Data theft and financial fraud are other pressing legal issues surrounding cryptocurrencies. The promise of anonymity offered by the blockchain and its apparent absence of regulations may cause many users who participate in illegal activities to choose to use cryptocurrencies for their financial transactions. First, experts from across the administration have established the first framework for developing digital assets in a secure and responsible manner and, at the same time, addressing the risks they pose. Without a doubt, the technologies that power cryptocurrencies can offer ways to make payments faster, cheaper, and more securely.
However, this framework identifies clear risks. For example, some cryptocurrency entities ignore applicable financial regulations and basic risk control practices that protect households, businesses, and the country's economy. In addition, cryptocurrency platforms and promoters often mislead consumers, have conflicts of interest, fail to disclose information properly, or commit blatant fraud. In addition, poor cybersecurity across the sector has allowed the Democratic People's Republic of Korea to steal more than a billion dollars to finance its aggressive missile program.
In addition, it could limit the risks of cryptocurrencies to the financial system if it followed the measures described by the Financial Stability Oversight Council in its recent report, including addressing the risks of stablecoins. Before criminals can convert their illegally acquired cryptocurrencies into cash, they have to convert them into liquid cash. However, while new types of wallets are constantly being launched and cryptocurrency exchanges are constantly improving their security measures, so far investors have not been able to completely eliminate the legal risks associated with owning cryptocurrencies, and they probably never will. This obligation applies regardless of whether or not investors bought their cryptocurrencies in the United States or another country.
Once again, due to the decentralized state of these currencies, the path of legal recourse in these situations can be difficult to assess. Therefore, individual investors are required to pay capital gains taxes on any profits they make through cryptocurrencies. Cryptocurrencies are becoming increasingly popular among intellectual property (IP) intensive sectors, such as the pharmaceutical, automotive, luxury and consumer goods sectors, where product traceability is important, and counterfeiting or “gray products” are a cause for concern. The only exception is the Electronic Signatures in World and Domestic Trade Act of 2000, which gives limited legal validity to smart contracts.
However, although the IRS considers Bitcoin and other virtual currencies to be legal, there are still doubts about their legal validity. In other words, the CCPA's assumption of centralized, controller-based processing is not applicable to cryptocurrencies because it ignores the decentralized nature of the new technology. The question of whether cryptocurrency wallet owners should declare their holdings using form 8938 is unclear. Business owners and managers have a responsibility to ensure that they follow the appropriate legal procedures for their operations, both at the local and state levels.
For example, there is considerable uncertainty surrounding who exactly is the owner of blockchain technologies and cryptocurrencies. Cryptocurrencies are not backed by any centralized issuing authority and intrinsic assets, such as gold or silver, do not constitute the basis of the value of cryptocurrencies. When a cryptocurrency exchange is hacked and customer holdings are stolen, for example, there is often no standard practice for recovering missing funds.