Crypto Regulation And Compliance: Navigating The Evolving Regulatory Landscape For Bitcoin

Cryptocurrencies have been around for over a decade; yet, it’s only in recent years that the mainstream has recognized the full extent of their utility. Whether your business is using Bitcoin as a hedge against traditional currencies, trying to avoid the exorbitant fees charged by financial services institutions, or just looking for an efficient way to pay, there’s no question that its popularity and utility as an acceptable currency has skyrocketed.

However, with that popularity comes a greater need to protect your organization. You might have heard about bad actors (like Sam Bankman-Fried) using cryptocurrency to commit money laundering and fraud, or scammers leveraging the anonymity of crypto to make an easy buck. Though bad actors abound in every economic sphere, with crypto being a relatively new frontier, it’s crucial that you’re aware of and can recognize potential threats.

Likewise, with that popularity comes a greater level of scrutiny. Federal regulations for cryptocurrencies have changed, and failure to stay knowledgeable about how those regulations affect your transactions could put your organization at risk.

In this article, we’ll discuss some of the most common hazards associated with using Bitcoin, teach you how to spot and avoid cryptocurrency scams, and make you aware of how regulations may affect how your organization uses Bitcoin.

Know The Nuances Of The Currency

Though using any kind of currency comes with some level of risk, Bitcoin is different from traditional currencies and comes with norms that you, employees, or customers may not grasp intuitively. If you’re thinking about using cryptocurrencies, there are a few key differences you should be aware of:

• Price volatility: Because cryptocurrency’s value is not regulated by an external party, it’s largely determined to be worth whatever someone else is willing to pay for it.
• Lack of federal protection: The downside of not having the federal government to regulate your funds is that they’re unlikely to provide protection if funds are lost. With Bitcoin, once the money is lost, it’s lost — a fact that has led some to take extreme measures to recover misplaced crypto.
• Privacy on the blockchain: While cryptocurrency transactions are largely considered to be anonymous, some information is typically recorded publicly in the blockchain. Measures such as hard drive shredding can provide an extra layer of security in these instances, preventing bad actors from digitally tracing your transactions and accessing your organization’s sensitive data.

Keep in mind that in an industry as digitally-focused as Bitcoin, data is king. If you have any unsecured data that a cyber criminal could get ahold of, make sure it’s adequately protected before foraying into the blockchain. Failing to ensure adequate layers of security are in place puts you in danger of having your organization’s data exploited.

Avoid Scams And Protect Your Organization

What’s more, bad actors may attempt to use the anonymity associated with the blockchain to scam the unwary Bitcoin. However, scams targeting businesses typically attempt to use the same “tried and true” schemes over and over — a strategy that loses its potency when people can recognize their all-too-familiar patterns.

Some of the most common scam tactics your business may encounter include classic strategies like:

• Phishing;
• Robocalls;
• Social engineering;
• Malware.

In fact, concerns about scams and theft are a significant reason why some are calling for better anti-fraud regulation in crypto. Until regulations exist, however, one of the most effective ways to safeguard against these kinds of scams is to simply know what they look like — both in general and in the context of crypto scams specifically. If you and your employees know what to look out for, you’ll be less likely to fall for the scam and ensure you have the protection you need, given the relative lack of available legal protection.

Aligning With Regulations

As mentioned above, regulations for Bitcoin are beginning to change. Though this can be a concern for those unaware of those regulations, it’s also exciting for Bitcoin’s mainstream potential as a whole. Some governments are leveraging regulations as a weapon against Bitcoin’s potential, but others have advanced regulations to the point where they are comfortable using the currency to verify election results.

While the efficacy of and intent behind regulatory measures currently differs from country to country, the surging popularity of Bitcoin is encouraging the development of more positive international regulations.

In the U.S., it’s legal to both buy and sell cryptocurrencies, and the Biden administration has announced initiatives to support the legal use of crypto and to penalize bad actors. The concrete details of those initiatives remain murky, however, leaving it unlikely that federal regulations will directly impact your organization’s use of crypto at this time.

In the absence of coordinated federal oversight, cryptocurrency regulation instead varies from state to state. You can leverage sites like Bloomberg Law to see an aggregated summary of crypto laws for your state or territory, but we’ll quickly break down a few examples of what these laws look like.

• New York requires Bitcoin purchasers and users to obtain a state-unique “BitLicense” before selling, buying, or using Bitcoin commercially.
• Tennessee does not consider Bitcoin transactions “money transmission,” but requires a license when exchanging Bitcoin for fiat currency.
• Florida considers all uses of Bitcoin subject to money transmitter laws, and thus requires licensure; however, license laws have been relaxed overall.
• California has not decided whether to regulate Bitcoin use and currently has no laws in place to oversee individual or corporate transactions.

As you can see, cryptocurrency regulation is a nuanced, complex topic and regulations are always evolving on both the federal and state levels. Conducting research into how your state governs the use of currencies like Bitcoin will be necessary before using it at your organization, as you’ll want to ensure compliance with local laws.

Staying aligned with changing regulations, employing strategies to avoid scams and protect your data, and knowing the nuances of cryptocurrency exchanges will empower your organization to navigate this industry with confidence.

This is a guest post by Miles Oliver. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

1 December 2023 14:00