During the last few years, an innovative, interesting, mysterious and magical market entered our world – the digital currency market (also known as “cryptocurrencies”, “cryptographic currencies” or just “crypto”).
As cryptocurrency investments become more popular around the world, understanding how they work and the potential problems that may arise from using them is paramount. This article will discuss a number of legal issues and explain how a crypto lawyer can help deal with them in a way that avoids deviation from the law and significant cost as a result.
What is cryptocurrency?
Cryptocurrencies are digital payment currencies, which are on the blockchain network and do not require a central body that will coordinate operations and regulate.
In fact, it is a decentralized system that manages contacts between colleagues (Peer 2 Peer) and this way it gives the opportunity to any person anywhere in the world to send and receive payments quickly and efficiently, without conditions and government supervision.
The advantages of cryptocurrencies
The advantages of the cryptocurrency system derive from a number of significant parameters found in them, within which the system is decentralized, creates significant difficulties in counterfeiting and fraud, as well as creates transparency – so that it is possible to see publicly which transaction was created and there is an immediate record, which cannot be falsified and manipulated.
Another significant advantage is added to these advantages and that is the anonymity of the parties. As part of this, the parties who carry out a transaction receive a public ID number, which cannot lead directly to them.
Thus, the anonymity of the buyers and sellers is preserved and payments can be made without a digital signature, which would harm the privacy of the parties in the process.
Types of cryptocurrencies
Today, there are over 10,000 types of cryptocurrencies, with the best known being Bitcoin, Ethereum, Ripple and Dogecoin. The use of these currencies began back in 2009, when Satoshi Nakomoto (a made-up name that refers to an anonymous person or group of people) spread the news about Bitcoin and thus the business in the world of digital currencies and blockchain in general actually began to develop.
It should be noted that the various currencies are indeed in the blockchain, but each of them has different characteristics. So, for example, to mine Bitcoin, a mining method called “Proof of work” is used, which is considered a waste of energy and produces tremendous pollution.
On the other hand, right now (September 2022) the Ethereum platform (and the ETH currency) are switching to another mining method called “Proof of Stake”, which is expected to reduce power consumption by over 90%. There are many other differences between the currencies that create a different attitude of the regulators in different countries.
Who is a lawyer dealing with crypto?
The world of law is a wide world that usually works according to specializations. Thus, a lawyer specializing in family law will not necessarily possess the knowledge required to handle tort or labor law cases. Israel is one of the countries with a higher ratio between residents and lawyers. However, only a few lawyers specialize in crypto.
Moreover, cryptocurrency laws vary from country to country (and even between states within the United States, for that matter), therefore, it is important to conduct an extensive research before making any investments in this form of currency exchange.
As mentioned, currently there is a large number of cryptocurrencies and therefore the lawyers who deal with cryptocurrencies have to deal with a wide range of legal problems that vary according to the place of residence of those who purchase them. For example, in the United States, Bitcoin is legal but several states have tried to pass bills to make it illegal.
How to become a lawyer specializing in crypto?
For those of you who are not knowledgeable in the field, to get a lawyer’s license, you are required to study for about 3.5 years. After that, there is an internship of one and a half years, after which you have to take the bar exams (these days, the chance of passing them is very low).
However, all these studies do not necessarily lead to specialization in a certain field. Therefore, it is necessary to know the field in which the lawyer chooses to practice and take many training courses to be considered an expert in a specific field. Of course, all this expertise happens in practice only after dealing with many cases related to the same field.
It should be noted that most crypto lawyers have a broad understanding of the capital market, the Fintech worlds and have a certain technological understanding. This fact is reinforced in the crypto world, where a deep understanding of the blockchain technology and its derivatives is also necessary.
Parameters that should be examined when choosing a crypto lawyer
Since the cryptocurrency business is still new, there are few lawyers who specialize in this field and you may have to do a lot of searching on your own before you find one that meets your needs. However, we are here to suggest a few things to consider when seeking representation:
First, check the reputation of the crypto lawyer. Not every lawyer who claims to be an expert will necessarily be nice and help you with the emotional aspect that accompanies the process of choosing a lawyer.
It is worth noting that the reputation check should be of the lawyer you go to and not necessarily of the name of the firm. In other words, it can be a very famous firm, but its experience in the crypto world is not that significant and then the reputation may be misleading.
Experience in the Crypto World
In addition, it is worth checking whether the lawyer who claims to be dealing with crypto has actual experience with cryptocurrencies. It is not enough that they “happened” to deal with cases in this field, but you will want to make sure that they are indeed professional.
