The rapid growth of e-commerce necessitated the innovation of more financial and technological novelties to accommodate the global business systems. Due to this growth, an increase in virtual wallets has been witnessed globally. Such online transfer platforms as Venmo, Cash app, Google Wallet, and PayPal, among others have changed the e-commerce world with the convenience to transact across the globe. The acceptance of virtual currencies such as Bitcoin has expanded the e-commerce platform further. Consumers have also embraced these developments albeit the risks associated with them.
Cases of consumer personal data compromise, international scams, reversed transactions as well as extensive criminal money laundering and terrorism financing have posed a risk to consumers, financial institutions, and national security.
1. Primary Sources
CyberSource. 2012. Online Fraud Report: online Payment Fraud, Merchant practices, and Benchmarks. Accessed from http://pymnts.com/assets/Shared/2012OnlineFraudReport.pdf on 2nd November 2018.
The report conducted on U.S. and Canadian online merchants indicates that more than 1% of revenue is lost to online fraud.
More fraudsters have defined new ways of obtaining money from online payment systems through identity theft and privacy compromise. International fraud attributes to the highest percentage of e-commerce fraud with merchants reporting more than $83 billion in loss from online sales. Online fraud affects both new entrants and established online merchants in equal measures. This report forms the basis of the research on the risks associated with digital wallets (e-wallets) and digital currencies to the consumers, merchants, and the nation at large.
Hern, Alex. “$300m in cryptocurrency’ accidentally lost forever due to bug: User mistakenly takes control of hundreds of wallets containing cryptocurrency Ether, destroying them in a panic while trying to give them back” Accessed 2nd November 2018 from https://www.
theguardian.com/technology/2017/nov/08/cryptocurrency-300m-dollars-stolen-bug-ether
The volatility of cryptocurrency limits the confidence of consumers in wealth held in digital wallets. In this news article, several users lost millions of money in hours after the system accorded one person the right of ownership of different wallets. In an attempt to undo the era, the code used locks the funds in the wallets permanently. This article indicates the risk of hacking and volatility of digital currencies and how millions of funds can be lost in seconds irreversibly.
2. Secondary Sources
Beer, C & Weber, B. “Bitcoin – The Promise and Limits Of Private Innovation In Monetary And Payment Systems”. Monetary Policy and the Economy. Q4/2014, 53-66, 2015.
Traditional monetary exchange policies regulate the fluctuations of monetary currencies. Virtual currencies encounter occasional fluctuations which risk the customer’s wealth in the market. Beer & Weber analyze how virtual currencies defy the principles of monetary theory and pose risks to the wealth of customers. Lack of regulations and irreversibility of transactions again come into perspective while evaluating the risks of virtual currencies. Useful information on the economic risks of digital currencies on consumers will be essential to this research paper.
Choo, K. “Cryptocurrency and Virtual Currency: Corruption And Money Laundering/Terrorism Financing Risks?” Handbook of digital currency: Bitcoin, Innovation, Financial Instruments, and Big Data, Pages 283-307, 2015
In this chapter, Choo discusses the influence that digital currencies have in expanding bribery, corruption, money laundering and andenforcementandenforcementmayenforcementandmayenforcement mobilemayenforcement terrorism financing. He examines compliance issues that nay be exploited for these vices and the evasion of law enforcements thereof. In his view, special strategies should be established to address gaps in virtual currencies that may increase corruption, money laundering, and terrorism financing.
Fernandes, L. “Fraud in Electronic Payment Transactions: Threats And Countermeasures.” Asia Pacific Journal of Marketing & Management Review, ISSN 2319-2836 Vol.2 (3), 2013
Fernandes digs deeper into the world of e-commerce and presents findings on the threats encountered through the e-payment systems. In this article, she expounds on the birth of e-fraud, the people affected in numbers, and revenue loss in figures from e-fraud. She also expounds on the different methods that frauds use and how both consumers and merchants can protect their transactions online. As a lecturer, Lisa has used instructional technologies to educate the readers on e-fraud as a risk factor of digit,al wallets.
Kadusic, E., Bojovic, P., and Zgalj, J. “Consumer Adoption – Risk Factor of Mobile Banking Services.” World Academy of Science, Engineering and Technology International Journal of Social, Behavioral, Educational, Economic, Business and Industrial Engineering Vol:5, No:8, 2011
In this journal article, Kadusic, Bojovic, &Zgalj, explores the risks of mobile banking and e-wallet apps to the consumer. They analyze how consumers have responded to these innovations and expound on the risks that have been encountered during consumer adoption. The risks discussed in the article include fraud, financial regulations and legislation, lack of technological interoperability, privacy issues, and identity theft. The article is essential to the discussion of the potential risks that e-wallets pose to the consumer and how they can be mitigated to reduce the negative impacts and increase consumer adoption.
Kleiman, J. “Beyond The Silk Road: Unregulated Decentralized Virtual Currencies Continue To Endanger U.S. National Security and Welfare.” American University National Security Law Brief Volume 4 | Issue 1:59-78, 2013.
