October 16, 2021
NzbeuAnh study finds cryptocurrency scams surged 40 in 2020 forecasts an increase of 75 in 2021 1 - 4 Common Cryptocurrency Scams and Legal Risks All Investors Should Know
Source: news.bitcoin.com
Source: news.bitcoin.com

There is probably no reason to praise cryptocurrencies and their development. A big number of people already know what Bitcoin, Ethereum, and other digital currencies are, how they function, and why they are so special. Will they replace traditional money or not is something we can’t predict. Generally, the creators of different currencies claim that was not even the point; the crypto and fiat money should function together according to them!

Everything sounds interesting in theory. You improve your knowledge, analyze the price changes, use the helpful tools, and one day, the profit will appear. However, have you ever thought about scams and legal risks that you have to face? That is probably the negative side of the story.

Source: jasrealty.com.ng
Source: jasrealty.com.ng

Generally, there is nothing to be afraid of. Certain rules have to exist. Governments around the world developed a set of laws that will control the usage of digital currencies. The only purpose of those laws was to stop money laundering and other illegal activities. Plus, whenever some countries legalized crypto, the prices have started to change. That only means these laws are actually a positive thing!

On the other hand, there are also a bunch of scammers in the crypto world that will try to steal your money. Solving this problem is simple. All you have to do is to pay attention to details and do not believe in everything you see or hear.

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After we made everything clear, let’s move to the main point. Let’s find out together common cryptocurrency scams and legal risks all investors should know!

1. You May Have the Problem with Contractual Issues

Source: skytizens.com
Source: skytizens.com

We do not know how experienced an investor you are, but there is a big chance you have heard about “smart contracts”. The easiest way to describe them is as a group of promises that are specified in the digital format. All the details of transactions and promises that both parties made are there. Whenever all the duties are ended, one party has to pay all the cryptos to the other one. However, no one guarantees that these contracts will fit the legal framework.

We will use the entire United States of America as an example. The laws related to smart contracts are different from one state to another. However, so far, there is no federal law that confirms the legal validity of smart contracts.

However, there is one small exception worth mentioning here. In 2000, an act known as Electronic Signatures in Global and National Commerce Act is developed. Thanks to that act, the legal validity of all digital signatures you may make is somehow limited.

When things are unclear, that means there is enough space for scams and frauds. Because of that, we suggest you carefully read the law and try to figure out on your own whether signing a smart contract is a good or bad idea.

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2. You May Face Jurisdictional Issues

Source: tabbforum.com
Source: tabbforum.com

Another legal risk that can potentially appear is related to jurisdictional issues. As you know, the creators of blockchain technology had a clear goal. They wanted to disclude all the financial institutions from the transactions which made the crypto transactions quicker and more reliable. However, the main feature people like is the ability of crypto to provide better privacy. We know that sounds pretty good, but it can also be a cause of different jurisdictional issues.

As you know, crypto transaction nodes are located in various jurisdictions. Because of that, they can potentially be in conflict with the legal frameworks. Despite that, the crypto software often can’t determine the residence country of the user. Logically, the user does not have to share his physical address which makes things a bit complex.

Last, but not least issue that can appear is connected with the transactional nature of the blockchain. As you know, people often buy and sell cryptocurrency from all parts of the world. The international transactions with a lack of information do not allow the blockchain to determine the applicable laws and correct jurisdiction. In one place you will have to respect one type of rule while in another one those rules are completely different.

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3. Anonymity Isn’t Good for Everyone

Source: microsoft.com
Source: microsoft.com

Well, there is one thing that we have to say. You will enjoy the anonymity for sure, but that doesn’t mean it does not bring certain problems as well. When anonymity is at the highest level, there is always enough space for financial frauds and data thefts. That is one of the legal concerns that all crypto users have even today.

It would be unfair not to mention that regulations around the globe are not fixing this issue. However, a good example that shows not everything is perfect happened in 2017. Only 4 years ago, the Ethereum blockchain has put nearly 250 million dollars at risk. Despite that, the data of more than 8500 crypto users were stolen as well. The security level has improved a lot since then, but if you are not careful, these things can happen to you as well.

So, how to protect yourself? For starters, do not trade at suspicious platforms. Despite that, do not click on every possible link that you receive via email. These things depend only on you and blockchain technology or any other modern solution will not manage to protect you.

4. Fake Mentors

Source: thehindu.com
Source: thehindu.com

Everyone has the right to share his knowledge and opinion. Because of that, fake mentors are not actually doing any illegal. Yet, it may happen that you face this form of scam when you get a big desire to become rich with cryptos.

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Many people use the desire of people and good marketing strategy to get a better income. Because of that, they will promise good tips and predictions if you subscribe to their group, program, etc.

Carefully choose the “mentors”. If you need to spend money, then research the individual who represents himself as an experienced investor.

5. Final Thought

Source: masterthecrypto.com
Source: masterthecrypto.com

Okay, we described everything bad that could happen to a crypto investor. Read the laws, know in every moment who you are working with and who you are giving your money to.

On the other hand, there is also a bunch of positive things you should know about crypto. For instance, did you know that playing online games can be a legit way to earn crypto? If you want to know all the legit ways of earning Bitcoin online, you can check out ibtimes.com after reading this article. In that way, you can be sure you are not going to become a victim of a scam.

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