The cryptocurrency market has exploded over the past few years, with the hype around these new digital assets causing prices to skyrocket and drawing in loads of new investors. Since the first crypto currency launched in 2009, there have been thousands of cryptocurrencies launched, although Bitcoin remains the original and most popular. The price of Bitcoin can vary a lot, but it’s been trending upward in the past few years.
(Photo by Jievani Weerasinghe on Unsplash)
Part of the appeal of cryptocurrency is that it’s not controlled by a government or bank and is not subject to the same rules and regulations as other financial markets. However, as the market has grown, the calls for regulation from governments have grown too. The sector presents a lot of challenges and opportunities to law firms as regulations are imposed.
What is Cryptocurrency?
Cryptocurrencies are digital assets that are based on a technology known as blockchain. The blockchain allows crypto to operate without the need for centralization, meaning they don’t rely on third parties, banks, or other organizations. Instead, all transactions happen peer-to-peer and are approved by a system of “miners” on the network.
Because of the fact that it doesn’t need banks or middlemen, cryptocurrencies facilitate fast, low-cost online payments. In addition, many coins are deflationary, where the scarcity of the coins increases over time, which has helped to make them appealing to investors.
While crypto is mostly unregulated, some countries have imposed laws and restrictions on how it can be used. For example, India has recently banned crypto from being used for online payments, and many countries now have crypto-specific taxes aimed at traders and investors.
Challenges for Crypto Law Firms
One of the key components of many cryptocurrencies is that they’re decentralized, and this has spawned the rise of decentralized autonomous organizations (DOAs). These consist of a few software developers who write the code, and other members are able to join by purchasing tokens. At present, many of these organizations aren’t recognized under the law, and it’s difficult for law firms to work with them.
Not only that but many cryptocurrencies are founded on the concept of privacy. A lot of crypto holders prefer having privacy, and this can make it a challenge for the law to navigate when it comes to building cases. While not all cryptocurrencies are anonymous, it can be difficult to trace owners, and some crypto companies also obscure their full details. Even the founder of Bitcoin itself is completely unknown.
The limited regulations in crypto have made it a haven for crime, with scams and money laundering common issues. Law firms need to make sure that clients they represent are not gaining their funds through illicit means, including fraudulent ICOs, hacking, and other cyber-enabled crimes.
Opportunities for Crypto Law Firms
The crypto market is growing each year, and new opportunities are always emerging for law firms that are willing to take risks. Currently, it’s clear that while there is no shortage of clients in the crypto sector looking for representation, there’s a real lack of law firms that have the skills and knowledge required.
Despite concerns about privacy, most crypto exchanges are now required to perform know your customer (KYC) and anti-money laundering (AML) checks. While these are important when it comes to preventing crime, it also raises challenges related to data privacy. This presents opportunities for law firms that understand cryptocurrency, AML, and data privacy laws.
With the crypto market growing and creating new ecosystems of crypto companies, there’s a growing number of opportunities for firms that see the potential in this sector. With new regulations likely to be implemented in the coming years, it’s a rapidly changing area of law, but one that can be highly rewarding despite the challenges.
