Below is a good article from CoinCentral on what crypto lawyers are and why we need them. As a part of our FinTech practice, we are constantly dealing with the issues in the article. What we do is help our client navigate the waters that are described in the article. Be sure to check it out.
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Crypto Lawyers: What Are They and Why Do We Need Them?
Crypto Lawyers Guiding Us Through an Unregulated Jungle
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 Exchanges.
It’s easy to fall for a phony crypto whitepaper, just look at HoweyCoins. Investors also tend to skim through whitepapers and invest in a cryptocurrency purely because of the hype around it. Or even if the whitepaper is solid and the hype is real, sometimes developers are just unable to deliver. 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.
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 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).
In cases like the one above, a crypto lawyer is a necessity. 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. In the case of Centra Tech 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.
Exchanges: Hacks and Attacks
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.
The most notable recent hack involves Japanese crypto exchange Coincheck. Over $400 million of NEM coin was stolen, followed by a plethora of legal drama. Hundreds of investors have sued the exchange for around $2 million in damages. The plaintiffs believe that Coincheck 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 Coincheck 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 through, and money will be lost. Just remember to do your due diligence, and be careful with your investments. If any trouble arises, crypto lawyers will be there to help navigate the ever-changing law of the crypto-space.