BiometricsIllinois Appellate Court Finds that Statute of Limitations for BIPA Claims Could be as Much as Five Years, Adding to Already Considerable Class Action Exposure

Illinois Appellate Court Finds that Statute of Limitations for BIPA Claims Could be as Much as Five Years, Adding to Already Considerable Class Action Exposure

On September 17, 2021, the First District of the Illinois Appellate Court issued the first appellate opinion regarding the applicable statute of limitations for claims arising under Illinois’ Biometric Information Privacy Act (“BIPA”).  In a mixed decision, the First District found that the limitations period could range from 1 year to as much as 5 years depending on the nature of the alleged violation at issue.

 

The implications of the First District’s decision are momentous, because many BIPA lawsuits are class actions.  In addition to expanding the pool of potential plaintiffs, a five-year limitations period greatly increases the potential class size and, consequently, defendants’ potential damages exposure.

 

Background

By way of background, Illinois enacted BIPA in 2008 after a company called Pay-by-Touch started a pilot program at Chicago-area retail stores to enable customers to pay for purchases using fingerprint scans linked to their credit cards. When Pay-by-Touch subsequently filed for bankruptcy after collecting customers’ biometric and financial account information, the bankruptcy trustee listed the customers’ biometric information as an asset and sought to sell it to pay off creditors.  This motivated the Illinois legislature to enact BIPA.

 

BIPA’s Requirements

BIPA contains five different subsections regulating the use of biometric information.  The differences between the following five subsections were critical to the First District’s decision:

  • First, anyone in possession of biometric information must develop a publicly-available retention policy.

 

  • Second, prior to collecting any biometric information, the collecting party must disclose the purpose and length of time for which the information will be used, and obtain a release from the subject of the information.

 

  • Third, biometric information cannot be disclosed without the authorization of the subject.

 

  • Fourth, a party cannot profit from the sale of biometric information under any circumstances.

 

  • Finally, a party must protect biometric information using the standard of care in the industry, and at least the same protection measures that the party uses for other personal and confidential information.

 

Debate Over Limitations Period

BIPA itself does not specify the applicable statute of limitations, and the plaintiff and defense bars have disagreed on the applicable limitations period.  Prior to the First District’s decision, the litigation in the trial courts has centered around three potential limitations periods, including the following:

  • One-year period for actions based on “publication of matter violating the right of privacy.” 735 ILCS 5/13-201;

 

  • Two-year period for personal injuries or “statutory penalties.” 735 ILCS 5/13-202; or

 

  • Five-year period for “all civil actions not otherwise provided for.” 735 ILCS 5/13-205.

 

The Subject Lawsuit

An employee sued his former employer alleging that his employer required him to clock-in for work using a biometric time clock, and that his employer violated BIPA by failing to obtain his informed consent, failing to have a retention policy, and disclosing his information to third parties such as the time clock vendor.

 

The plaintiff stopped working for the defendant in January 2018, and he filed suit in March 2019.  The employer moved to dismiss the lawsuit, arguing that the suit was time-barred because the one-year limitations period for “publication of matter violating the right of privacy” applied.  The plaintiff of course disagreed and argued that the five-year period for “civil actions not otherwise provided for” applied.  The trial court agreed with the plaintiff but certified the question for interlocutory appeal.

 

The Appellate Court’s Decision

On appeal, the First District found that the applicable limitations period depends on which of the five BIPA subsections is at issue.  More specifically, the First District found that the one-year limitations period is limited to matters involving “publication.”  Using this framework, the First District found that only two of BIPA’s subsections involve publication: the prohibition of unauthorized disclosure and the prohibition of the sale of biometric information.  On the other hand, the First District found that the other three requirements (the retention policy requirement, informed consent requirement, and standard of care requirement) can be violated without any publication, and therefore are subject to the five-year limitations period.

 

For the case at hand then, applying the First District’s decision means that the plaintiff’s allegations regarding his employer’s failure to obtain his informed consent and failure to have a retention policy were subject to the five-year limitations period and therefore timely.  In contrast, the plaintiff’s allegations of unauthorized disclosure were subject to the one-year limitations period and therefore barred.

 

Not the Last Word

The First District’s decision likely will not be the last word on the limitations period for BIPA claims.  A separate appeal regarding the limitations period for BIPA claims – Marion v. Ring Container Technologies – is pending in Illinois’ Third District. (The First District covers Chicago, and the Third District covers North-Central Illinois and Chicago’s southern suburbs). The parties to both cases are likely to seek further appeal to the Illinois Supreme Court, and the Supreme Court will have a good reason to weigh in on the novel issue, especially if the Third District reaches a contradictory decision.

