 |
| cryptocurrency tax law 2022 |
INTERNATIONAL REGULATION OF CRYPTOCURRENCY
The issuance of currencies is the prerogative of central banks. This allows states to maintain control over the monetary supply. On the other hand, the introduction of currency into the market by other means constitutes the crime of counterfeiting.
However, national systems have found themselves having to face a new regulatory challenge: that posed by cryptocurrencies.
Bitcoins (the cryptocurrency by definition, but others could be mentioned, such as dogecoin) are the antithesis of traditional currency. It is in fact a decentralized currency by definition: anyone can create it through the so-called mining and no one takes responsibility for it.
Initially, governments and regulators could afford to ignore digital currency, and in fact have been careful not to regulate it. Indeed, who could have imagined that Bitcoin's market capitalization could reach 600 million US dollars?
It's no wonder, then, that as the business swelled, there was a regulatory marathon.
Due to the decentralized nature of cryptocurrencies, their framing within an unambiguous legal category is not to be taken for granted. Several theories have been developed, each of which has practical consequences that should not be underestimated. In fact, the legal qualification of cryptocurrencies inevitably influences their regulation.
The approaches taken by different countries have varied:
- in Bolivia, Ecuador and Vietnam, for example, bitcoin, as well as other cryptocurrencies, is illegal;
- other nations have sought to regulate cryptocurrency by incorporating it into the existing financial regulatory framework;
- other jurisdictions have qualified cryptocurrency as an "asset," which can be traded on par with any other security or financial instrument. Taxes in these jurisdictions therefore follow the regime of any other capital gain.
What happens in jurisdictions where bitcoin is considered a currency?
In the United States, bitcoin is considered a convertible decentralized virtual currency. The practical consequence is that cryptocurrency can be used to purchase goods and services, just like any other currency. This has led many retailers, including Home Depote and Whole Foods, to accept cryptocurrency for purchases.
In practice,
cryptocurrency exchanges must follow the same regulations as any other type of exchange. Buyers must then verify their identity and use an established bank account, which eliminates anonymity.
From a taxation perspective, the International Revenue Service (IRS), however, considers Bitcoin to be property. As a result, you can buy it and then sell it. If you make a profit, you pay taxes on the gain.
Given this duality, it is therefore not surprising that 18 bills to regulate cryptocurrencies, blockchain and CBDC (Central Bank Digital Currencies) were filed in the US Congress in 2021.
Most countries have decided to follow the example of the United States, deeming bitcoin a legal currency:
- Australia and Canada have similar regulations;
- the UK has yet to establish a true guideline for regulation;
- Japan is perhaps the most progressive, with explicit acceptance as a legal form of payment.
As of June 9, bitcoin in El Salvador became a legal tender thanks to the approval of the legislative assembly, which expressed itself in favor with 62 out of 84 votes.
The decentralized nature of bitcoin makes it difficult to establish a cohesive regulatory framework. In most countries, the use of bitcoin is ambiguously legal, but that could change in the future. Regulatory uncertainty has inevitable consequences for the value of cryptocurrencies, which are subject to significant fluctuations in the relevant markets.
Deepening
It is not by chance, therefore, that finance and the banking sector look at cryptocurrencies with diffidence and reluctance, fearing that such evolutions, determining, in particular, the possibility of transmitting value without the intervention of intermediaries, could end up displacing the business normally carried out by the industry.
Viewed, however, as a primordial phase of a broader process of technological and financial experimentation, cryptocurrencies and, more generally, distributed ledger technology could usefully lay the foundations for creating solutions capable of making the current economic system more efficient or, according to the most optimistic, of radically transforming it.
The development of effective regulatory responses to cryptocurrencies is still at an early stage: this is a difficult area to regulate, falling under the competence of different public entities at national level and operating, at the same time, on a global scale. Many exchange systems are completely opaque and operate outside the conventional financial system, making it difficult to monitor their operations.
Regulators have begun to address these challenges, and responses to the phenomenon have been varied, with a variety of approaches across countries. Some have explored the possibility of including virtual currencies among those already appropriately regulated, others have issued warnings to consumers or have subjected some of the system's activities to an authorization regime, while others have prohibited financial institutions from trading in virtual currencies or have even banned their use and prosecuted offenders. These are still embryonic policy responses to the challenges posed by virtual currencies and it is highly likely that further developments will occur in the near future.
In this regard, it seems desirable that authorities calibrate the content of future regulations to adequately address risks without, however, stifling innovation. International bodies are playing an important role in identifying and assessing the risks posed by virtual currencies and could certainly help facilitate the process of developing and refining regulatory policies at the national level.
As experience is gained in the operation of virtual currencies, the dissemination of international standards and best practice can provide useful guidance on the most appropriate regulatory measures to implement in different areas, promoting harmonization and preventing the risk of arbitrage strategies. Such standards could include international cooperation agreements in areas such as the exchange of information and the conduct of investigations in the prosecution of cross-border crime.
Post a Comment