Cryptocurrency

What is cryptocurrency?

Cryptocurrency, or crypto, is a digital form of currency that acts similar to the US Dollar. You can purchase goods and/or services as well as trade them, like how you would trade shares of a publicly traded company. While cryptocurrencies are relatively new to the financial spectrum, several have been able to take strong footholds on the market and continue to prove themselves a sustainable force.

Cryptocurrency has recently escalated to become a common form of digital currency and asset investment. At Blake Harris Law, we recognize the value of cryptocurrency and its potential as an extremely valuable asset now and in the future. We offer crypto legal services and guidance on cryptocurrency asset protection, SEC compliance filings, Initial Coin Offerings, token sales and exchange listings, exchange compliance, and decentralized autonomous organizations.

Why is cryptocurrency asset protection necessary?

Now that the IRS has deemed cryptocurrency a taxable asset, it can be classified as property. As property, this means it can be a target of legal action, resulting in the loss of cryptocurrency assets. Protecting this will become vital in ensuring that if at any point your assets become the target of legal action, it will have extra layers of security and present a greater challenge for any persons or entities who try to seize them.

What will I protect by adding cryptocurrency to my estate plan?

In the past few years, cryptocurrency has become a popular form of a financial investment as investors are finding high returns. With this increase in wealth, more people investing in cryptocurrency are seeking to pass these digital forms of currency (e.g., Bitcoin, Litecoin, Ethereum, Ripple, etc.) on to beneficiaries after their passing. By adding crypto to an estate plan, it protects the current and future high value of cryptocurrency for generations to come.

Steps to Including Cryptocurrency in Your Estate Plan

When cryptocurrency is added to your estate plan, there are specific steps you must take to ensure your beneficiaries are able to inherit from your blockchain wallet:

  • Provide your fiduciary or trustee with your password ”key” to take control of your account upon your death or store your digital key in a vault or safety deposit box. This ensures immediate access to transfer and distribute.
  • No need to provide a death certificate: with your key, your fiduciary can immediately access your wallet.
  • Estate planning documents must grant the fiduciary power to access, retain, and manage your digital assets to avoid liability under privacy laws.

Step-by-step:

  1. List your specific cryptocurrency types in your will, and update as needed.
  2. Include information about your digital wallets and grant your fiduciary access.
  3. Create a separate contemporaneous memorandum to your will with passwords, keys, and PINs to your digital wallet.
  4. Include a step-by-step guide to explain how your beneficiaries can access your cryptocurrency.
  5. Store in a secure area – if you lose your password or it gets out to the public, your cryptocurrency is no longer accessible or protected.
  6. Be sure to update regularly, at least once a year, or anytime you change your password.

What areas of cryptocurrency asset protection does Blake Harris Law offer?

There are many complex facets to the cryptocurrency landscape and at Blake Harris Law we offer a number of legal services and guidance on cryptocurrency asset protection, SEC compliance filings, Initial Coin Offerings, token sales and exchange listings, exchange compliance, and decentralized autonomous organizations.

Cryptocurrency Asset Protection

Because cryptocurrency has now become a financial asset, it is important to understand the different ways it can be protected. A few of these protections include offshore trusts, a Titanium Trust, and domestic trusts. These protections can be discussed when drafting an asset protection plan with proper assistance from law firms such as Blake Harris Law. It is important to understand the different ways each of these protections work and what the benefits to each protection are.

SEC Compliance Filing

Public companies, certain insiders, and broker-dealers are required to file regulatory documents (e.g., Form 10-K and Form 10-Q) to the Securities and Exchange Commission (SEC). By filing these documents, it provides transparency of information to investors, analysts and regulators. Investors rely on these SEC filings for evaluation of companies for investment purposes. The SEC has ruled most cryptocurrencies are not securities because they are decentralized. This throws a wrench in what needs to be reported to the SEC. Blake Harris Law can help navigate these intricacies to ensure you or your company’s digital assets are in compliance.

