Virtual Currencies - Keston Law - Wilmington, NC
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Virtual Currencies

Posted Oct 1, 2018 by Joan Keston

With expanding technological advances changing nearly all aspects of our daily lives, it should be no surprise that our investing habits are also evolving with technology. A rising trend in fintech (i.e. technological innovation in the financial sector) has become the buying, selling and trading of cryptocurrencies.

So, what is cryptocurrency?

Even though it may sound like some evil method by which movie villains conduct business, cryptocurrency (or virtual currency, as it’s often called) is defined by the U.S. Commodities Futures Trading Commission (CFTC) as

“…a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value…”

Some examples of virtual currency include Bitcoin, Litecoin, Ethereum and Zcash, just to name a few. Virtual currencies can be exchanged for U.S. dollars or other international currencies, but they are not backed by any government agency, nor any centralized banking institution. Crypto- or virtual currencies derive their value solely by market forces of supply and demand, and are therefore more volatile than traditional, government backed currencies.

Many investors who see themselves as tech savvy and “with the times” are often attracted to the lure of the “next big thing” and will invest in cryptocurrency to diversify their investment portfolio—if not to brag about their involvement in the latest fintech advancement since day-trading and e-commerce. Additionally, individuals who seek to conduct virtual business transactions directly without the need for a third-party intermediary (i.e. bank) are very attracted to the use of cryptocurrency.

As is often the case with new technology and new investment schemes, the need for awareness of the associated risks is paramount. Cryptocurrencies are no different in this regard.

In 2011, the CFTC established its Office of Customer Education and Outreach (OCEO) to administer customer education initiatives. Then, in 2014, the OCEO and the CFTC created SmartCheck®, a cutting-edge anti-fraud campaign based on social marketing principals. offers consumers various tools and resources to protect themselves from potential fraud when engaging in commodities related transactions. The Securities and Exchange Commission (SEC) and the North American Securities Administration Association (NASAA) have also initiated various consumer awareness campaigns aimed at protecting the public from fraud associated with virtual currencies.

So who is at risk of fraud, and what are some of the red flags to look for when investing in virtual currencies?

Believe it or not, the most experienced investors seem to be the ones more commonly defrauded in this sector, but unfortunately, it’s estimated that many cases of fraud go unreported, making it very difficult for regulatory and enforcement agencies to track and monitor.

According to the CFTC, the characteristics of individuals commonly defrauded when investing in virtual currencies include:

  • Married Male;
  • Aged 50-65;
  • College Educated;
  • Has a Nest Egg;
  • Financially Literate;
  • Open to High-Risk Investments;
  • Belongs to Religious or Professional Group(s);
  • Unlikely to Check Broker Background; and
  • Recent Change in Financial or Health Status.

Among these characteristics, the one that’s maybe more obvious is the “Open to High-Risk Investments” trait. These individuals will most likely ignore the fact that virtual currencies are not regulated or supervised by a government agency, and the platforms for these types of transactions may lack critical system safeguards and customer protections. Another huge risk of using cryptocurrency—or any web-based platform for business transactions—is that of cyber-attacks by hackers. Because of the inability to effectively track fraud in this area, the theft of virtual currency has essentially no recourse for the victim.

Some common red flags to look for when considering investments in cryptocurrency are really quite similar to those in pursuing other types of investments:

  • Superficial Signs of Legitimacy Online and Offline;
  • Urgency;
  • Promising Huge Returns;
  • Offering a “Favor”;
  • Aggressive Sales Tactics; and
  • Confusing Explanations.

To bring awareness of these red flags to consumers, the SEC developed a fake virtual currency investment site at is an Initial Coin Offering (ICO) site that mimics many of the fraudulent cryptocurrency websites that lure investors with false claims and tactics such as:

  • Registration with the U.S. Government;
  • Ability to Purchase the Virtual Currency Investment with a Credit Card;
  • Highlighting a Professional Team Behind the Product that Really Doesn’t Exist;
  • Celebrity Endorsements and Testimonials; and
  • Promise of Expert Timing Advice for Guaranteed Returns.

The key take-away here is that despite being an attractive investment option, cryptocurrencies carry a plethora of risks to which even the most financially and technologically savvy individual can become susceptible. It’s imperative that individuals seeking to expand their investment portfolio with virtual currencies employ a high level of due diligence in researching this as an investment option.

If you have questions about Elder Law, asset protection or retirement planning, consider Keston Law—we are an experienced law office who offer a unique blend of Asset Protection, Elder Law and Estate Planning. You can also attend our free seminars. Learn more through our website at, or call us at (910) 509-7121.