What will be the Legal Risks for Cryptocurrency Investors


There has been exponential growth in digital currencies in the last couple of years. As much as it is a promising industry, there are still a lot of issues that need fixing and one of them is the legal framework. Governments around the world are still trying to figure out the nature and impact of cryptocurrencies and coming up with a regulatory framework has been a challenge. As an investor, you might be wondering about the legal risks of trading in cryptocurrency. You might also be asking yourself what type of lawyer handles bitcoin cases? Since it is a fairly new phenomenon, it is expected that a business law attorney should be handling related cases.

What will be the Legal Risks for Cryptocurrency Investors
What will be the Legal Risks for Cryptocurrency Investors

Digital currency should not be confused with electronic money because they mean different things. One of the reasons why there is murkiness with digital currency is that it has just become popular compared to other traditional currencies. In this post, we’re going to highlight some of the legal implications associated with investing in cryptocurrency.

Cryptocurrency as a Property

One of the main considerations for cryptocurrency investors is the way the governments and central authorities view the holdings. The United States government defines cryptocurrency as a property rather than a proper currency. What this means is additional layers of confusion when it comes to taxation. What happens when you’ve purchased cryptocurrency on foreign soil? Are you subjected to the same taxation if it was bought in the United States? You should consult with a tax professional if you intend to invest in cryptocurrency. It might appear laborious but you don’t want to be having issues with the law. Taxation laws are constantly changing and it can be a daunting endeavor trying to keep up as a cryptocurrency investor.

Decentralized Status

One of the greatest disadvantages of the majority of cryptocurrencies is the risk element for individual investors. Bitcoin like most cryptocurrencies is decentralized. What this means is that it doesn’t have a physical presence and there is no central authority backing it up. Since governments are yet to establish a proper legal framework for cryptocurrency trading, there could be potential legal dilemmas in case of a disagreement between the parties involved. There is no central authority to authoritatively back the value of digital currencies. Another complication with decentralized status involves the details of transactions. With a centralized status, the currency will obviously change hands. Even for electronic transactions, there is a financial institution that is charged with the creation and settlement of deposits. Such a concept doesn’t apply to cryptocurrency transactions. The fundamental differences create legal confusion.

Registration and Licensing for Businesses

A lot of businesses have started accepting cryptocurrency as a form of payment. For a business to accept such payments, it might be required to register and get a license in some jurisdictions. There are companies that only accept cryptocurrency as a form of payment and might not be required to register at all. It will be on you as a business owner to ensure that you’re following the law when dealing with cryptocurrency.

Money Laundering and Fraud

There is a common misconception that cryptocurrency is used by criminal organizations to launder money and to pay for things by revealing their identity. Even if it is true, it is not likely to directly impact investors in the long run. The only downside is you can find yourself getting involved in a financial crime without knowing (which is why it’s so important to check the security analysis of crypto projects, or anything crypto you are looking to invest in, before you go ahead and do so). There are hackers that are always looking for vulnerabilities in systems. The nature of cryptocurrency makes it hard to trace theft. A hacker could disappear without a trace and it would be hard to even try and solve such a case that is complex in nature. There is no standard practice in place to help in recovering stolen money as a result of hacking.

Most startups are focusing on creating secure means of holding tokens and digital coins.

To Sum It Up

As much as cryptocurrency has enormous potential to change how transactions are being done, there is still a lot of improvements that need to be made, especially from a legal front. Investors need to be assured that their money is safe. You should consult with an attorney if you’re not sure of the legal implications when dealing with cryptocurrency. There have been high-profile cases involving Bitcoin and they’re bound to go up since cryptocurrency is becoming mainstream. For an investor, it is important to be vigilant all the time so that you don’t find yourself in trouble with the law.

Like it? Share with your friends!

Robert Keith

Robert Keith is a CEO and Author of one of the Top Leading Website Viraldigimedia.com. I fond to write on Tech, Lifestyle, Business, Entertainment, Health etc.