Cryptoassets Risk Overview

Cryptoassets vary in their characteristics and risks. Before buying, ensure you understand the specific risks.

General risks common to all cryptoassets

What are the risks associated with cryptoassets generally?

• Volatility and Liquidity Risks: Cryptoassets are known for their high volatility which refers to rapid and significant price fluctuations that may be experienced over short periods of time. Cryptoasset markets are often driven by speculation and sentiment leading to rapid price movements based on market perceptions, positive or negative, based on news and rumours. It is essential to consider your individual risk tolerance and investment goals before engaging with cryptoassets. During periods of high volatility, you may be unable to buy or sell any cryptoassets.
• Nascent Technology: Blockchain technology remains in its early stages and the underlying technology continues to evolve. Technical issues, security breaches, and vulnerabilities of the underlying protocol can trigger price fluctuations. It is unclear whether the economic value or functional elements of cryptoassets will persist over time. Additionally, the cryptoasset ecosystem is rapidly developing in a competitive market, demand for any cryptoasset may decrease with the entrance of a competitor or simply the inability to establish long-term value.
• Hacks: Exploitable vulnerabilities are often discovered in the source code of cryptoassets, resulting in various issues such as impaired functionality, compromised user information, and theft of cryptoassets. Additionally, the cryptographic foundations of any cryptoasset may prove to be flawed or inadequate over time.
• Concentration Risks: Depending on the consensus mechanism used by a particular blockchain, In the event that an individual or entity acquires control of more than 51% of the computing power (hash rate) utilised by a blockchain network, they would possess the ability to exploit this majority control to engage in double spending of their cryptoassets. This is known as a “51% attack”, and, if successful, it would severely undermine confidence in public blockchain networks such as Bitcoin or any impacted blockchain network. Consequently, the value of the cryptoasset impacted would likely experience a significant decline.
• Internet and Electronic Trading Risks: Utilising an internet-based trade execution software application entails certain risks, including but not limited to potential hardware and software failures. For instance, in the event of an internet connection or equipment failure, you may encounter difficulties such as being unable to place an order, experiencing order execution deviations from your instructions, or the non-execution of your order altogether. Consequently, this may result in financial losses if the market for a specific cryptoasset experiences a sudden drop.
• User Error: Once a cryptoasset transaction has been executed to its respective network, or if the user sends their cryptoassets to an incorrect wallet or network, we are unable to reverse the transaction. In the unfortunate event of fraudulent or accidental transactions, any resulting losses are not recoverable.
• Cyber Security: Cryptoasset platforms have faced cyberattacks and encountered technical problems that led to the loss or theft of cryptoassets belonging to their users. Consequently, a similarly targeted cyberattack could potentially result in the theft or loss of your fiat currency or cryptoassets. In such circumstances, it might be challenging or even impossible to recover the lost funds or assets.
• Regulatory Risks: Legislative and regulatory changes or actions at the national or international level may adversely affect the use, transfer, exchange, and value of crypto assets.
• No Investor Protection: Cryptoassets do not benefit from the protection provided by the Federal Deposit Insurance Company (FDIC), or the Securities Investor Protection Corporation (SIPC) if something goes wrong. You should be aware and prepared to potentially lose some of all of your money.

Cryptoassets Risk Summary

Cryptoassets also referred to as cryptocurrency, are a digital representation of value that function as a medium of exchange, a unit of account, or a store of value. Cryptoassets are not legal tender, are not backed by the government or a central bank and generally have no underlying assets, revenue stream, or other sources of value tied to fiat currency or other assets.

Their value is derived from market dynamics and has historically been more volatile relative to fiat currency and other assets. The unpredictability of the price of cryptocurrency relative to fiat currency may result in significant loss over a short period of time.

The value of cryptoassets may be derived from the continued willingness of market participants to exchange fiat currency for cryptocurrency, which may result in the potential for permanent and total loss of value of a particular cryptocurrency should the market for that cryptocurrency disappear. In certain cases, it may be difficult or impossible to liquidate a position quickly at a reasonable price due to various market factors, including illiquidity or actions by trading facilities.

Legislative and regulatory changes or actions at the state, federal or international level may adversely affect the use, transfer, exchange, and value of cryptocurrencies. Several federal agencies have also published advisory documents surrounding the risks of virtual currency. For more information see the Financial Conduct Authority’s Investor Alerts, CFPB’s Consumer Advisory, the CFTC’s Customer Advisory, the SEC’s Investor Alerts and FINRA’s Investor Alerts.

Some cryptoassets transactions shall be deemed to be made when recorded on a public ledger, which is not necessarily the date or time that the customer initiates the transaction. Cryptoassets ownership is often determined by a decentralized public ledger that associates an amount of cryptocurrency with a unique address defined by a public cryptographic key.

A private cryptographic key is required to transfer cryptocurrency from one address to another. Anyone with access to the private key associated with the address can transfer the associated cryptocurrency. Cryptoasset transfers generally cannot be canceled or reversed and the identity of the holder of the private key associated with any address can be difficult, if not impossible, to ascertain.

The nature of cryptoassets may lead to an increased risk of fraud or cyber attack. If you are using cryptocurrency held on the Uphold platform to purchase goods or services, we have no visibility into the sellers and cannot control delivery, quality, safety, or legality.

Losses due to fraudulent or accidental transactions may not be recoverable. If you have a dispute with sellers or buyers, you agree to deal directly with them and hold Uphold blameless in all disputes. The nature of cryptoassets means that any technological difficulties experienced by Uphold may prevent the access or use of a user’s cryptocurrency. Any bond or trust account maintained by Uphold for your benefit, if applicable, may not be sufficient to cover losses incurred by you. There is no assurance that a person who accepts cryptocurrency as payment today will continue to do so in the future.