The decentralization of Virtual currencies away from legal and financial frameworks continues to pose a risk and Toto’s national security. The anonymous operation of digital currency accounts allows potential criminals to evade law enforcement and financial regulations while performing criminal activities. Kleiman argues that the lack of regularizations and the decentralized nature of virtual currencies endanger the national security of the U.S. In the argument, he uses the Silk Road website to demonstrate how virtual currencies are pushing the boom of illegal trade in black markets and compromising national security in the process. This article is essential in discussing how the lack of digital currency regularizations has endangered national security in local and international spheres.
Kovacs, L., & David, S. “Fraud Risk In Electronic Payment Transactions”. Journal of Money Laundering Control, Vol. 19 Issue: 2, pp.148-157, 2016. https://doi.org/10.1108/JMLC-09-2015-0039
The lack of proper regulations to govern virtual currencies and e-wallets has been cited as the major threat to the regulation of online transactions. Fraud incidents conceived from new techniques continue to escalate at the same speed as digital currencies innovation. Kovacs & David (2016) evaluates these fraudulent activities that should be adopted by local and international regulators to mitigate the risk of fraud from online payments systems. This article serves to show that with proper regulations in place, digital wallets and currencies can be safe for consumers.
Niranjanamurthy, M., Kavyashree, N., Jagannath, S., Chahar, D. “Analysis of E-Commerce and M-Commerce: Advantages, Limitations and Security issues”. International Journal of Advanced Research in Computer and Communication Engineering Vol. 2, Issue 6, 2013.
To understand the operation of e-commerce, Niranjanamurthy et.al, have provided an analysis of what it is and how new advances have influenced the way of doing business globally. They analyze the limitations of devices used in conducting e-commerce and how these form risk in online transactions. Interestingly, e-commerce has been narrowed down and m-commerce introduced. Devices used for m-commerce, such as has and may and phones, and personal digital assistants, can be a source of risks for online transactions. Such things as malware, middle-wares, and phishing apps can interfere with the information security frameworks of e-payment platforms.
Pinheiro, R. “Preventing Identity Theft Using Trusted Authenticators, GSEC.” Journal of Economic Crime Management, Volume 2, Issue 1, 2004.
Trusted authentication mechanisms can be used in verifying new applicants for online platforms as the person they identify with. Pinheiro advocates this mechanism as a way of eradicating identity theft in e-commerce. New applicants opening new accounts can be evaluated against a trusted authenticator located in a different database such as a financial institution. The article indicates that although identity theft is prevalent in digital payment platforms, the trusted authenticator mechanism can curb the vice easily. This report is essential for discussing mitigation factors for e-commerce risks.
Rainer, B., Christin, N., Edelman, B., and Moore, T. “ Bitcoin: Economics, Technology, and Governance.” Journal of Economic Perspectives, 29 (2): 213-38, 2015.DOI: 10.1257/jep.29.2.213
From its design to its operation, Bitcoin raises many security questions. First, the irreversibility of transactions limits the consumer or buyer-seller power. Secondly, there are no vetting procedures for opening Bitcoin accounts nor any vetting procedure is available. Compared to traditional banking systems and e-wallets, Bitcoin creates more privacy and flexibility but at the same time more vulnerability. Rainer et.al, have discussed all these limitations of Bitcoin as a virtual currency and supports the thesis of this research paper
Stokes, R. “Virtual money laundering: the case of Bitcoin and the Linden dollar.” Journal Information & Communications Technology Law. Volume 21- Issue 3:221- 236, 2012 https://doi.org/10.1080/13600834.2012.744225
Cases of money laundering have accelerated with the innovation of cashless and virtual currencies innovations. Stokes analyses how the Bitcoin and Linden dollar as examples of virtual currencies, can be used by an online criminal to launder money. Published in the ICT Law journal, the article integrates the legal frameworks with the ICT and examines how the two can interoperate to curb fraud. A discussion on Money Laundering Regulations 2007, helps understand how the law can be applied in virtual currency trading.
Vandezande, N. “Mobile Wallets and Virtual Alternative Currencies Under the EU Legal Framework on Electronic Payments”. ICRI Research Paper 16, 2015. http://dx.doi.org/10.2139/ssrn.2325410
Vendezande examines how the EU legal framework maneuvers the interoperability of e-payment across borders and still faces hindrances from the complexity of digital wallet systems. The increase in services offered across digital wallet systems in addition to e-payments has further complicated the regulations of operations. The article proposes financial regulations to protect consumers with the continuous enhancement of services offered by virtual currencies. This paper is essential in proposing mitigations for the risks involved in digital wallets and digital currencies.
Vovchenko, N., Tishchenko, E., Epifanova,T., Gontmacher, M.. “Electronic Currency: The Potential Risks to National Security and Methods to Minimize Them”. European Research Studies, Volume XX, Issue 1, 2017 pp. 36 – 48, 2017.
In this article Vovchenko, analyses the threats imposed by virtual currencies on national security. Issues of money laundering, terrorism financing, and international scams form the center stage of the discussion. The lack of a legal redress system to mitigate these risks has been discussed as the potential root of these threats since the trade exists freely without laws. As economists, the researchers have analyzed potential risks from the perspective of how they impact the national economy and pose a financial security risk. The authors support the notion that the lack of proper monitoring and management of e-wallets and virtual currencies poses a risk to national security. The article also proposes methods that can be adapted to the management of virtual currencies in the national and global spheres.
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