Cryptoassets - Risk or Reward?
insights - Dec 20, 2022
The emergence in recent years of the blockchain and cryptocurrency phenomena provides companies with exciting opportunities, but such benefits also come with the possibility of cyber-risk, particularly as such technology is largely operating in unchartered legal territory.
What is a Cryptoasset?
A cryptoasset is a store of value that can be stored, exchanged digitally or transferred. Examples of cryptoassets include Bitcoin, Ether and Litecoin, which are the most popular forms. Cryptoassets are secured cryptographically and there is no centralised structure in the UK that manages the system, such as a central bank. This therefore increases its risk.
New regulatory powers were introduced in January 2020 allowing the Financial Conduct Authority (FCA) to supervise how cryptoasset businesses manage money laundering and counter-terrorist financing risks. In the UK, cryptoasset businesses must now comply with Money Laundering Regulations (MLRs) and register with the FCA.
However, individuals and businesses should still be aware that the cryptoassets/services they are using may not be regulated and, if something goes wrong, they are unlikely to be protected. This is because cryptoassets are currently only regulated for money laundering purposes.
Risk or Reward
With the bankruptcy of the FTX being declared on 11 November 2022, and the CEO being arrested and charged with defrauding investors in the US, the world of cryptoassets has grown ever riskier and individuals may be more fearsome of the risks involved.
It is up to individuals and/or businesses to decide if they want to dabble in cryptoassets. The most important factor that must be taken into consideration is that well thought through research and advice must be provided beforehand.
Get the Right Advice
Understanding regulations and guidance is important, especially with blockchain and cryptocurrency legal issues emerging. You must understand:
- Your legal rights and obligations
- Contractual issues including breach of contract
- Jurisdictional and cross-border technicalities
- Insuring cryptocurrency and other cyber risk security issues
- Insolvency and forensic matters
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact KaurMaxwell for advice before taking any action in reliance on it.
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