General Risks of Digital Assets

Overview

Zero Hash Holdings Ltd. and its affiliates (collectively, “Zero Hash”) provide certain Digital Asset (as defined below) services (the “Services”) to its end user customers and platform customers (referred to as “you” or “your” herein) pursuant to the applicable agreement between Zero Hash and you (each an “Agreement”). Before you use the Services, you should be aware of the risks associated with Digital Assets, and the purpose of these General Risks of Digital Assets (“Risk Disclosures”) is to make you aware of such risks. If these Risk Disclosures are incorporated in your Agreement, or you otherwise access and use the Services, then you acknowledge and agree that you have read and understand the Risk Disclosures contained herein. Please note that this is not an exhaustive list of all risks associated with Digital Assets and the Services.

As used herein, “Digital Assets” (which are also commonly referred as “cryptocurrency,” “virtual currency,” “digital currency,” “digital asset,” and “digital commodity”) means a digital representation of value which is based on a cryptographic protocol that can be digitally traded and may function as: (i) a medium of exchange; (ii) a unit of account; and/or (iii) a store of value which is not legal tender, whether or not denominated in legal tender. “Cryptocurrency” as used herein may also, as the case may be, refer to other digital representations of value stored on a blockchain protocol that have unique identification codes and metadata that distinguish them from one another and cannot be traded or exchanged at equivalency, such as non-fungible tokens or “NFTs”. The term “Digital Asset”, or any other alternative as used herein, does not include: (x) software or a protocol governing transfer of the digital representation of value; (y) a transaction in which a merchant grants value as part of an affinity or rewards program, which value cannot be taken from or exchanged with the merchant for cash or bank credit; or (z) a digital representation of value used exclusively within an online game or game platform. Digital Assets are distinguished from “fiat currency” (such as U.S. dollars), which is the coin and paper money of a country that is designated as its legal tender. For more information, please refer to the FATF Report, Virtual Currencies, Key Definitions and Potential AML/CFT Risks, FINANCIAL ACTION TASK FORCE (June 2014), available here.

Please note that Zero Hash does not support all Digital Assets, and that some Digital Assets that Zero Hash supports in one jurisdiction or for a particular service may not be available in your jurisdiction or for another service. A list of Digital Assets that Zero Hash currently supports is available here. Please be advised that Zero Hash may delist (i.e., cease support for) any Digital Asset at any time and for any reason at its sole discretion.

Risks

Network Control. Zero Hash does not own or control any of the underlying software or protocols through which blockchain networks are formed and Digital Assets are created and transacted, including any distributed ledger technology (each a “Network”). In general, Networks tend to be open source such that anyone can use, copy, modify, and distribute it. Zero Hash is not responsible for the operation of the Networks and makes no guarantee of functionality, security, or availability of such Networks.
Forks and Airdropped Digital Assets. Networks are subject to sudden changes in operating rules, resulting in a permanent change in the consensus algorithm resulting from the creation of a new Network, which can be significantly different from the original Network (a “Fork”) and implement changes in operating rules or other features that may result in more than one version of a Network (each, a “Forked Network”) and more than one version of a Digital Asset (“Forked Assets”). In addition, operators of Networks, and other interested parties, may offer or issue Digital Assets based on existing ownership or other factors, the issuance of which may be characterized as an interest, dividend, or “airdrop” (collectively, “Airdropped Digital Assets”). More information on how Zero Hash treats Forks and Airdropped Digital Assets may be found here.

ZERO HASH MAY DETERMINE, IN ITS SOLE DISCRETION, NOT TO SUPPORT A FORKED NETWORK OR THE DISTRIBUTION OF AIRDROPPED DIGITAL ASSETS AND YOU HAVE NO RIGHT, CLAIM, OR OTHER PRIVILEGE TO FORKED ASSETS ON SUCH UNSUPPORTED FORKED NETWORK OR SUCH UNSUPPORTED DISTRIBUTION OF AIRDROPPED DIGITAL ASSETS.