 

It is also noteworthy that the First District’s decision did not address the potentially applicable two-year limitations period for “statutory penalties.”

 

Potential Legislative Reform

In addition to these appellate decisions, the Illinois legislature could also take action.  In its spring term, the legislature advanced a bill out of committee that would dramatically reform BIPA.  The legislature did not hold a final vote on that bill before the conclusion of its spring term, but new appellate decisions could motivate the legislature to renew the reform effort.

 

Beckage will continue to monitor any developments regarding BIPA and will update its guidance accordingly.  Our team of experienced attorneys, who are also devoted technologists, are especially equipped with the skills and experience necessary to not only develop a comprehensive and scalable biometric privacy compliance program but also handle any resulting litigation.

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Construction Industry and Cyber AttacksWhy the Construction Industry Is Being Impacted By Cyber-Attacks, and What To Do About It

Why the Construction Industry Is Being Impacted By Cyber-Attacks, and What To Do About It

By Jennifer A. Beckage, Esq., CIPP/US, CIPP/E
and Daniel Parziale, Esq., CIPP/US

Introduction

For many years, the construction industry has appeared almost immune from cyber events because of the limited personal information it keeps. However, the last 12 months directly negate this view, reminding the industry that this perspective no longer carries weight. The construction industry is one of the leading industries impacted by data security incidents. This begs the question: why? And what can the industry do to address this rise in cyber threats?

Threat actors know that the construction industry is, in some areas, behind in data security and privacy initiatives. This is in large part because this industry, to date, avoided heavy regulation in data security and privacy laws. The limited regulation and guidance in the construction industry may have contributed to less focus on cybersecurity than in other industries.

Additionally, many in the construction industry are leveraging artificial intelligence technologies (AI) such as machine learning (ML) and robotics, among others. These new technologies still require data security and privacy risk assessments and proper controls in place, something that may be a second thought for those in the construction industry that, historically may not have had cybersecurity top of mind.

Lastly, the threat actors seek to extort money, and the construction industry presents a big, lucrative target. The exposure of cyber-attacks in construction, in part, is amplified by the amount of confidential and proprietary information digitally stored and shared across projects and their long information technology (IT) chains. Infrastructure, financial accounts, as well as the data of employees, projects, and business- sensitive information may be at risk. Accordingly, the number of cyber-attacks in the construction industry are growing exponentially.

The legal and threat landscapes are constantly changing, requiring those in the construction industry to be familiar or associate themselves with experienced tech and legal providers who can assist in navigating these rushing river waters.

 

Some of the Largest Cyber Risks Facing the Construction Industry

While the risks of cyber-attacks are not unique to the construction industry, their impact on the industry is distinctive.

For example, on January 30, 2020, French construction behemoth, Bouygues, announced that threat actors were holding 200GB of data ransom. See Naveen Gourd, Maze Ransomware hits Bird Construction and Bouygues Construction, https://www.cybersecurity-insiders.com/maze-ransomware-hits-bird-constriction-and-bouygues-construction/. Ultimately, the ransomware event caused a delay to various projects as Bouygues shut down various operating systems to prevent the propagation of the attack. See Bouygues, Press Release – Information on a Cyber-Attack, https://www.bouygues.com/wp-content/uploads/2020/01/prbouyguesconstructioncyberattack01-31-2020-pdf.pdf.

Unfortunately, Bouygues is not alone in their suffering. Bird Construction, a large Canadian construction company, suffered a similar ransomware attack in December 2019, where the threat actors were demanding $9,000,000 CAD in exchange for decrypting the 60GB of data they were holding for ransom. See Naveen Gourd, Maze Ransomware hits Bird Construction and Bouygues Construction, https://www.cybersecurity-insiders.com/maze-ransomware-hits-bird-constriction-and-bouygues-construction/.

These events are, unfortunately, very common in the construction industry.

There are five main cyber-attacks that could impact a construction company: i) ransomware; ii) fraudulent wire transfer; iii) downtime or business interruption; iv) breach of intellectual property; and v) breach of bid data. Each presents its impact and harm.

  • Ransomware: Ransomware, when a threat actor holds a computer system hostage for payment, can limit a construction company’s access to critical systems and potentially delay work at a project. Moreover, a construction company may be left with little choice but to incur the financial responsibility of paying the ransom. However, damage from a ransomware event is not simply limited to the payment of the ransom but may also include reputational damage.

