Platform Risk Statement

Last updated on October 14th, 2023

RISK STATEMENT OVERVIEW

This 1Bitcoin.ca Platform Risk Statement (Risk Statement) is being delivered to you in connection with the opening of an account (Account) with 1Bitcoin Inc. (1Bitcoin.ca) to buy, sell, and hold crypto assets on 1Bitcoin.ca’s crypto asset trading platform (the 1Bitcoin.ca Platform) and is incorporated by reference into the online Terms of Service that you will accept at the time of account opening. Capitalized terms used and not defined in this Risk Statement have the meanings given to them in the Terms of Service.

No securities regulatory authority has expressed an opinion about the Crypto Contracts (as defined below) or any of the crypto assets made available on the 1Bitcoin.ca Platform, including any opinion that a crypto asset is not a security and/or derivative.

By using the 1Bitcoin.ca Platform or any other services related thereto (collectively, the Services), you understand that there are substantial risks associated with the purchase, sale and use of crypto assets through us, and you are agreeing to familiarize yourself and assume any and all such risks, including:

RISKS ASSOCIATED WITH YOUR ACCOUNT

(a) Trading in crypto assets may not be suitable for all members of the public. You should carefully consider whether trading is appropriate for you in light of your knowledge, experience, financial objectives, financial resources and other relevant circumstances. Crypto asset trading may not be appropriate for you, particularly if you use funds drawn from retirement savings, student loans, mortgages, emergency funds, or funds set aside for other purposes. The volatility and unpredictability of the price of crypto assets relative to fiat currency may result in significant loss over a short period of time.

(b) Your Account is a contract with 1Bitcoin.ca that provides you with certain rights and imposes certain responsibilities; the contract, and your contractual right to the crypto assets that you may buy, sell and hold pursuant the contract, constitutes a security or derivative (a Crypto Contract). The Crypto Contract under which we agree to provide the Services, includes holding the crypto assets in your Account on your behalf in accordance with our custody policies and procedures, and you have the right to withdraw your crypto assets from the 1Bitcoin.ca Platform at any time subject to payment of the withdrawal fee set out in the Terms of Service. This arrangement may expose you to insolvency risk (credit risk), fraud risk or proficiency risk on the part of 1Bitcoin.ca.

(c) An Account is not a bank account and funds or crypto assets received or held by us or by you, and transacted through us, do not earn interest.

(d) The fiat currency and crypto assets in your Account are not insured in any way by us. 1Bitcoin.ca is not a member of the Canadian Investor Protection Fund (CIPF) and the crypto assets held by 1Bitcoin.ca (directly or indirectly through third parties) do not qualify for CIPF protection.

(e) The value of the crypto assets you hold or acquire through the Services are attached to your crypto asset wallets that are accessible only by logging in to your Account. 1Bitcoin.ca encourages the use of strong passwords and two factor authentication in order to safeguard access to your Account and the fiat currency and Bitcoin in it.

(f) We cannot reverse a Bitcoin transaction which has been broadcast to the Bitcoin network, and losses due to fraudulent or accidental transactions are not recoverable.

(g) Some crypto asset exchanges have been subject to cyberattacks and other technical issues that have resulted in the loss or theft of crypto assets to their users and there is a risk that a similar cyberattack could affect the Services and result in the theft or loss of your crypto assets for which you cannot recover.

(h) There are risks associated with utilizing an Internet-based trading system including, but not limited to, the failure of hardware, software, and Internet connections. SDT is not responsible for any communication failures, disruptions, errors, distortions or delays you may experience when trading via the Services, however caused.

GENERAL RISKS ASSOCIATED WITH BITCOIN

(a) Volatility and Liquidity. Price and liquidity of Bitcoin has been, and may be, subject to large fluctuations on any given day and you may lose any and all value in your crypto assets at any time.

(b) Not Legal Tender. Bitcoin is not part of a central bank that can take corrective measures to protect the value of crypto assets in a crisis. Bitcoin is not legal tender and are not backed by a government (i.e. crypto assets do not have the same protection as the money deposited into a bank account).

(c) Value Dependent on Market Participants. Bitcoin has value from the continued willingness of market participants to use Bitcoin. Bitcoin is susceptible to loss of confidence, which could collapse demand relative to supply and may result in permanent and total loss of value if the market for Bitcoin disappears.

(d) Short History Risk. As a relatively new open source technology, it is expected that there will continue to be technical developments in blockchain technology, which could impact the value of Bitcoin. Due to this short history, it is not certain whether the economic value, governance, or functional elements of Bitcoin will persist over time. The Bitcoin community has successfully navigated a considerable number of technical and political challenges since the genesis of the Bitcoin blockchain, which 1Bitcoin.ca believes is a strong indicator that it will continue to engineer its way around future challenges. That said, the continuation of a vibrant Bitcoin community is not guaranteed, and insufficient software development, contribution rates, community disputes regarding the development of the network and scaling options, or any other unforeseen challenges that the community is not able to navigate could have an adverse impact on the price of Bitcoin.

Bitcoin, whose functions and applications are built on an underlying blockchain network, are operating within a relatively new, competitive market of crypto assets. Demand for Bitcoin can fluctuate rapidly; much like a technology start-up, and Bitcoin is still proving value to the broader community and establishing a reliable business model. Bitcoin can be impacted by changes made to its code, design, or community governance, and stakeholders can continually re-assess their interest in holding the asset as updates to the Bitcoin protocol are made.

