Can a Crypto Exchange Be Sued?

If you own a business and would like to use crypto exchanges for it, you may have a lot of questions and concerns. Your first thought would be hiring lawyers for decentralized exchanges and centralized exchanges to get legal advice. It is especially the case if you look at decentralized exchanges as fraudulent ones. 

Before you seek to expand your business using crypto exchanges, perhaps you want to find out whether you can sue one in case things go badly. A lot of investors are able to trade crypto assets thanks to crypto exchanges, which is exactly what made them so popular. 

Crypto investing can also be quite risky, though, especially when you look at the higher cryptocurrency investment rates and how they led to an increase in governmental litigation and enforcement.

So, can you sue a cryptocurrency exchange?

Centralized and Decentralized Exchanges – What Is the Difference?

A centralized exchange is a private company that provides platforms where people can sell or buy cryptocurrencies. They can exchange their crypto funds for other digital assets like Bitcoin or Dogecoin or fiat currencies, like euros or U.S. dollars. 

People tend to choose centralized exchanges because they can store and protect their funds as they act as custodians. They are more trusted by investors, and they are also the most common crypto exchange type. Gemini, Kraken, and Coinbase are the most popular platforms of this type. 

In the jurisdictions they operate in, centralized exchanges will be subject to the regulations and the laws of the area. In the U.S., things work a bit differently as the crypto exchange regulation comes from a state and federal law combination. Apart from the regulations, all centralized exchanges should respect Anti-Money Laundering and Know Your Customer requirements. 

On the other hand, decentralized exchanges do not use a trusted intermediary for transactions, but rather smart contracts, which is what secures the crypto asset exchange. They were made in order to get rid of the requirement to monitor transactions and authorize them. Usually, peer-to-peer cryptocurrency trading is allowed by these exchanges. 

With peer-to-peer transactions, cryptocurrency buyers and sellers are linked, and the users will be in control of the private keys of their wallets since they are non-custodial.

Because they are decentralized, these exchanges are not subject to any regulatory body rules, considering no particular entity or person is in charge of the system. 

Can a Crypto Exchange Be Sued?

If you ever need to sue a cryptocurrency exchange, the good news is that you can do it. When you do this, the first step you must take is to determine the right claims against the business. Also, you must determine in what jurisdiction forum you can sue the exchange. 

Of course, when suing a crypto exchange, you will have to take into account whether it is a centralized or decentralized business. Understanding the difference between the two is crucial. 

Those who try to sue a decentralized exchange might deal with certain problems. It can be difficult to determine a proper forum considering the exchange’s decentralized nature. 

For instance, a lot of people wanted to sue Robinhood for the outages that took place in March 2020. However, because Binance had no headquarters, users couldn’t find a way to sue the company. 

How to Sue a Crypto Exchange?

You can sue a cryptocurrency exchange in court. It can be done the same way you would sue another business. The right lawsuit forum will depend on the physical presence of the exchange, the state of incorporation, as well as the exchange’s terms and conditions. 

In the past, Coinbase was sued by its users for some common law claims, but also for violating certain California laws. Apparently, some people had their accounts hacked or frozen without receiving any warning, while the company ignored their pleas to release their accounts so they would be able to gain access to their funds. 

It can be extremely difficult to sue a cryptocurrency exchange, especially a decentralized one. The Binance situation is a great example of this. The company had no headquarters – therefore, people couldn’t find a way to sue it for the damages resulting from an outage. Thus, they had to look towards pursuing their claims according to the terms of service of the company. 

Final Thoughts

Suing a crypto exchange after a bad crypto investing experience can be an extremely complex and challenging process. If you have to go this way, you should hire a lawyer. They can offer you valuable advice and help you go through the process. 

Susan Paige

Susan Paige is a prolific female writer known for her insightful analyses on business news, particularly focusing on the stock market, cryptocurrency, and related topics. With a keen eye for trends and a knack for distilling complex concepts into accessible pieces, she captivates readers with her expertise and clarity.