 

  • Fraudulent Wire Transfers: Fraudulent wire transfers, often the result of social engineering, present a substantial risk to the construction industry, which is often moving large sums of capital around. Falling victim to fraudulent wire transfer not only presents dire fiscal issues for a construction company but can also lead to severe reputational harm.

 

  • Downtime or Business Interruption: The construction industry is heavily reliant on the ability to deliver projects on a deadline. A cyber-attack on a construction company’s software or equipment could potentially cause a delay in the project while the cyber-attack is properly addressed.

 

  • Breach of Intellectual Property: If a construction company is holding highly sensitive blueprints or schematics in its computer system, breach of these computer systems could result in major reputational damage and potential lawsuits.

 

  • Breach of Bid Data: If a construction company holds information regarding its bidding strategies on a computer system, access and acquisition of these files could lead to a loss of a competitive edge.

 

What Happens In A Data Breach

The fast-moving cyber threat landscape above is juxtaposed with emerging data security and privacy laws. In the United States, there is no overarching data security and privacy law(s). Instead, we have a patchwork of federal and state laws that may apply to an organization.

For example, let’s pretend that Company XZY suffers a data breach that not only seizes access to systems, but one such system is a human resources program that contains all of the employee’s personal information (whether hosted internally or with a third-party provider). Perhaps another system is a client management program that has a sensitive design or tenant plans or city or government projects with confidentiality treatment requirements. Assuming in this scenario that the threat actor accessed and then exfiltrated the human resource system and client management program data, then Company XZY would have to provide notice to all potentially impacted persons (the employees in our scenario) under a myriad of state and perhaps federal laws, but also under contract to the third parties whose confidential business information was impacted.

As it relates to the employees, it is important for the legal counsel for Company XZY to review where each employee resides to determine applicable laws that will direct notification requirements for employees. As one can imagine, in a data breach with hundreds or thousands or more employees who are impacted, this could become complicated, but there are seasoned professionals who can help the organization prepare and respond. Unfortunately, most organizations are not prepared.

Besides operational setbacks from a data security incident and notifications to potentially impacted persons, there could also be revenue loss, reputational harm, legal fees, technical costs, call center expenses, credit monitoring costs, regulatory reporting, third-party claims, and more.

There are, however, ways that this risk can be shifted.

 

Actionable Steps the Construction Industry Can Take to Mitigate Cyber Risk

There are several methods your organization can leverage to limit its exposure to cyber risks. These include but are not limited to: 1) building a team of trusted advisors; 2) picking the plan that is right for you; 3) evaluating risk so it is properly allocated through contract; 4) evaluating whether your organization has a strong cyber liability insurance policy; and 5) implementing good cyber hygiene and best practices.

1. Build A Team of Trusted Advisors

Cybersecurity preparedness will require knowledge and awareness across many roles within the organization. The leaders of the organization, information technology, legal, and most likely also marketing, sales, customer service, accounting, finance, human resources, and other groups to the extent they exist at the organization.

Third parties will likely need to be engaged as the legal and technical areas are emerging at rapid speeds. Further, the market is oversaturated with vendors, providers, partners of all types and sizes. Organizations should take time to validate credentials, years of experience, contractual terms, insurance carried, and more before engaging third-party partners to assist with cybersecurity program development.

2. You Pick the Plan

The organization’s team should, through a risk assessment, determine its cybersecurity program goals. Too often organizations are “sold” by a vendor as to a plan, but if a breach occurred such a plan would do very little to prevent legal and technical risk.

Some in the construction industry have robust experience with information technologies and others rely heavily on third parties. If the latter, find a trusted partner to help you manage your third-party providers if your organization does not fully understand technically what they are doing. Just like an employee, those third parties should be reviewed regularly (more on that soon).

3. Contract with Strong Data Security & Privacy Provisions

Another method of mitigating cyber risk is through contract. When reviewing your company’s agreements with third-party vendors and subcontractors, it should pay close attention to indemnification and insurance procurement provisions for how they might allocate cyber risk between the parties. A data security incident at one of your company’s vendors may have serious consequences when it exposes your business’ information. To that end, your company may want to consider including language in its third-party contracts which require vendors and subcontractors to indemnify your company in the event the third-party vendor or subcontractor suffers a data breach. Similarly, your company might want to consider requiring a third-party vendor or subcontractor to name your company as an additional insured on its cyber liability insurance policy. Both of these steps help in the event your third-party vendor suffers a data security incident, as the financial impact on your business would be minimal.

