There was a time when cryptocurrency use was very limited. However, this form of digital currency is becoming more widely accepted as its popularity grows. Crypto is a new technology, and coupled with its emergence into the mainstream market, the laws are changing quickly to keep up.

Here are some of the questions we get asked most often about cryptocurrency.

How long has cryptocurrency been around?

In the 1990s David Chaum from UC Berkeley released “eCash,” a digital currency that he had developed. Chaum’s company behind the venture, DigiCash, managed to get the attention of some major companies that were intrigued by eCash. However, in 1998 DigiCash ran out of funds and shuttered for good.

While DigiCash failed to remain in operation, it served as inspiration and was a jumping-off point for later developers to create digital currency. They wanted to create a currency that was entirely digital and had a price stability similar to that of gold. This eventually led to the development of Bitcoin in 2008 by Satoshi Nakamoto (an anonymous name for the group of Bitcoin creators).

Is there a finite amount of Bitcoin in the world?

Yes. The total supply of Bitcoin in the world is 21 million. However, it is extremely unlikely that the 21 million mark will ever be reached but once the supply hits that limit, that’s it. There will be no more Bitcoins generated. At that point, transaction fees will probably be how Bitcoin miners earn their income. 

Bitcoin was created as a limited coin supply because, over time, it increases scarcity. Scarcity drives price and demand. 

In December 2023, there were 19,573,975 existing Bitcoins with 1,426,925 that were left to be found or rewarded. It is not likely that the total number of Bitcoins issued will ever hit the 21 million mark due to “rounding down.”

A 2020 study by Chainalysis, a crypto forensics firm, estimated that as much as 20% of Bitcoin that has already been issued may be lost permanently due to holders losing the keys to their Bitcoin wallets or failing to leave instructions for accessing their wallets when they pass away.

Is there a finite amount of Ethereum in the world?

Ethereum, which was launched in 2015 as “Frontier,” does not have the limited supply that Bitcoin has. There is an infinite supply of Ethereum in the world and in April 2022, more than 120 million Ethereum coins were in circulation on cryptocurrency exchanges where they are actively traded.

Are Bitcoin and Ethereum the same?

On the surface, Bitcoin and Ethereum may seem to be identical. They are both based on blockchain technology, and both are forms of cryptocurrencies. However, these two wildly popular cryptocurrencies do have some distinct differences.

Purpose – This is the biggest difference between the two. The creators of Bitcoin were trying to create a decentralized digital cash system.  It was intended to be an alternative to traditional currency or money. Ethereum was created to be more. While it was created to be a cryptocurrency, it was also created to be an open-source platform for the implementation and creation of smart contracts as well as decentralized applications. It hosts these applications as well as verify and record transactions.

Blockchain technology – They do not use the same type of blockchain technology. Bitcoin uses “proof of work” which requires miners to validate transactions by solving complex math problems.

Ethereum started out using proof of work, but now uses a different method called proof of stake. When creating a new block, validators are chosen by two factors: how much crypto they hold and how much of it they are willing to put up as collateral, or “stake.”

Scalability – The proof of work method that Bitcoin uses is very difficult to scale. This limits the number of transactions that the network can handle per second – around 7 per second.

The proof of stake method that Ethereum uses does offer more scalability. It is able to process as many as 30 transactions per second. 

Supply – Bitcoin is limited in supply with a cap of 21 million coins. Ethereum, on the other hand, does not have a limited supply. There is no maximum so the creation of Ethereum could be unlimited.

Use – Bitcoin is primarily used as a digital currency. It doesn’t do much beyond that.

Ethereum is broader in its use beyond digital currency, such as smart contracts. It is also a popular platform for the majority of NFTs, or non-fungible tokens. This is all part of the decentralized finance movement which seeks to recreate traditional financial systems without the traditional reliance on trusted third parties.

Price – Both Bitcoin and Ethereum have demonstrated volatile prices, which is pretty consistent with the majority of other crypto assets. For the most part, Bitcoin has been the value driver on the crypto market. The value of each is contingent upon the value of the other and Bitcoin value is also influenced by regulatory news, supply and demand, economic events, and market sentiment.

Ethereum’s price is affected by Bitcoin’s price but there are other factors at play as well. It is influenced by platform updates, blockspace demand, and how it is used in the decentralized financing space.

Is Bitcoin the same as cryptocurrency?

Cryptocurrency is often used as a blanket term to describe digital currency. But Bitcoin and crypto are not the same.

Bitcoin is a digital currency that utilizes the technology of cryptocurrency.

Primary use – Crypto is intended to offer safe, low-cost, secure transactions while Bitcoin simplifies and increases the speed of transactions without the burden of government restrictions.

Trade – Both are used for trading but crypto has a broader reach because there are many cryptocurrencies.

Popularity – Cryptocurrencies have increased in number, but Bitcoin is still the most popular.

Strategy – Crypto allows individuals to exchange services and goods in a secure, safe environment with minimal middleman or government interference. Bitcoin is a less flexible option that is intended to reduce transaction time and lower influencer costs.

Status – Many recent cryptocurrencies have taken on more transparency, allowing them to work in many different industries. Bitcoin tends to be more anonymous.

