You might have heard your local news channel talking about the instant wealth cryptocurrencies are capable of offering. Some of you may even have friends who swear that crypto investments will make them millionaires! With over 8000 cryptocurrencies now being traded, this new form of digital currency is taking the world by storm. But there’s one aspect of cryptocurrency that needs closer attention—whether it’s legal or not.
Cryptocurrencies can be used to purchase things in the same way as regular currencies. However, they’re prone to a wide range of legal complications because they’re encrypted and not managed by a central authority.
So, before you dive into the world of crypto investments, here are the biggest legal issues with cryptocurrencies you must consider.
1. They’re Subject to Capital Gains Tax
Did you know you could end up paying hefty fines if you improperly file tax returns on cryptocurrency investments? According to U.S. federal tax policies, you must pay a tax if you profit from selling an asset that you’ve held for more than a year. This is known as capital gains tax and the rate you pay depends on your yearly income.
Unfortunately, profits from cryptocurrency investments are also subject to capital gains tax because the IRS treats cryptocurrencies as properties. In other words, you must pay taxes every time you make a profit on your crypto investments.
If your employer is paying you a salary using cryptocurrencies, then you don’t have to pay capital gains tax. However, amateur investors who forget to pay capital gains tax on profits earned from crypto investments must pay a failure-to-file penalty. This can be as high as 25% of your unpaid taxes!
2. They’re Effective at Laundering Money
Have you ever wondered how criminals hide the source of their money? It’s impossible to deposit funds into a bank account without being asked where they came from. This is why criminals resort to disguising their money using a process known as money laundering.
Cryptocurrencies are the perfect money laundering tool because they’re encrypted. Criminals can “launder” their money by purchasing a large chunk of cryptocurrencies and selling them immediately—and anonymously—on the internet. This has caused governments worldwide to begin shutting down cryptocurrency exchanges that are allegedly used by criminals.
If you’re unfortunate enough to hold an account on a cryptocurrency platform targeted by criminals, then you could lose your entire investment overnight due to changes in federal law. Therefore, it’s vital to keep up with the latest crypto news!
3. They Aren’t Regulated by a Central Authority
The traditional way of tracking fund exchanges is by keeping a book of transactions known as a ledger. Cryptocurrency exchanges are tracked using a virtual ledger known as Blockchain. Unlike traditional ledgers, Blockchain ledgers are viewable by anyone and aren’t regulated by a central authority. This is known as decentralization and ensures that cryptocurrency transactions are transparent.
Unfortunately, the lack of a central authority means that investors have no protection from sudden losses. If millions of people suddenly decide to sell a cryptocurrency—even if it’s for no reason at all, then its value will go down without any warning.
This could cause you to lose your entire investment in a matter of seconds, and there’d be no central authority to warn you of what’s about to happen!
4. They’re Prone to Hacking
Hackers can steal cryptocurrencies by luring unsuspecting users into revealing sensitive information like credit card details. This is known as social engineering and is often done by people pretending to be legitimate authorities like banks. Hackers are also able to freeze computers that mine cryptocurrencies and hold them for ransom using software known as ransomware.
Fortunately, the government is in the process of establishing legislation that’ll regulate major cryptocurrencies like Bitcoin. However, this is unlikely to protect crypto investors as a majority prefer targeting newer and lesser-known cryptocurrencies in search of big returns. Therefore, if you’re a crypto investor dreaming of making millions, then you must be willing to accept the risk of getting scammed and try to play it safe.
Want to play it safe while investing in cryptocurrencies? Urban Crypto provides comprehensive information on the latest happenings in the global crypto space. They offer market guides for beginners on everything, from Coinbase to Binance, and regularly update their page with the latest crypto news.
Whether you’re an expert investor or a beginner to cryptocurrency, Urban Crypto will help maximize your cryptocurrency investment returns. Contact them today to find out more.