By Dr AbdelGadir Warsama, Legal Counsel
Many people are already using or rushing to use cryptocurrencies as something relatively new in the IT era and for others, could be a type of venture that deserves running the risk and learning form the experience. Very few countries or jurisdictions have legalized and approved investment in cryptocurrencies at the sole risk of users. However, still it is long time for this venture to take its legal presence as legal currency and or legal tender.
Taking above in consideration, we need to express our clear opinion that, there are many legal complications and extremely difficult legal issues associated to investment and using cryptocurrencies. This applies to all types of cryptocurrencies.
Usage of traditional real currencies normally takes place between known identified persons as one is tendering the currency to specific another person at the time of selling or giving services. The currency here, is given and accepted by the offeror and the offeree as consideration for the contract. Known and identified consideration as required by the law. However, when it comes to cryptocurrencies, anonymity of transacting parties comes up and neither the offeror nor the offeree knows each other even if they are facing each other. Due to this anonymity situation there is absence of well-defined laws to be applicable on the transaction.
Moreover, in cryptocurrency transactions they use what is known as “smart contracts” which give set of promises usually specified in a digital format. Due to “smart contracts” unique nature and inherent complexity fitting into the legal framework of traditional contract law is difficult to determine before Courts.
Using traditional real currencies in all types of transactions, fall under the purview and close supervision of legitimate competent authority governed by certain laws and regulations. However, in case of cryptocurrencies many problems are there or could come-up particularly due to lack of proper authority and absolute freedom from regulation. This is a very sensitive delicate issue as it will make a big legal vacuum, in case of any dispute, whatsoever.
Also, there are more issues related to insecurity of trading and purchase platforms. This comes for the fact that the parties are unknown nor identified and based on this other illegal unauthorized activities could arise including tax evasion, fraudulent transactions, e-crimes, phishing attacks, money laundering and terrorism financing, data trespass, data theft, identity theft, … etc. Moreover, there is great possibility of loss of data, which complicates evidence in any type of dispute, if any?
The above legal challenges facing cryptocurrencies are likely to become even more pronounced as there is no intermediary or authority has the exclusive jurisdiction to settle cryptocurrency-related disputes. For example, in a traditional financial transaction, if a party claims that their account credentials were stolen and that money was illegally transferred from their account, their financial institution (such as a bank) can serve as an intermediary and resolve the matter. However, if a parallel situation occurs in a cryptocurrency platform, no mechanism has been established to settle such a dispute because cryptocurrency is decentralized and has no financial institutions that can act as intermediaries. Accordingly victims of cryptocurrency theft, or the like, will likely have no legal avenue to compensate for their losses.
Great risks are there and, it seems, still there is a long way to drive to reach risk-free investment opportunities in cryptocurrencies. Could be some easy gains were achieved, however, a time could come at any time to erase all what has been achieved. Advisable, always, to go a long way for steady well-known investment opportunities rather than short risky way.