Unlocking the World of Crypto

Are you curious about crypto-assets and how they work? Do you want to learn more about the benefits and risks of using them?

Crypto-assets provide a new and exciting way to manage and move money in the digital age. Let’s explore what is their impact on the financial services sector, the advantages they offer over traditional money, how to buy them, the risks you should be aware of, and common scams and attacks to watch out for.

Let’s get started!

What are crypto-assets?

What’s the impact of crypto-assets on financial services?

Crypto-assets (also known as virtual assets or cryptocurrencies) are digital money (or tokens) that utilise cryptography to create and transmit value in the digital realm. What sets them apart is that they operate independently – without traditional banks or governments. There are many different types of cryptocurrencies with unique features and uses. Bitcoin is the most famous, but there are many other examples such as Ethereum, Ripple, Litecoin, and Dai. Crypto-assets serve different purposes: from payments to speculative investments and stores of value.

Crypto-assets offer new ways to move and manage money faster, cheaper, and more freely than traditional systems. They also create new opportunities for people to invest in and benefit from the growth of the crypto-asset market.

Why use crypto-assets?

Here are some advantages that crypto-assets offer over traditional money and financial systems.

  • Unlike traditional systems with middlemen, crypto-assets are decentralised. No single entity controls them, making them resilient and hard to manipulate.
  • Transactions are more secure and transparent. Crypto-assets use advanced techniques to protect your transactions and data. There is also a clear record of all transactions on the blockchain, which anyone can check and verify.
  • Transactions are faster and cheaper. Crypto-assets can be sent and received almost instantly, anywhere in the world, at any time of the day. You don’t have to wait for days or pay high fees to transfer money across borders or currencies.
  • Crypto-assets enable new ways of doing business and creating value. They also open up new markets and investment possibilities, such as stablecoins, which are crypto-assets that try to maintain a stable value by linking to other assets, such as regular currencies.

How can you buy crypto-assets?

Buying crypto-assets is not as simple as getting regular money or goods. It requires careful research and education. You should always do your own due diligence and seek professional advice before investing or engaging in any crypto-asset related activities.

The following are some different ways to buy crypto-assets, depending on your preferences and needs.

Online Exchanges

These are websites or apps that allow you to buy and sell crypto-assets using regular money or other crypto-assets. These platforms usually require more verification to comply with the rules and regulations of the countries where they operate. This can mean less privacy and control for clients. These platforms also keep your crypto-assets in their own digital wallets, which means they are responsible for their security and protection.

Online Brokers

These are websites or apps that allow you to buy and sell crypto-assets without needing to manage your own digital wallet. Some examples are Robinhood or Revolut. These platforms are easier to use than exchanges, but they also mean that you have less control over your crypto-assets. You don’t own the actual crypto-assets, but only a claim to them. This means that you have to trust the broker to handle your crypto-assets safely and honestly.

Peer-to-Peer Trading

For more tech-savvy users, decentralised exchanges (DEXs) like Uniswap allow direct trading without intermediaries. However, these may lack some safety features and involve more risks and challenges.

What are the risks of using crypto-assets?

Crypto-assets come with risks and challenges that you should be aware of. These include:

Regulatory Risks

Different rules worldwide can make things confusing. If regulators ban or limit crypto-assets, their value can drop.

Price Changes

Crypto-assets are subject to supply and demand, as well as market sentiment and speculation. This means that their value can go up or down significantly in a short period, making them risky investments.

Cybersecurity Risks

Cryptocurrencies and the use of distributed ledger technology (DLT) also come with cybersecurity risks, such as hacking, cyberattacks, and fraud.

Operational Risks

Cryptocurrency exchanges and wallets face operational hazards such as system failures, downtime, and technical glitches.

Financial Crime Risks

Crypto-assets are sometimes used for illegal activities like money laundering. This draws attention from law enforcement and can lead to stricter rules and reporting.

What are some common cryptocurrency scams and attacks?

There are many types of cryptocurrency scams and attacks, but here are some of the most common ones:

Phishing Scams

Scammers can trick you into revealing your private keys, which allow you to access and control your cryptocurrency holdings. Be cautious with your keys!

Social Engineering

Manipulative tactics to get sensitive information from you.

Malicious Software

This is when someone installs harmful programmes on your device, such as keyloggers or ransomware, that can record your keystrokes, encrypt your files, or lock your device until you pay them a ransom in crypto-assets.

Pump and Dump

When prices are artificially inflated to trick you into buying.

Fake ICOs

This is when someone creates a fake initial coin offering (ICO), which is a way of raising funds for a new crypto-asset project by selling tokens to investors. They may use fake websites, whitepapers, or social media accounts to attract investors and then disappear with their money.

Exchange Hacks

When the security of an online platform that allows you to buy and sell crypto-assets is breached, and the crypto-assets stored on the platform’s wallets are stolen.

How can you protect your crypto-assets?

Research Your Provider

Look for crypto-assets service providers (CASP) that are authorised by a National Competent Authority (like the MFSA). Choose ones that are transparent and carry out thorough KYC assessment (identity verification) at onboarding stage. Also, such CASPs should have robust safeguarding of funds, ICT security, and contingency policies and procedures.

Seek Professional Advice

Before holding, trading, or investing in any crypto-assets, make sure you understand what they are, how they work, and what are the risks and benefits involved. You should always do your own research and seek professional advice from legal, financial, and technical experts who can help you make informed decisions.

Use a Secure Wallet or Consider Cold Storage

For long-term holdings, think about using hardware wallets like Ledger or Trezor. They keep the private keys to your crypto-assets offline, making your investments more secure.

Adopt Cybersecurity best practices

Use strong and unique passwords. Keep your digital wallets and devices safe and up-to-date with the latest security software updates.

Diversify Your Holdings

Don’t put all your crypto-assets in one place. Spread them across different digital and hardware wallets or CASPs. This reduces your risk if one provider has a problem.

What is being done to ensure that crypto-assets are safe?

Different countries have different views on how to regulate crypto-assets. For example, Malta was one of the first countries to introduce a comprehensive set of rules for crypto-assets in 2018. These rules were aimed at protecting consumers and investors while promoting a safe and compliant crypto-asset environment. In Europe, a new regulation called the Markets in Crypto-Assets Regulation (MiCA) will apply to all crypto-assets from June 2024.  Malta is already becoming aligned with the new European regulation. Another regulatory initiative called the European DLT Market Infrastructures (‘DMI’) Pilot Regime will test how blockchain technology can be used to issue and settle securities.

The future of crypto-assets is still uncertain, as new applications continue to be developed. It remains to be seen how cryptocurrencies will be integrated with the traditional financial system. What is clear is that crypto-assets are here to stay and will have a significant impact on the financial services sector.