Securing Bitcoin in Financial Services

Abstract

This paper provides a comprehensive analysis of the evolving security risks and regulatory compliance challenges facing Bitcoin in financial applications. While Bitcoin's cryptographic foundations and decentralized architecture offer strong protections, emerging threats—such as consensus attacks, network exploits, privacy leaks, and operational vulnerabilities—pose significant risks to financial institutions. Simultaneously, global regulatory frameworks are tightening, particularly around AML, KYC, and consumer protection, compelling institutions to implement robust compliance strategies. The study synthesizes insights from computer science, finance, and law to propose integrated approaches combining technical safeguards with regulatory adherence. Strategies such as multi-signature controls, blockchain analytics, secure custody solutions, and “compliance by design” are explored. The paper concludes by discussing future risks including quantum computing and privacy-compliance tensions, emphasizing the need for adaptive risk management in institutional Bitcoin adoption.