Fascination with cryptocurrency (also known as crypto) has taken off. It can feel like someone at least knows one person who is taking a shot at it. Know that there are many legal issues surrounding crypto. This is mainly because nothing like it has ever existed before. Therefore, there aren't a lot of laws in place to protect those who invest in it. Reading through the following outline can give you an idea about some of these issues.
Cryptocurrency's legal process gets a little complex here. This is because crypto can have smart contracts. These contracts are digital. They dictate that payment is received when another party fulfills their promises. These contracts are complex and do not fit into what defines a traditional contract. Therefore, there is no federal framework. How these problems are handled varies, depending on the state's contract laws.
This issue comes right off the back of the previous one. The technology behind cryptocurrencies has no way to pinpoint a person's location. Therefore, if that person is involved in legal issues, it can be tough to determine what jurisdiction they fall under. Each state has different ways of handling certain cases. If a sending party is in one state and the recieve party is in another, this could cause a complex legal issue. For example, if depositions are required, an attorney would have to try to understand what is a deposition in each separate state.
The lack of identity proofing can open up the way to all sorts of illegal activity. A suspicious individual can sell and buy illegal items with this kind of protection. One example is people using cryptocurrency to purchase illegal drugs.
Data Theft and Fraud
Data theft and fraud can be issues with any financial investment. Cryptocurrency is no exception. The blockchain technology that backs cryptocurrency promises anonymity. That increases its appeal with many. But this also includes scammers. As the two previous points explained, finding the people behind the fraudulent activity can be extremely difficult. Types of fraudulent activity include data breaches of email and other personal information, as well as monetary scams.
The lure of cryptocurrency can be the claim of anonymity. However, this anonymity can be questionable. There has been an increased prevalence of blockchain analytic tools. These tools can track users as they invest and exchange bitcoin. The United States does not have federal-level legal guidance on privacy protection. In particular, there is no legal framework regarding this kind of tracking on blockchain technology.
Everyone who handles cryptocurrency should be aware of how it could affect their taxes. According to the IRS, cryptocurrency is property. It does not count as "currency" the way dollar bills are. However, don't assume that you can just write off all of your crypto activity. You still have to report it as US dollars. So, taxpayers will have to convert all of their cryptocurrency into fair market value US dollars. They have to report this value at which crypto was bought and sold (if applicable). This can be a long, tedious process. Patience is the key to getting through this aspect.
If you want to invest in cryptocurrency, know it gets its value from what owners and investors give it. There's no substantive item behind cryptocurrency. It is not like investing in silver or gold, for example. If complications arise from cryptocurrency investments, the legal process may feel like stumbling through the dark. As mentioned earlier, not a lot of legal framework exists. This is not just the case in the United States. This is an ongoing problem that other countries have to grapple with as well.
If you choose to go forward and invest in crypto, know that these legal issues will not go away easily. You should be prepared to see more complications arise. Be alert and watch out for yourself if you invest.