4. Cyber Liability Insurance

If the third parties the organization is using do not want to (or they should not) carry certain risk, one potential method of mitigating risk associated with cyber-attacks are a cyber liability insurance policy. These policies generally provide coverage for the following types of attacks:

  • Data Breach Expenses: When a threat actor accesses or acquires Personal Identifiable Information as defined by applicable law, your company has suffered a data security incident. Cyber liability insurance policies typically cover the costs of hiring lawyers, forensic IT security vendors, public relations, or crisis communication costs to assist you in handling your response. Moreover, cyber liability insurance policies cover the cost associated with notifying individuals and state regulators, providing identity and/or credit monitoring services to affected individuals, and running a call center.

 

  • Cyber Extortion or Ransomware: When a threat actor acquires access to your company’s systems and encrypts or otherwise locks you out of the network, demanding the payment of a ransom to unlock the system. Cyber liability insurance policies typically cover the cost of negotiating with the threat actor as well as potentially paying part of the ransom.

 

  • Fraudulent Wire Transfer: When a threat actor misdirects a wire transfer from your company to a vendor, your company is a victim of a fraudulent wire transfer. Cyber liability insurance policies will normally cover such fraudulent wire transfers if your company took certain steps to prevent them. Coverage for fraudulent wire transfers is generally limited to the amount of the wire transfer itself.

 

  • Business Interruption: When a threat actor executes a cyber-attack, some cyber liability insurance policies provide coverage for the loss of business income as a result of being locked out or shut down as part of the cyber-attack.

As provided above, cyber liability insurance policies generally cover the major types of cyber-attacks a construction company may face; however, cyber liability insurance is not the only means of mitigating the risk of a cyber-attack.

Cybersecurity insurance can provide first-party and third-party damages. Other insurance such as Tech Errors & Omissions may be options for some organizations to consider as well.

5. “What’s Good for the Goose is Good For The Gander” Policies and Practices

a.) Policies & SOPs

Applicable here is the old proverb “what’s good for the goose is good for the gander.”

If an organization is going to require that its vendors and third-party partners have certain controls and practices, then that organization should perhaps think about its practices. In fact, its insurance carrier may require it. Also, the organization may have requirements under laws and regulations, under contract, or other duties owed.

This is where most organizations are paralyzed – it sounds overwhelming. Or they find some stock policies, modify them slightly, and place the policies on a virtual shelf.

In creating policies, the team charged with building a construction cybersecurity program will identify first the laws that apply to the organization, IT standards it wishes to follow, along with other guiding principles – organization mission, vision, codes of conduct, or company ethics policies, and more.

Policies and standard operating procedures can come in a myriad of shapes and sizes, which makes creating them sometimes difficult for organizations – too many choices – so they pick and choose from numerous templates and the result is, frankly, often a mess.

Organizations should plan to take time to put together written policies and procedures that reflect the organization’s goals, vision, standards, controls, and more – not some other organization’s that is in a template found online.

What are some good cybersecurity controls and practices? The National Institute of Standards and Technology’s (“NIST”) Cybersecurity Framework Version 1.1 offers for some a good place to start looking at what a cybersecurity program may look like on the technical side for your organization. See NIST, Framework for Improving Critical Infrastructure Cybersecurity, Version 1.1 (available at https://nvlpubs.nist.gov/nistpubs/CSWP/NIST.CSWP.04162018.pdf).

b.) Controls

The organization will need a variety of physical, administrative, and technical controls.

Physical controls include safeguarding server rooms to video monitoring of secure areas (*be careful if you are collecting biometric information, this is also a fast-moving area).

Administrative controls include the policies and SOPs discussed earlier, but also that there are folks responsible for these duties, there is training, review, auditing, discipline, and more.

Technical controls can take many forms but include changing passwords regularly, implementing two-factor authentication where possible, and regularly informing employees of the dangers of social engineering. Good cyber hygiene can prevent a cyber-attack from occurring in the first place, and in that regard is one of the most effective means of mitigating cyber risk.

6. Construction Cyber Culture

One final method of mitigating cyber risk is through fostering good cyberculture across the organization.

An organization is on its way to great construction cyber culture through the actionable items above: 1) team of trusted advisors, 2) selecting a plan, 3) third-party contracting and auditing, 4) cybersecurity insurance, and 5) policies and procedures.

Great construction cyberculture begins with a buy in at the top and demonstrating by example (so no exceptions!).