What are the types of cryptocurrencies?

Cryptocurrency is a broad term often used to describe digital or virtual money that is in the form of coins or tokens. There are many different types of crypto, some of the most common are:

    • Bitcoin
    • Ethereum
    • Tether
    • XRP
    • Binance Coin
    • USD Coin
    • Cardano
    • Solana
    • Dogecoin
    • Tron
    • Polygon
    • DAI
    • Shiba Inu
    • Avalanche
    • Wrapped Bitcoin
    • Litecoin
    • Chainlink
    • Cosmos
    • Monero

Why are cryptocurrencies important?

Cryptocurrencies are decentralized platforms so individuals can engage in financial transactions or enter into contract agreements without the use of trusted third-party intermediaries like a monetary authority, bank, judge, or court. The importance is that it has the potential to disrupt or change the financial order as it currently exists.

Why are there so many cryptocurrencies?

In a sense, Bitcoin is the grandfather of most cryptocurrencies because, in some form or another, all other cryptocurrencies are derived in some form or fashion from Bitcoin. This is because Bitcoin uses an architecture that is censorship-resistant as well as open-source code.

What is Bitcoin mining?

Mining is the process that enters new Bitcoin into circulation. It utilizes a network of computers on a global scale to ensure the legitimacy of Bitcoin transactions and oversee the accuracy of the addition of it to its blockchain. Mining is essentially what makes the Bitcoin network safe and secure.

Do you have legal rights to crypto?

In the United States, at the federal level, holding and buying Bitcoin has never been illegal. However, crypto laws can vary from state to state. One exception to this is if the cryptocurrency is considered to be a security by the SEC. In that case, it falls under the purview of the federal SEC laws. Other agencies that may be involved or become involved are the Financial Crimes Enforcement Network (FinCEN) and the Commodity Futures Trading Commission (CFTC), among others.

The IRS classifies Bitcoin as property. Investors of the cryptocurrency are required to report each transaction to the IRS and pay capital gains tax on it every year. This includes all Bitcoin mining profits as well as payments for services and products.

Can the police seize your crypto?

The short answer is yes. However, it is not as simple as seizing a bank account. Most of the time, the only way police can seize and confiscate any form of cryptocurrency is by identifying the private key attached to the asset and transferring the digital currency to the cryptocurrency wallet that belongs to the law enforcement agency.

Are there any regulations on crypto?

Cryptocurrency is currently a largely unregulated space. Generally, a crypto sale is only regulated if the sale identifies the crypto as a security under federal or state law. Another time it is regulated if the transaction is considered to be a monetary transaction according to state law or a money services business according to federal law.

Some cryptocurrencies may also be subject to securities regulations.

State and federal governments are working to increase regulations on cryptocurrencies.

What can you legally do with cryptocurrency?

Cryptocurrency can be used to buy or sell products and services both virtual and in the real world as long as the seller accepts it. Some corporations are beginning to accept crypto for payment of real-world products and services and others are exploring the viability of incorporating the practice into their businesses.

Cryptocurrency can also be traded and treated as a security.

What factors influence the value of crypto?

There are five primary factors that affect crypto’s value:

  • Market demand
  • Competing cryptocurrencies
  • Supply
  • Investor sentiment
  • Availability 

Can federal agencies track crypto?

The IRS does have the ability to track Ether, Bitcoin, and many other types of cryptocurrencies. At this time, its primary way of tracking crypto is by collecting KYC data that resides on centralized exchanges. More tools are being developed that collect more data and will be able to track crypto on both centralized and decentralized exchanges.

How can crypto be stolen?

Crypto can be stolen either directly or by scheme, scam, or fraud that deceives people into handing it over to the criminal.

Some of the methods used by criminals to steal crypto include:

  • Sending a malicious link
  • Romance scams
  • Gaining access to the crypto holder’s private keys either through deception or hacking
  • Hacking into custodial platforms
  • Various types of fraud including rug-pull schemes, wire fraud, money laundering, and more
  • Virus planted on crypto exchanges
  • Investment scams
  • Email phishing
  • Deceptive or fraudulent transactions
  • Theft from exchanges

Can you sue someone if they use your crypto?

Theft of Bitcoin is typically treated the same as theft of any other asset. The individual who stole the crypto can be prosecuted and convicted for the crime.

If you are seeking legal relief from an exchange such as Coinbase, it could be a different process which is buried in the user agreement. When you created your account on the exchange, you agreed to the terms contained in the user agreement. Many exchanges require disputes to be settled by arbitration.

Your best course of action in either case is to get a cryptocurrency attorney. They stay current on the crypto laws of the state as well as federal regulations. That puts them in the best position to give you legal advice on crypto.

Experienced Crypto Lawyer in New York

Regardless of your experience in cryptocurrency, you can always benefit from the legal experience and knowledge that a crypto attorney can provide. In this rapidly changing industry, new laws are emerging very quickly, and regulations are changing. You need a legal team that is up to date on current laws regarding crypto.

If you are in New York, it is in your best interest to have an attorney who understands New York crypto law as well as any federal regulations.

Call the Litvak Law Firm today at 718-989-2908 and protect your assets with legal representation you can trust.