Initial Coin Offering

Similar to an Initial Public Offering (IPO), an Initial Coin Offering (ICO) is the way funds are raised for new blockchain based start-up cryptocurrency offerings. Since cryptocurrency is decentralized, nearly anyone can launch an ICO given the use of the right technology. To create an ICO you would create a white paper detailing how the “coin” would work, ask for funding in either crypto or fiat money from people and in return you send them the “coin” you’ve created. Should this initial “coin” you created gain high circulation then the value of the “coin” will increase. As the creator of the “coin,” you have now created a new cryptocurrency that could rival other ICOs like Ethereum. When creating an ICO there are various legal documents from the white paper to sale agreements that need to be reviewed and compliant.

Token Sales and Exchange Listings

When an Initial Coin Offering (ICO) is listed on an exchange it gives the public an opportunity to purchase that ICO in what results in a token sale. Within that token sale there requires a number of legal documents that Blake Harris Law can assist with such as token sale documents, terms and conditions of token sale, white paper legal review, and drafting articles of association. Additionally, in the event that your token sale is part of an exchange listing, we can advise on token and coin compliance with securities laws, decentralized finance (DeFi) launch and compliance, SEC No-Action relief and FinHUB engagement, Initial Liquidity Offerings (ILO), and Security Token Offerings (STO).

Exchange Compliance

A cryptocurrency exchange is the digital platforms in which both buying and selling of different cryptocurrencies (e.g., Bitcoin, Ethereum, Litecoin) is available. When deposits, withdrawals, or purchases of cryptocurrencies are made with fiat money within an exchange, that exchange can define its own set of operations. Since there is no regulated set of crypto exchange operations, some crypto exchanges follow exchange compliances to help mitigate the risk of fraudulent behavior. Examples of such compliances include Know Your Customer (KYC) for customer onboarding, Anti-Money Laundering (AML) for controls, identity verification as a security feature, and Strong Customer Authentication (SCA) as multi-factor authentication access for security purposes. Not every exchange has adopted such compliances, but these compliances are trending as a form of cyber security to protect digital investments.

Decentralized Autonomous Organizations

A decentralized autonomous organization (DAO) is an organization that operates on a blockchain that is completely autonomous and only follows rules encoded in smart contracts—there is no human intervention. The advantage to DAOs is that instructions are executed when triggered by preset rules, which enables transparency, cost savings and decentralized decision-making in an encrypted environment. Because DAOs are decentralized they can be distributed across multiple countries and jurisdictions, which can create legal issues. At Blake Harris Law, we can give guidance on how regional laws and cross-border contracts could impact DAOs.

Cryptocurrency Glossary of Important Terms

Here are some important terms to learn when it comes to cryptocurrency:

Cryptocurrency
Cryptocurrency is an internet based digital token designed as a medium of exchange. Some cryptocurrencies are generated via a process known as “mining,” where computers solve complex digital puzzles to verify transactions. During this process they are rewarded in a type of cryptocurrency.

Blockchain
The blockchain is a decentralized ledger of transactions across a peer-to-peer network that uses algorithms to record and store transactions.

Securities
Securities are financial instruments used to raise funds for public and private businesses. Securities can come in the form of equity, debt (e.g., loans), and hybrids (equity and debt).

Exchanges
A cryptocurrency exchange is the digital space in which both buying and selling operations of different digital currency is available.

Why choose Blake Harris Law?

Cryptocurrency is a volatile and fresh new player in the financial investment market. It could continue to see steady progress to becoming a mainstream currency. While cryptocurrency is by no means a sure bet, savvy investors are investing now and need to protect those long and even short-term crypto investments. At Blake Harris Law we render legal advice and are one of the few law firms who are experts in the crypto marketplace. For legal services on protecting your digital assets, ensuring crypto compliance, and offering guidance on legal documentation in the blockchain, ICO and exchange landscape, contact us.

If you would like to learn more about how you could secure your assets and keep your hard-earned wealth out of reach from potential creditors or lawsuits, contact us today for a no-obligation consultation. Blake Harris Law can help you protect and pass your cryptocurrency to the next generation in the most efficient way possible.