At the same time, we would recommend examining whether they thoroughly understand the distinction between the types of currencies and that they are familiar with the technology that underlies the currencies for which you turn to them for advice.
An equally significant parameter is the fees of the lawyers who deal with crypto. Since the field is new, it is likely that they will charge a relatively high fee, since the competition is not that great.
However, it is appropriate to compare prices to make sure that you don’t pay too much in relation to the operations you wish to perform. We recommend contacting at least two or three lawyers before making the final decision regarding the crypto lawyer you choose in the end.
Recommendations from Previous Clients
Given that you are looking for a crypto lawyer on the Internet, it is worth seeing if previous recommendations have been published about him in relation to success in lawsuits or, alternatively, about the good advice he has provided.
If there are recommendations, we recommend trying to contact the previous client and make sure that it is indeed an honest and genuine recommendation.
On the other hand, if the lawyer does not have previous recommendations, this may be an indication that he does not have enough experience in the field and it may be worthwhile to choose a lawyer who deals in the crypto field and has more experience.
The Lawyer’s Location
As mentioned, in Israel there are not many lawyers who deal with crypto, so we recommend making sure that he is located in a location that is convenient for you. There are those who call lawyers in different countries – both in light of more experience and because their costs may be a little more comfortable.
However, it should be remembered that the laws are very different in each country and since you are located in Israel, it is advisable to make sure that the lawyer is also in an attractive location, but also understands the laws of the country in which you perform the actions that require observation and legal examination by a crypto lawyer.
The Main Legal Issues in the Crypto World
Once you have chosen a crypto lawyer who meets your needs specifically, it is very important to create an open and honest relationship with them. This way, if any legal issues arise with your investments, you will feel comfortable enough to turn to them for help. Some of the most common legal issues related to cryptocurrencies include:
- Unlawful seizure of assets
- Illegitimate investment schemes
- Fraudulent activity
By using a crypto lawyer, the chance of being involved in these types of disputes can be greatly reduced. In this regard, it should be noted that investing in cryptocurrencies is becoming more and more popular every day. However, with this new wave of digital currencies also comes a whole set of new legal issues.
Don’t risk investing your money in something without knowing all the facts. Be sure to consult with a crypto lawyer to get all the necessary information before making moves that you may regret down the road.
Crypto Taxation Issues
Another thing that is not a problem per se, but people tend not to understand it in depth – it is the crypto taxation. Many people tend to think that the very nature of cryptocurrencies means that no taxes should be paid for them.
Accordingly, they sometimes transfer the digital money to a virtual wallet (hot or cold) and thus think that they are avoiding paying tax in the State of Israel – they do this, thinking that since the money is not in Israel, then there are no debts to the state.
However, this is a significant mistake, which may cost a lot of money for the person transferring the currencies. That is, according to the law in the State of Israel, a tax must be paid for any income of one kind or another according to the size of that person’s income. Given that a person does not pay, it is considered a tax offense and the person may even go to jail for it.
It should be noted that according to the current laws of the State of Israel, any digital currency, regardless of its type or purpose, does not meet the definition of regular currency or foreign currency. Because of this, digital currencies are not like the currencies we know, but they are more similar to an asset – like stocks.
To put it in perspective, the tax rate on assets such as bonds and stocks is 25%. That is, if people sold crypto for a profit of ILS 1,000 and did not pay tax for the sale, then they may be prosecuted for tax evasion worth ILS 250. These sums do appear small, but the higher the yield, the greater the tax evasion and the legal significance.
Many people do this naively and due to lack of knowledge. Therefore, we strongly recommend consulting with a crypto lawyer, who can help in advance and prevent unnecessary heartache.
In this article, we reviewed the world of digital currencies and saw how complex it is and that it contains a large amount of sub-topics – whether it is different types of currencies, which require a different understanding or whether we are discussing the world of law and regulation, which requires a deep understanding.
That is why we recommend that you continue to examine the world of crypto and the complexity and magic inherent in it. However, it is advisable that any action you wish to perform will go through a crypto lawyer who will advise about its legality – whether it is an initial investment, opening a digital wallet in Israel or abroad and a variety of other actions that include taxation and transactions with those anonymous people.
By doing so, you will be able to make sure that you are acting correctly and you will be able to avoid a great deal of heartache that may occur if you mistakenly think that you are doing actions that are in fact prohibited by law. Finally, we recommend that you make sure that the lawyers you contact have sufficient expertise in the field. Good luck!