Cryptocurrencies have been around for more than a decade;However, it is only in recent years that the mainstream has recognized their full purpose. Whether your business is using Bitcoin as a hedge against traditional currencies, trying to avoid the high fees charged by financial services institutions, or simply looking for an efficient payment method, there's no doubt that Bitcoin's popularity and utility as an acceptable currency are skyrocketing.
However, with this popularity comes a growing need to protect your organization. You may have heard of bad actors like Sam Bankman-Fried using cryptocurrencies for money laundering and fraud, or scammers taking advantage of the anonymity of cryptocurrencies to make easy money. Although bad actors abound in every sector of the economy, and cryptocurrencies are a relatively new one, it's crucial that you understand and be able to identify potential threats.
Similarly, with popularity comes increased scrutiny. Federal regulations for cryptocurrencies have changed, and not understanding how these regulations affect your trading can put your organization at risk.
In this article, we'll discuss some of the most common dangers associated with using Bitcoin, teach you how to spot and avoid cryptocurrency scams, and give you an idea of how regulations may affect the way your organization uses Bitcoin.
Although using any kind of currency comes with a certain level of risk, Bitcoin, unlike traditional currencies, has specifications that you, employees, or customers may not be able to grasp intuitively. If you're considering using cryptocurrency, there are a few key differences you should be aware of:
*Volatility: Since the value of a cryptocurrency is not regulated by external bodies, its value is largely dependent on what others are willing to pay**.
Lack of federal protection: The downside of not having federal** regulation of your money is that they are unlikely to provide protection if the funds are lost. In the case of Bitcoin, once the money is lost, it is lost – a fact that has led some people to take extreme measures to recover the lost cryptocurrency.
Privacy on the blockchain: While cryptocurrency transactions are largely considered anonymous, some information is often publicly recorded in the blockchain. In these cases, measures such as hard drive shredding can provide an extra layer of security to prevent bad actors from digitally tracking your transactions and accessing your organization's sensitive data.
Remember, in a digital-centric industry like Bitcoin, data is king. If you have any insecure data that cybercriminals may obtain, make sure you adequately protect it before venturing into the blockchain. Without adequate layers of security in place, your organization's data is at risk of being exploited.
What's more, bad actors may try to exploit the anonymity associated with the blockchain to trick unwary Bitcoins. However, scams targeting businesses often try to use the same "proven" scheme over and over again – a tactic that loses its effectiveness when people are able to identify patterns that they are all too familiar with.
Some of the most common scam tactics your business may encounter include classic tactics such as:
Phishing;Auto-call;
Social Engineering;
Malware. In fact, concerns about scams and thefts are a big reason why some are calling for stronger anti-fraud regulation of cryptocurrencies. However, before regulations are introduced, one of the most effective ways to protect against such scams is to simply understand what they look like – both in general and in the specific case of cryptocurrency scams. If you and your employees know what to look out for, you're less likely to fall in** and make sure you get the protection you need because of the relative lack of legal protections available.
As mentioned above, the regulation of Bitcoin is starting to change. While this can be a problem for those who are not aware of these regulations, it is also exciting for Bitcoin's overall mainstream potential. Some are using regulations as a counterweight to Bitcoin's potential, but others have advanced regulations so much that they can easily use the currency to verify election results.
While the effectiveness and intent of current regulatory measures vary from country to country, Bitcoin's surge is encouraging more aggressive international regulation.
In the United States, it is legal to buy and sell cryptocurrencies, and Biden has announced initiatives to support the legal use of cryptocurrencies and punish bad actors. However, the specifics of these initiatives remain unclear, so it's unlikely that federal regulations will directly impact your organization's use of cryptocurrencies at this time.
In the absence of coordinated federal oversight, cryptocurrency regulation varies from state to state. You can take advantage of Bloomberg Law and others** to see a summary of your state's or territory's cryptocurrency laws, but we'll quickly break down some examples of those laws.
New York requires Bitcoin buyers and users to obtain a state-only "bitlicense" before commercially**, buying, or using Bitcoin.
The state of Tennessee does not consider Bitcoin transactions to be "money transfers," but a license is required to exchange Bitcoin for fiat currency.
The state of Florida believes that all uses of Bitcoin are subject to currency transfer laws and therefore require a license;However, licensing laws have been relaxed in general.
California has not yet decided whether to regulate the use of Bitcoin, and there are currently no laws regulating transactions by individuals or companies.
As you can see, cryptocurrency regulation is a delicate and complex topic, and regulation at the federal and state levels is always evolving. Before your organization uses currencies like Bitcoin, it's necessary to research how your state governs the use of currencies like Bitcoin because you'll need to make sure you're following local laws.
Keeping up with ever-changing regulations, employing strategies to avoid scams and protect your data, and understanding the nuances of cryptocurrency exchanges will allow your organization to navigate the industry with confidence.
This is a guest post by Miles Oliver. The views expressed are entirely their own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.