Open source developers of various blockchain technology have signaled that they will continue to make efforts to improve the scalability and security of Bitcoin and the blockchain. For example, the continued development of scalability protocols like the Lightning Network, which operates on top of the Bitcoin blockchain. The expected timing and impacts of this change are uncertain.

(e) Blockchain Forks. Blockchain networks are powered by open source software. When a modification to that software is released by developers, and a substantial majority of miners consent to the modification, a change is implemented and the blockchain network continues uninterrupted. However, if a change were to be introduced with less than a substantial majority consenting to the proposed modification, and the modification is not compatible with the software in operation prior to its modification, the consequence would be what is known as a “fork” (i.e. a split) of the Bitcoin blockchain. One blockchain would be maintained by the pre-modification software and the other by the post-modification software. The effect is that both blockchains would operate in parallel, but independently. There are examples of such forks occurring in the past on both the Bitcoin blockchain, in some cases creating assets such as Bitcoin Cash. In the future, such a fork could occur again, and affect the viability or value of Bitcoin. 1Bitcoin.ca may choose not to support any future fork of the Bitcoin blockchain, in which case you may not have any rights to the new crypto assets that may be created as a result of that fork.

(f) Code Defects. In the past, flaws in the source code for Bitcoin have been exposed and exploited, including flaws that disabled some functionality for users, exposed users’ personal information and/or resulted in the theft of users’ digital assets. Although the Bitcoin blockchain has demonstrated resiliency and integrity over time, the cryptography underlying Bitcoin could, in the future, prove to be flawed or ineffective. For example, developments in mathematics and/or technology, including advances in digital computing, algebraic geometry, and quantum computing, could result in the cryptography of the blockchain network being vulnerable to attack. Generally, any reduction in public confidence on the security or source code of a core blockchain network could negatively affect the broader sector, and this could negatively affect the value of Bitcoin traded on the 1Bitcoin.ca Platform.

(g) Cybersecurity Risk. The nature of Bitcoin may lead to an increased risk of fraud or cyber-attack. A breach in cyber security refers to both intentional and unintentional events that may cause 1Bitcoin.ca to lose proprietary information or other information subject to privacy laws, suffer data corruption, or lose operational capacity. This in turn could cause 1Bitcoin.ca to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized access to 1Bitcoin.ca’s digital information systems (e.g., through “hacking” or malicious software coding), but may also result from outside attacks such as denial-of-service attacks (i.e. efforts to make network services unavailable to intended users). In addition, cyber security breaches of 1Bitcoin.ca’s third-party service providers can also give rise to many of the same risks associated with direct cyber security breaches. As with operational risk in general, 1Bitcoin.ca has established risk management systems designed to reduce the risks associated with cyber security.

(h) Concentration Risk. Certain addresses on the Bitcoin blockchain network hold a significant amount of the currently outstanding Bitcoin. If one of these addresses were to exit their Bitcoin position, it could cause volatility that may adversely affect the price of Bitcoin. Further, if anyone gains control over 51% of the computing power (hash rate) used by the blockchain network, they could use their majority share to double spend their Bitcoin. If such a “51% attack” were to be successful, this would significantly erode trust in the Bitcoin blockchain to store value and serve as a means of exchange, which may significantly decrease the value of Bitcoin.

REGULATORY RISKS ASSOCIATED WITH BITCOIN

(a) Changes to applicable law may adversely affect the use, transfer, exchange or value of your Bitcoin, and such changes may be sudden and without notice.

(b) Prior to listing Bitcoin on the 1Bitcoin.ca Platform, 1Bitcoin.ca conducted due diligence to determine whether Bitcoin is a security and/or derivative under the securities and derivatives laws of each of the jurisdictions of Canada and the jurisdiction with which Bitcoin has the most significant connection, including by reviewing publicly-available information concerning:

(i) The creation, governance, usage and design of Bitcoin, including the source code, security and roadmap for growth in the developer community;

(ii) The supply, demand, maturity, utility and liquidity of Bitcoin;

(iii) Material technical risks associated with Bitcoin, including any code defects, security breaches and other threats concerning Bitcoin and its blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and

(iv) Legal and regulatory risks associated with the crypto asset, including:

(1) Any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of the Bitcoin;

(2) Statements made by any securities regulatory authorities in Canada, other regulators in IOSCO-member jurisdictions, or the regulator with the most significant connection to Bitcoin about whether Bitcoin is a security and/or derivative;

(3) If a regulator or court of competent jurisdiction determines that Bitcoin listed on the 1Bitcoin.ca Platform is a security or derivative, Bitcoin will be delisted. All existing holders of the Bitcoin on the 1Bitcoin.ca Platform will be notified by electronic message and have the opportunity to transfer the Bitcoin held to another blockchain address under the control of the holder and outside of the 1Bitcoin.ca Platform (“Transfer Instructions”) within 30 days of receipt of the notification. Bitcoin in respect of which Transfer Instructions have not been received within 30 days will be liquidated by 1Bitcoin.ca on your behalf, and the cash proceeds will be delivered to your Account; and

(4) The Crypto Asset Statement for Bitcoin on the 1Bitcoin.ca Platform is accessible on our website.

SAFEKEEPING OF BITCOIN ASSETS

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