Crypto Startups and Going Concerns: Navigating the legal minefields to prosper
Cryptocurrencies have been around since 2009, when Bitcoin first hit the digital payment scene. However, they’re status as part of a formalized “industry” is only just crystalizing. During that time, the legal and regulatory framework, around which the industry operates, has also been undergoing evolution and transformation. Without an experienced cryptocurrency law firm to guide the industry players, many startups and experienced crypto businesses may inadvertently step on legal and regulatory minefields.
Broader than just a startup challenge
Startup law firms are an invaluable ally to new cryptocurrency ventures, not just during their formative stage, but also in the longer-term. That’s because the legal challenges faced by crypto industry players don’t fade away once they’ve been in business for a year or two. In fact, those issues often grow in number and complexity.
Let’s look at a real-life example – one that may serve as a poster child of how, sometimes, legal issues can blindside even mature industry players in the crypto business.
When industry stalwart Telegram launched its Initial Coin Offering (ICO) back in 2019, they (presumably) had a consultation with a cryptocurrency law firm first, before moving forward with the issue. Unlike startups, Telegram would have access to an army of legal experts, who interpreted the rules and statues as they saw them. But the result was devastating!
The company got into serious trouble with the U.S. Securities and Exchange Commission (SEC), and by the time the legal wrangling ended and the dust settled, they were out of pocket by serious dollars – nearly $1.5 billion. And that was just the tangible cost. Telegram took serious hit to its reputation and brand name. There may have also been longer-term opportunity cost, as a result of lost business, that might never be quantifiable.
The takeaway here is: If global cryptocurrency players can get on the wrong side of the legal fence, how much more challenging can it be for crypto startups, or smaller-sized businesses in the industry, without able legal representation, to navigate the legal maize?
Deeper Legal Value Add
The Telegram saga highlights an important challenge regarding the Federal governments and the business community’s interpretation of whether a “token” is a security, a currency or a commodity. For businesses just starting their journey in the crypto domain, startup law firms have much more value add to offer. Lawyers with experience in blockchain/distributed ledger technology, cryptocurrency, and banking, and business and regulatory issues can ensure startups begin their journey on the right path, grounded in sound legal footing.
Veteran legal advisors can also add value when it comes to issues of cross-border digital currency exchanges, and the challenges around taxing crypto assets. Fledgling, maturing and seasoned crypto industry players alike, can benefit greatly from having lawyers experienced in these aspects of the crypto domain.
More critically, a potential legal minefield that many industry players must navigate, is around the privacy aspect of cryptocurrencies. While businesses deem the anonymous and private exchange of crypto assets is an existential issue for the industry; government watchdogs dispute that. As a result, many crypto business players can expect more legal challenges on that aspect of their business. It pays to therefore work with a cryptocurrency law firm that has extensive experience on the security and privacy side of the industry too.