-profile exchanges. With respect to the public perception that Bitcoin is becoming the medium of exchange for criminals, the U.S. dollar will likely hold that top spot for some time to come. Put another way, the problem is not that bitcoins are inherently bad; rather, it is that “bad guys” have discovered bitcoins’ incredible power and value well in advance of the common man on the street. With respect to hackers shutting down exchanges, it is critical to understand that the blockchain, itself, is not being hacked. The problem lies with the lax and/or substandard security polices of the exchanges that have been hacked. This paper will explore several of the more pressing issues faced when auditing a digital currency financial institution.

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