Unique Features of Digital Assets. Digital Assets are not legal tender in the United States, are not backed by the government, have no intrinsic value, and are not subject to any regulated financial insurance scheme protection in any jurisdiction (each a “Regulated Insurance Scheme”), including, but not limited to, the Federal Deposit Insurance Corporation and Securities Investor Protection Corporation in the United States, or the Financial Services Compensation Scheme in the United Kingdom. The price of Digital Assets is based on the agreement of the parties at the time of any given transaction, which may or may not be based on the market value of the Digital Asset at the time of the transaction. The value of a Digital Asset may be derived from the continued willingness of market participants to exchange fiat currency for Digital Asset, which may result in the potential for permanent and total loss of a value of a particular Digital Asset should the market for that Digital Asset disappear. Accordingly, the nature of Digital Assets means that there is no assurance that: (i) a market participant who accepts a Digital Asset as payment today will continue to do so in the future; (ii) a market participant’s Digital Asset losses will be afforded any kind of a legal protection, such protection which may be limited to private insurance, bonds, or trust accounts (if available); and (iii) a bond or trust account maintained by Zero Hash, or an exchange, intermediary, custodian, or vendor (if any), for your benefit will be sufficient to cover all losses incurred by market participants.
Price Volatility. The value of any Digital Asset, including assets pegged to, or designed to track the value of, fiat currency, commodities, or any other asset, may go to zero. The price of a Digital Asset is based on the perceived value of the Digital Asset and subject to changes in sentiment, which make these products highly volatile. Digital Assets that are pegged to the price or value of any other asset, including fiat currency, are not guaranteed to remain pegged to that asset’s or fiat currency’s value. Certain Digital Assets, including those pegged to any other asset’s or fiat currency’s value, have experienced daily price volatility of more than 25% and may be considerably higher. As such, the volatility and unpredictability of the price of Digital Asset relative to the price of fiat currency may result in significant loss over a short period of time. Zero Hash is not liable for price fluctuations in any Digital Asset listed on its platform.
Valuation and Liquidity. Digital Assets can be traded through privately negotiated transactions and through numerous Digital Asset exchanges and intermediaries around the world, each with its own pricing mechanism and/or order book. The lack of a centralized pricing source poses a variety of valuation challenges. In addition, the dispersed liquidity may pose challenges for market participants trying to exit a position, particularly during periods of stress. Such characteristics of the Digital Asset markets may result in canceled or partially filled Digital Asset orders. Zero Hash may, at its sole discretion, add a spread (i.e., a price premium) to each Digital Asset transaction executed by a participant on the Zero Hash platform, and the execution price is not meant to imply the “market price.” Zero Hash has no duty to assess or take any responsibility for the suitability or appropriateness of the Digital Assets made available by Zero Hash on its platform or any transactions that you may enter into.
Cybersecurity. The nature of Digital Assets may lead to an increased risk of fraud (as outlined in Section 13 below) or cyber attacks. The cybersecurity risks of Digital Assets and related “wallets” or spot exchanges include hacking vulnerabilities and a risk that publicly distributed ledgers may not be immutable, which may include, but is not limited to, 51% attacks. A “51% attack” refers to an attack on a Network by a group, or coalition of groups acting in concert, controlling more than 50% of the Network's mining hash rate or computing power which may cause a substantial change in the underlying protocol and/or cause significant market disruption. A cybersecurity event could result in a substantial, immediate and irreversible loss for market participants that trade Digital Assets. Even a minor cybersecurity event in a Digital Asset is likely to result in downward price pressure on that product and potentially other Digital Assets.
Opaque Spot Market. Digital Asset balances are generally maintained as an address on the Network and are accessed through an alphanumeric character string that is required to transfer any Digital Asset from its address (each a “Private Key”), which may be held by a market participant or a custodian. Although Digital Asset transactions can be publicly available on a Network, the public address does not identify the controller, owner or holder of the Private Key. Unlike bank accounts, Digital Asset exchanges and custodians that hold Digital Assets do not always identify the owner. The opaque underlying or spot market poses asset verification challenges for market participants, regulators and auditors and gives rise to an increased risk of manipulation and fraud, including the potential for Ponzi schemes, bucket shops, and pump and dump schemes, which may undermine market confidence in a Digital Asset and negatively impact its price. These unique risks mean that transactions in Digital Assets that are recorded on-chain may be irreversible without the consent and active participation from the controller of the recipient address, and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable, and you may not be able to seek compensation or appeal to government resources for recovery of such transfers or theft. Zero Hash does not guarantee a liquid market for any Digital Asset, is not a clearinghouse, and does not guarantee trades submitted to Zero Hash by you for settlement.
