Navigating the Crypto Jungle: Legal Implications for Investors

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Cryptocurrency while it has been around since 2008, it can come as no surprise that financial institutions and banks tend to stay clear of involvement with this alternative type of investing due to its high-risk factor and legal implications of these new and vast amounts of currencies such as Bitcoin, Binance Coin and many others.

If you are looking to join the bandwagon of investing in cryptocurrency but want a full picture of what you’d be getting into including the legal implications then look no further.

Contractual Issues

A part of the cryptocurrency landscape includes its blockchain technology and while it includes a range of interesting features one of them is a self-executing “smart contract.” These essentially are a list of promises users sign to ensure they are holding up their end of the bargain. These contracts immediately pay trading parties when a transaction is confirmed meaning they’ve done everything the contract requires.

Due to its new and unique way of creating these ‘smart contracts’ it’s all digitally encrypted and the evaluation of how and if they fit within the laws we have is difficult to determine. Especially it’s the deciding factor of which law to follow. As you can trade with people all over the world what might be legal in one place might not be in another, so this makes matters even more complicated.

Jurisdictional Issues

Blockchain technology comes with the utmost privacy, meaning tracking payments and transactions can be difficult so this can create quite the challenge for jurisdictions. As this information gathered by blockchain isn’t kept in one location, it is distributed across many networks this makes it difficult for the law to get involved as they don’t know what law applies. This is especially a tricky situation for those who have been victims of a crypto scam.

Data Theft and Financial Fraud

On the topic of scams, these are two common legal concerns that come with investing in cryptocurrency. With the promise of anonymity in blockchain, this gives scammers the upper hand in this scenario. While there are professionals such as investment fraud lawyers who specialise in crypto recovery, it still doesn’t deter these individuals from attempting to participate in illegal activities.

Tax Implications

As the hype has been for cryptocurrencies, a lot of countries around the world have begun to require individuals to add their earnings from these platforms to their annual tax summaries. In the US specifically, cryptocurrencies are classified as property and not currency. As a result, these processes for individuals correctly reporting their cryptocurrencies to the IRS are burdensome, as they would technically have to only pay for cryptocurrencies they bought from the US. This is very complicated and is unclear to individuals and investors as to what they should and shouldn’t do.

Final Thoughts

Understanding all the legal implications that come with investing in cryptocurrency is extremely important. It not only motivates you to stay safe and secure when using a trading platform but it also teaches you everything you need to know to avoid any shocks in the future.