Cryptocurrencies have become more mainstream than ever before, and you might be wondering if it’s safe to use them. You’re not alone – investors and consumers alike want to make sure they aren’t exposing themselves to fraud or running afoul of laws. However, this isn’t an easy task. It’s one thing to avoid scammers and hackers, but it’s quite another to understand how the different regulations affect your cryptocurrency investments and transactions.

Since cryptocurrencies are decentralized, they don’t have any backing from centralized issuing authorities or intrinsic goods. Instead, their value is entirely dependent on the valuation that other users and investors ascribe to them. This makes them highly vulnerable to price fluctuations and exposes investors to risks such as speculative trading.

Regulatory bodies around the world are trying to figure out how best to handle these new assets. The most pressing concerns center on preserving financial integrity by minimizing the use of virtual assets to facilitate money laundering and other illegal activities. As such, some countries have taken a tough stance, banning their issuance and usage altogether while others are more welcoming and have tried to encourage the development of markets for them. The result has been a fragmented global response that neither assures a level playing field nor guards against a race to the bottom where crypto actors migrate to friendliest jurisdictions and avoid stricter ones.

Because of the unique way they are created and managed, cryptos raise different issues compared to traditional assets. For example, their electronic life cycle amplifies the full range of technology-related risks that regulators are still working hard to incorporate into mainstream regulations. These include cyber and operational risks resulting in data theft and financial fraud. For example, the hack of wallet maker Ledger put 1 million user accounts at risk of theft and compromised the personal information (including full names, addresses, and phone numbers) of 9,000 customers.

While many of these risks can be addressed with existing regulations, the unique features of cryptos create additional challenges for legal professionals. For instance, unlike traditional financial instruments that are backed by physical or financial collateral, cryptos cannot be redeemed if stolen. In addition, there is no established mechanism for settling disputes between parties. This is a serious problem because in a digital environment, there are no intermediaries to step in and resolve disagreements.

To address these issues, the US Congress has created a Congressional Blockchain Caucus and state lawmakers have introduced bills addressing cryptocurrency. To date, however, Congress has left the regulation of digital assets to regulatory agencies. In the US, the CFTC oversees the trading of commodity-backed cryptocurrency futures, while the SEC regulates ICOs to ensure that they are not securities. Additionally, the Department of Homeland Security and the IRS have started requiring cryptocurrency exchanges to verify their customers’ identities in order to combat money laundering and terrorist financing. The UK also has strict cryptocurrency regulations, requiring that all exchanges be registered and comply with AML/CFT reporting.