Digital Asset Exchanges, Intermediaries and Custodians. Digital Asset exchanges, in general globally, as well as other intermediaries, custodians and vendors used to facilitate Digital Asset transactions, are relatively new and largely unregulated in both the United States and many foreign jurisdictions. The opaque underlying spot market and lack of regulatory oversight creates a risk that a Digital Asset exchange may not hold sufficient Digital Assets and funds to satisfy its obligations and that such deficiency may not be easily identified or discovered. In addition, many Digital Asset exchanges have experienced significant outages, downtime and transaction processing delays, flash crashes, and may have a higher level of operational risk than regulated futures or securities exchanges. Outages, regardless of severity or length of downtime or delays, can negatively impact Digital Asset markets and prices. Thus, the nature of Digital Assets means that technological difficulties experienced by exchanges, intermediaries, custodians, and vendors may prevent access or use of a market participant’s Digital Asset at any given time.
Regulatory Landscape. Digital Assets currently face an uncertain regulatory landscape in the United States and many foreign jurisdictions. In the United States, Digital Assets may be regulated by one or more state regulatory bodies. In addition, many Digital Asset derivatives are regulated by the Commodities and Futures Trading Commission, and the Securities and Exchange Commission has cautioned that initial coin offerings and certain Digital Assets are likely to fall within the definition of a security and subject to U.S. securities laws. One or more jurisdictions at the state, federal, or international level may, in the future, adopt laws, regulations or directives that adversely affect the use, transfer, exchange, and value of Digital Assets, their Networks, and their users. Such laws, regulations or directives may impact the price of Digital Assets and their acceptance by users, merchants, and service providers.
Technology. The relatively new and rapidly evolving technology underlying Digital Assets introduces unique risks. For example, a unique Private Key is required to access, use or transfer a Digital Asset on a Network. The loss, theft or destruction of a Private Key may result in an irreversible loss. In addition, some Digital Asset transactions are deemed made when recorded on a Network, which is not necessarily the date or time that a market participant initiates a transaction. The ability to participate in Forks could also have implications for investors. For example, a market participant holding a Digital Asset position through a Digital Asset exchange may be adversely impacted if the exchange does not allow its customers to participate in a Fork that creates a new product.
Transaction Fees. Many Digital Assets allow market participants to offer miners (i.e., parties that process transactions and record them on a Network) a fee. While not always mandatory, a fee is generally necessary to ensure that a transaction is promptly recorded on a Network. The amounts of these fees are subject to market forces and it is possible that the fees could increase substantially from the estimated fees displayed to you. In addition, Digital Asset exchanges, wallet providers and other custodians, including Zero Hash, may charge high fees relative to custodians in many other financial markets.
No Regulated Insurance Scheme Protection. Digital Asset balances, including, but not limited to, those staked to a proof-of-stake Network, will not be provided protections under any Regulated Insurance Scheme.
Fraud and Scams. On-chain Digital Asset transactions are irreversible. Criminals may attempt to exploit this feature of Digital Asset transactions through various fraud and scam schemes. You should be wary of any third-party who contacts you and instructs that you deliver Digital Asset, credit card details, or account details to them for any purpose. Common schemes include fraudulent customer and technical support personnel impersonating Zero Hash or any other third-party through which you hold an account, contacting you and asking for you to verify a credit card or account number. These scammers may “spoof” legitimate phone numbers and may sound very convincing. Zero Hash will never contact you to initiate a Digital Asset transaction to any external wallet address not provided by you, as applicable to your use of the Services. Scammers may also attempt to exploit social media by offering illegitimate and fraudulent “crypto giveaways” or “investment opportunities” that ultimately seek your account login credentials or other private information that can be used to compromise your account. Additionally, criminals may contact you via email in order to entice you to download a malicious attachment or to enter your account login credentials to a spoofed webpage. You should never share your account credentials or login information with anyone.