The 10 tech risks of the first bitcoin ETF

Is investing in digital currency as obvious as buying shares? (Photo: 123RF)

The “world’s first bitcoin ETF” is from Toronto, says Purpose Investments, the asset manager recently approved to facilitate financial exposure to the famous cryptocurrency. Which does not protect the investor from all digital dangers.

“Invest in bitcoin without the hassle of digital wallets,” promises Purpose Investments, the Toronto firm with about $10 billion in assets under management whose bitcoin-backed exchange-traded fund has been approved by the Ontario Securities Commission.

“Solid,” assures the executive who is eligible for TFSAs and RRSPs. And every time an investor buys shares of this ETF, they will have “real bitcoins”. But is investing in digital currency as obvious as buying shares?

To objectify the situation, it is interesting to look at the technological risks listed in the prospectus by CEO Som Seif and CFO Jeff Bouganim. Here are the top 10:

• Reduced consumption

Although it was invented to serve as a peer-to-peer electronic payment system, there is no guarantee yet that acceptance of bitcoins as a payment method by major merchants and commercial enterprises will reach critical mass.

• Competing cryptocurrency

“To the extent that a competitor to Bitcoin gains popularity and gains market share, the use and price of bitcoin may be adversely affected, which may adversely affect an investment in the Fund,” the guidance notes.

• Cyber ​​attacks

The Bitcoin network is periodically subject to attacks (distributed denial of service) aimed at blocking the list of operations processed by miners. It is the creation of blocks and all the operations that are theoretically threatened.

• Obsolete cryptography

Technological advances, take quantum computers for example, could one day render the Bitcoin network’s cryptographic and algorithmic protocols obsolete.

• Disagreement

Bitcoin technology can be weakened at the… human level. “Contributors, such as software developers and miners, may not agree on the most appropriate way to maintain and develop the program,” Purpose Investments management said. These disputes would undermine the supply of bitcoins and their price.

• Separation

Bitcoin remains open source. Network members could build a “divergent branch.” Running the programs in parallel would build independent blockchains with independent assets. Which could work against the value of bitcoin.

• Addiction

Purpose Investments is also concerned about several forms of dependence on Bitcoin: “The whole system is dependent on the continued functioning of the Internet. About 20% of bitcoins currently in circulation are held by 115 bitcoin addresses. Because of favorable electricity rebates, there are large mining groups in China that have significant influence on the network.”

• Energy

This is an issue that we are monitoring at Hydro-Québec at a time when the price of bitcoin is rising to more than 61,000 Canadian dollars. Due to the significant computing power required for mining, the energy consumption of the network as a whole, warns the ETF manager, “ultimately” may be considered “unsustainable or even become unsustainable.”

• Error

The manager of the first bitcoin ETF is also careful to anticipate a mistake on his part. He points out that bitcoin transfers are irreversible. An improper transfer, that is, an accidental sending to the wrong recipient, can only be reversed by the recipient, who will then agree to return the bitcoin to the original sender in a new transaction.

• Lost keys

Finally, this is not a technological defect, but a property of Bitcoin: the loss or destruction of private keys, these digital codes required to access one’s bitcoins, can lead to the loss of all assets. An “exit scam” scenario that has unfortunately already been seen on some fraudulent crypto platforms.

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