Public interest in cryptocurrencies like Bitcoin and Ethereum is on the rise. In fact, many industries have taken the leap towards capitalizing this new technology.
While this may be good for everyone, investors will have to brace themselves for potential legal liabilities.
While buying, selling, and trading crypto is legal, these are unregulated activities, which means investors are taking a major risk with their money. But don’t mistake unregulated for illegal.
As crypto’s popularity continues to rise, countries are scrambling to put regulations in place to ensure oversight and protect consumers from various risks.
Cryptocurrency regulations in 2022
Cryptocurrencies are not governed by a central authority like a government or a bank. But new regulatory frameworks require investors and exchanges to comply with certain rules.
In the US, for example, the Securities Exchange Commission (SEC) recognizes cryptocurrencies as securities. Hence, certain securities laws apply to exchanges and digital wallets.
The Investment Advisers Act of 1940, in particular, requires firms that manage funds invested into crypto to register with the SEC. Similarly, the Bank Secrecy Act requires trading firms to register with and submit records to the Financial Crimes Enforcement Network (FinCEN), while the IRS has issued tax guidance.
Seventeen states in the US have also adopted resolutions or enacted legislation. For example, Arkansas adopted the Uniform Commercial Code and amended the Uniform Money Services Act to include virtual currency.
In Australia and Japan, cryptocurrencies are considered legal property and exchanges must register with their respective governing bodies. Exchanges are also required to identify, register, and verify users, as well as comply with reporting requirements.
The same goes for the United Kingdom, the EU, Singapore, and the rest of the developed world, except for Switzerland, which unsurprisingly has a more lenient, progressive stance on regulating crypto.
Meanwhile, some countries ban or restrict crypto trading and the use of cryptocurrencies. China, Bangladesh, Iran, and North Macedonia have illegalized crypto, while strict regulations are in the works in India. In Russia, crypto is legal, but not as a means of payment, and civil servants are not allowed to own these virtual assets.
Legal issues surrounding crypto
Digital currencies may soon become commonplace, so investors can expect more robust regulatory frameworks in the future. Below are potential legal issues that future laws may zoom in on.
Financial fraud and money laundering
Among the many issues tied to crypto, the biggest priority is to prevent crypto and blockchain from being used in illicit and illegal activities. This is why current laws focus on verifying users and imposing caps on anonymous transactions.
Data theft and privacy are becoming pressing concerns as digital wallets and exchanges become more widespread. Regulatory boards may tighten rules to ensure efficient consumer protection.
In countries that consider crypto as “property,” your virtual assets will be subject to capital gains tax. Taxes are also due when you sell and trade crypto. For this reason, many investors turn to tax havens like Puerto Rico, Portugal, Singapore, and the Cayman Islands to take advantage of their relaxed tax laws.
Blockchain technology makes it nearly impossible to pinpoint a ledger’s exact location. While this enhances the ledger’s security, it poses jurisdictional challenges for the authorities. Public ledgers are transnational in nature, making it hard to determine applicable laws and choose the correct jurisdiction to settle disputes.
Cryptocurrencies have self-executing “smart contracts.” While this feature allows conditions to be met by the parties involved in every transaction, these smart contracts can be complex. In the US, for example, contract laws vary per state, so smart contracts may provide limited legal validity. As a result, disputes may undergo a lengthy and complex litigation process.
Knowing and understanding the laws that may apply to virtual currencies should be a top priority for investors. By staying on top of compliance and keeping abreast with inevitable legal developments, you can protect yourself from future complications.
📹 Demo Video: https://www.youtube.com/watch?v=D3ZnUAqFdWg 🌎 Website: www.algoblocks.io 🐦 Twitter: https://twitter.com/Algoblockstrade 📎 Whitepaper: https://algoblocks.gitbook.io/algoblocks/ 🎮 Discord: https://discord.com/invite/vbtrYAd4ma 👥 Telegram Group: https://t.me/algoblockss 🗣 Telegram Channel: https://t.me/algoblocks ✍🏻 Medium: https://medium.com/@algoblocks 💼 LinkedIn: https://www.linkedin.com/company/algoblockstrade/