Worried about cryptocurrency hacks and thefts? The fear is real among crypto investors! Learn what you can do to protect yourself and why you need a crypto lawyer. The original version of this article by Cole Gibson was published at CoinCentral.com.
Crypto is an Unregulated Jungle
Cryptocurrency may no longer be the wild, wild west but it’s still an unregulated jungle out there. Lawyers are specialized in many fields, from animal law to timeshare law. And as the popularity of cryptocurrency grows, so does the need for crypto lawyers. The laws surrounding cryptocurrency can be vague, and vary from place to place. Along with these muddled regulations, cryptocurrency has brought about its own brand of lawsuits. While these lawsuits can seem similar to those in the financial world, many still require a crypto expert to help during litigation.
Crypto lawyers are experts in blockchain technology and cryptocurrency regulations. They help break down the technology to court during litigation. They also help break down the laws for cryptocurrency developers, exchanges, and startups. These lawyers are the designated liaison between the crypto world and lawmakers. The two biggest areas where cryptocurrency lawyers are important are ICOs and Crypto Exchanges.
ICO: Initial Coin Offering, which is largely unregulated, raises funds for a new crypto venture. Investors exchange Bitcoin (or other crypto/legal currency) to early backers of the project for the new crypto.
Blundering Through ICOs
It’s easy to fall for a phony crypto whitepaper. In fact the United States SEC created a fake ICO called HoweyCoins to teach “would be” investors on the dangers of a sketchy ICO with fake whitepaper and ridiculous returns. Investors tend to skim through whitepapers and invest in a cryptocurrency purely because of the hype around it. Even if the whitepaper is solid and the hype is real, sometimes developers are just unable to deliver.
SEC: Securities and Exchange Commission, which is the primary federal regulatory authority to protect investors against fraud and manipulative activities in the securities market.
It’s not an easy task to determine whether an ICO is a scam or not. However, when we choose wrong, it’s time to call in a crypto lawyer. Investors know they were victims of fraud, but pointing out fraud in the unregulated legal world of crypto takes experience. In the US, one important factor that connects fraudulent ICO’s to the legal system is the SEC’s definition of a security. But even with the SEC’s definition, it’s up to a crypto lawyer to convince the court whether or not an ICO is a security.
One example of an ICO not living up to expectations is Centra Tech. The company’s founders are facing charges after raising $32 million through an ICO and endorsements from big names like DJ Khaled and Floyd Mayweather. This ICO scheme lured investors in with claims of major credit card partnerships, fake founder biographies, and price manipulation of its Centra tokens (CTR). Legal crypto experts were able to define CTR tokens as a security, and tacked on securities fraud along with the other charges against the company.
Crypto lawyers are also important in preventing lawsuits stemming from ICOs. Even legitimate companies creating a cryptocurrency with good intentions can be subject to legal action. Every country has their own strict regulations. In the US every state has different laws, along with the SEC’s ruling requiring securities to be registered. Crypto startups that try to figure out the laws on their own are bound to run into some trouble in the future.
Exchange Hacks, Attacks and Thefts
Crypto investors heavily rely on exchanges. We place our faith in exchanges in the hope that they will work perfectly every time. Unfortunately, no exchange is perfect. Although many problems can be resolved by a quick email to the support staff, sometimes a little more expertise is needed. This is especially the case when millions of dollars are involved.
Currently, hacks are one of the biggest problems exchanges face. Crypto Aware reports that just this year, over $670 million USD of crypto assets have been stolen. There are no winners in a crypto hack. It has a negative effect on both the exchanges and investors. Whenever a hack takes place, legal drama is sure to follow.
Recent hacks in 2018 include Japanese crypto exchange Coincheck where over $400 million of NEM coin was stolen and South Korean crypto exchange Coinrail was hacked driving Bitcoin prices more than 10% and most other cryptos following suit. What followed was a plethora of legal drama. Hundreds of investors have sued the exchange for millions in damages. The plaintiffs believe that the exchanges failed to protect their investments, and should held accountable.
When a hack a large as this takes place, it is up to crypto lawyers to break down what happened for the court. They have to request damages against the exchange AND prove that the exchange is partly to blame for the loss. Lawyers are also tasked with convincing the court exactly how much plaintiffs are owed in damages. Both of these tasks take crypto expertise to simplify everything to legal terms the court can easily understand.
The case is raising serious discussions about exchanges everywhere regarding regulation. But until more regulations are worked out, we will still just be having these discussions. Experienced exchanges usually have a team of lawyers to help them navigate the muddles laws surrounding cryptocurrency. Only specialized crypto lawyers can help protect them from making mistakes and catching heat from investors, or their local government.
While it’s your best bet to stay away from lawsuits (unless you’re a lawyer), it isn’t always that easy. Exchanges will be hacked, ICOs will fall, and money will be lost. Just remember to do your due diligence, and be careful with your investments. If trouble arises, crypto lawyers will be there to help navigate the ever-changing law of the crypto space.