 

Conclusion

Unfortunately, organizations in almost every industry are navigating cyber threats and the construction industry is no exception. There are, however, a number of risk mitigation strategies that can be reviewed for applicability to an organization. As discussed, the first step is to find those experienced trusted advisors to help navigate this complex and sophisticated legal and technical terrain.

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FTC Issues Policy Statement Affirming that Health Apps Must Comply with FTCFTC Issues Policy Statement Affirming that Health Apps and Connected Device Companies Must Comply with FTC’s Health Breach Notification Rule

FTC Issues Policy Statement Affirming that Health Apps and Connected Device Companies Must Comply with FTC’s Health Breach Notification Rule

At an open commission meeting on Wednesday, September 15th, the Federal Trade Commission (FTC) voted 3-2 to approve a policy statement affirming that health apps and connected devices that draw information from multiple sources need to comply with the FTC’s August 2009 Health Breach Notification Rule. The policy statement serves as a notice to health apps and connected devices – companies that are traditionally not covered entities under HIPAA –  “of their ongoing obligation to come clean about breaches”.  The statement also affirms that the entities may be subject to civil penalties of up to $43,792 per violation per day.

The American Recovery and Reinvestment Act of 2009 (Recovery Act of 2009) required the FTC to enforce breach notification requirements with respect to vendors and third parties and to adopt a rule implementing such requirements. Under the Health Breach Notification Rule, vendors of personal health records and related entities must notify U.S. consumers and the FTC, and, in some cases the media, if there has been a breach of unsecured identifiable health information.

Acknowledging that it has now been more than a decade since the promulgation of the Health Breach Notification Rule and that there has been a proliferation of apps and technologies that consumers can now use “to track diseases, diagnoses, treatment, medications, fitness, fertility, sleep, mental health, diet, and other vital areas,” the FTC affirmed on Wednesday that apps capable of drawing information from multiple sources (such as through a combination of consumer inputs and APIs) are covered, even if the health information comes from only one source.

You can read the full policy statement of the FTC here.

FTC Chair Lina M. Khan and Commissioners Rohit Chopra and Rebecca Kelly Slaughter voted in favor of the policy statement, while Commissioners Joshua Phillips and Christine S. Wilson each issued dissenting statements. The dissenting opinions asserted that this statutory and regulatory opinion should be determined in the context of the rulemaking process that is currently under way, rather than a policy statement.

It is important that companies developing health apps and connected devices be aware of this announcement.  Beckage closely monitors developments in laws and regulations governing health data and breach response. Beckage’s team of highly skilled attorneys and technologists are uniquely situated to assist clients as they navigate these changes.

Email Beckage Health Law Team Lead Sarah L. Rugnetta, Esq., (CIPP/E) at srugnetta@beckage.com or call 716.898.2102 for assistance in analyzing this and other regulatory and legislative matters in the Health Law space.

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Website AccessibilityEastern District of New York Holds a Website By Itself is Not Place of Public Accommodation

Eastern District of New York Holds a Website By Itself is Not Place of Public Accommodation

Website class actions alleging violations of the Americans with Disabilities Act (“ADA”) continue to dominate the court systems. These lawsuits are indiscriminate involving businesses of all sizes across a myriad of industries. Commonly, these lawsuits involve a plaintiff who suffers from a disability and attempted to access a business’s website, alleging that the website itself should be considered a place of public accommodation, but their disability hindered their enjoyment of the business’s services. Nevertheless, a court in the Eastern District of New York has unequivocally concluded that a website is not a “place of public accommodation” within the meaning of Title III of the ADA.

Winegard v. Newsday LLC

On July 31, 2019, Plaintiff Jay Winegard, a legally deaf individual residing in Queens, New York, filed an action in the Eastern District of New York against the news service provider Newsday. Winegard alleged that Newsday violated the Americans with Disabilities Act, the New York State Human Rights law, and the New York State Civil Rights Law, and the New York City Human Rights Law in failing to provide closed captioning on two of the videos it hosted on its website.

On May 1, 2020, Newsday filed a Motion to Dismiss, arguing, in relevant part, that Newsday is not a place of public accommodation within the meaning of Title III of the ADA.

On August 16, 2021, while initially observing that the Second Circuit has not squarely resolved whether a website itself is a place of public accommodation, the Eastern District of New York concluded that “the ADA excludes, by its plain language, the websites of businesses with no public-facing, physical retail operations from the definition of” places of public accommodation. In reaching its conclusion, the court relied heavily upon the text of the ADA, noting that the ADA’s definition of places of public accommodation were overwhelmingly comprised of physical locations.

