4 Legal Risks To Consider Before Investing In Bitcoin

Nothing in life comes without risks. Anything that we do has a risk level, no matter how negligible it may be. These risks shape the opinions and paths of how we make our decisions in life. A considerable part of these risks also applies to the financial world. The lifespan of an investor is filled with ups and downs that are inevitable.

They can be minimized to create the least amount of damage, but in all honesty, losses are inescapable. However, the magnitude of those losses may differ from person to person depending on the decisions that one takes in the world of investing.

As we’ve said, these risks shape your investing decisions and drastically can change the course of how you view the market itself. It may be very demotivating for some, and for others, it is another path of change for them where they like a good challenge to keep them going. Go URL to know more about bitcoin and the legal risks that are involved with it.

We’re guessing most of the readers of this article are probably first-time cryptocurrency traders who want to know more about investing in it and all the effects it can have on your financial portfolio.

We’ll start with the basics of what bitcoin is and how it was introduced into the world of finance. Then, we’ll tell you about all the risks of the trading and investing of bitcoin. That being said, without further ado, let’s dive in!

What Is Bitcoin

What does it mean to have bitcoin? Many people have heard about it. It is a virtual currency, with the absence of a federal body that does not regulate anything. No institutional bodies have to manage the move and flow of money from one person to another.

The truth about bitcoin is that no one knows who invented it. It was made under a pseudo-anonymous name called Satoshi Nakamoto, considered a group of free thinkers to create a financial system free from the holds of federal regulations.

Although people have a good idea, not everyone knows the truth about its creation and likely will never know.

Legal Issues With Bitcoin

Bitcoin as an asset or property

One of the most common legal issues in the present world is how legal authorities perceive Bitcoin as an asset. According to the authorities in the States, bitcoin is categorized as a property instead of an asset that is money based. This means that people are liable to treat cryptocurrencies and bitcoins exactly how they treat properties they hold. This means that they are exposed to pay property taxes to increase or decrease the cryptocurrency property. This is high risk because it is liable to pay taxes which in the case of regular money and fiat money are not exposed to pay otherwise.

The risk that we’re referring to right here means that people who buy bitcoin will have to start treating it like a property during the entire time that they hold it. Federal judges and legislative experts have weighed in about how the clause of treating bitcoin or cryptocurrency will complicate matters on foreign exchanges as time goes on.

Another risk is the change in information from time to time. Most taxpayers who hold their cryptocurrencies, such as bitcoins, do not even know that these taxes apply to them, which would lead to penalization.

Bitcoin’s primary feature

Bitcoins’ most prominent feature is also one of its worst, stating that it is a decentralized type of virtual currency. The problem with this is that it poses a risk for most first-time investors as well. The decentralized meaning is that it only has a virtual presence and is not enforced or safeguarded with laws by any regulatory or statutory body.

If it were any other way with different currencies, authorities and legal bodies worldwide usually step in to take action over the said introduction of money. But the thing with Bitcoin and various other currencies is that they do not have or tried to have had any authorities poking their noses in.

One of the upsides to this is that traders are not liable or bound by the regulations of anybody. This can be a very refreshing and liberating aspect of trading on cryptocurrency platforms.
On the other hand, a downside or a risk with a lack of a federal body can lead to legal problems.

For example, the problem with bitcoin is that it gets the value merely based on the demand and supply forces for it on the crypto market. Not surprisingly, people can manipulate it through calculative methods, which will affect other investors on the platform. In other words, a lack of a federal body will mean that you are susceptible to the volatility of the market.

Cryptography

Everything good has some bad to it as well. As we know, cryptocurrency is enforced by a technology called cryptography. This technology ensures that two ends of the information chain are entirely encrypted and non traceable.

As helpful as this can be, it is also very damaging in legal disputes, as there will be no proof of a transaction, or in other words, nobody will be able to trace the trades correctly. This is, however, different in the real world as money changes from person to person and can make out who the money to and who it began from.

Scams

Scams are one of the most damaging yet common phenomena on the cryptocurrency platform. Cryptocurrency scams happen worldwide and are widely found on various social media platforms.

The thing with scams being different for cryptos and the physical world is that since physical finance is monitored and backed by multiple authorities, people are safeguarded from scams or seek justice for their fraud.

However, the crypto platform is not the same, as there is no governing body, and the transaction is practically untraceable.