Echoing the recent Eleventh Circuit holding in Gil v. Winn-Dixie, the court further called upon Congress to clarify whether the places of public accommodation include websites and further remarked that in the thirty-one years since the passage of the ADA, Congress has failed to add non-physical places to the definition of places of public accommodation.

Finally, the court in Winegard concluded that previous Second Circuit reliance on Pallozzi v. Allstate Life Insurance Co. is misplaced, as that matter dealt with the enjoyment of insurance services which still had to procured at a physical location.

What does this mean going forward?

Whereas the Court’s decision in Winegard may not initially upend all website-based ADA claims in the Second Circuit, it is yet another example of the eroding argument that websites are automatically places of public accommodation. To that end, it is important that companies are proactive and prioritize accessibility to put themselves into a legally defensible position.

At Beckage, we have a team of highly skilled attorneys and technologists who are uniquely situated to help clients navigate website accessibility and work towards national and international standards with other privacy and security laws. Beckage works with clients at all stages of accessibility analysis and is here to help make your company ADA compliant and help ensure your company has the right tools in place to mitigate risk.

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CryptocurrencyWhat Recent Cryptocurrency Heists Reveal About Blockchain Security

What Recent Cryptocurrency Heists Reveal About Blockchain Security

In early August 2021, blockchain-based platform Poly Network reported a hack in which malicious actors moved an equivalent of $600 million in cryptocurrencies to their private wallets. This hack was the largest ever, after the 2014 hack of a Tokyo-based bitcoin exchange, which led to the theft of the equivalent of $460 million. A few days later, DAO Maker, a decentralized finance (DeFI) crypto platform announced a hack and theft of 2,261 Ethereum (the equivalent of $7 million at the time of the hack).

These heists reveal potential security vulnerabilities in the current system for purchasing and exchange cryptocurrencies despite the general promises of security provided by decentralized cryptocurrencies.

To understand how these cryptocurrency heists occurred, it is crucial to understand how cryptocurrency functions. In particular, how certain organizations provide cryptocurrency conversion services (i.e., converting Bitcoin to Ethereum). Traditionally, forms of currency (often referred to as “fiat” currency when distinguished from cryptocurrencies) are government issued and rely on a centralized banking system to validate money transfers and accounts. Most fiat currencies are not backed by commodities, such as gold, and therefore, have no intrinsic value. Value in fiat currency derives from consumer confidence (and is subject to government manipulation).

Cryptocurrencies, such as Bitcoin or Ethereum, however, are decentralized currencies with no central banking or financial system to validate transactions. Rather, these currencies rely on a network of users to validate transactions and balances. The technology that supports the storing and validating of transactions in a database (essentially a digital ledger) is called blockchain.

Most cryptocurrencies distribute this Blockchain ledger database across its users. The users earn rewards (usually the in the form of cryptocurrency) for hosting the ledger, validating transactions in the blockchain ledger, and solving complex computational math problems.

Cryptocurrency TransferThe lack of centralization creates complexities in converting currencies. Traditional exchange services involving fiat currency are handled by financial institutions who have the capacity to receive one type of currency (i.e., U.S. Dollar) and provide the equivalent amount in a different currency (i.e., the Euro).

Performing a similar instant exchange among cryptocurrencies requires an exchange service to stockpile multiple cryptocurrencies. Of course, this type of exchange service is inherently centralized – and that centralization of decentralized currency creates the security vulnerability that led to the recent string of crypto currency heists.

The attackers targeted the code behind the accounts that convert cryptocurrencies and injected malicious code that made the exchange service believe that the attacker was the intended recipient of the converted cryptocurrency.  The attackers ultimately redirected the currency into their personal wallets.

These recent events do not mean that those interested in holding or trading cryptocurrency should entirely avoid the use of exchanges. No transaction is 100% secure, and users should understand the potential risk involved in exchanging cryptocurrencies or converting fiat currency within the current systems of exchange.

The legal concerns stemming from these incidents mirror those in traditional incidents involving consumer information or fiat funds. However, the potential risk of loss is increased by the fact that cryptocurrency transactions in certain instances are uniquely untraceable and irreversible, meaning that the exchange may not be able to recover the stolen funds. Further compounding the risk is that these crypto exchange services may not have the same financial protections, insurance, or government backing as traditional financial institutions.

These events serve as a reminder that the security provided by decentralized currency may be lost when that currency is funneled through a centralized exchange.

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