Cryptocurrency – the hottest commodity on the virtual market these days – is taking the digital world by storm. Most people started noticing it since Bitcoin hit a record high exchange value of $17,900 for each, in December last year. It has, however, slid back down to a humble $8000 as of now but it does talk a lot about the risks and returns in the cryptocurrency market.
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Understanding how governments are dealing with it
Cryptocurrency is still regarded as a controversial digital asset to deal in, given its highly volatile nature and its legal status is often unclear or deliberately ambiguous. Most of the times, the laws concerning the use and exchange of cryptocurrencies are still undefined or constantly in flux. Interestingly though, in most countries, trading in cryptocurrencies is not explicitly illegal.
- China didn’t exactly ban cryptocurrency. They just stopped any exchange over its territory leading to a blanket ban.
- India hasn’t banned cryptocurrency, but has repeatedly stated it to not be a ‘legal tender’ and likened it to different scams.
View from the E.U.
The European Union acknowledges Bitcoin as a currency rather than a digital commodity and doesn’t apply VAT or GST when converting from traditional currency to bitcoin or vice versa.
However, European banks are advised not to deal in digital currency due to the lack of a proper framework for the regulation of such assets.
While the decentralized and unregulated nature of cryptocurrency is what makes it so appealing in today’s globalized economy, it also makes Bitcoin and other such similar digital assets vulnerable to exploitation by individuals for tax evasion and money-laundering purposes. As such, they pose a substantial threat to countries trying to implement anti-money laundering and anti-terror financing regulation and laws.
The countries that declared it illegal
Some countries like Cambodia, Nepal, and Bangladesh have declared all cryptocurrency illegal, but major financial markets like USA, Canada, and Europe are ready to encourage such endeavors and see how this new technological trend will impact the economy.
The US is currently treating digital currency as a commodity or as funds and taxing owners as such. Bitcoin and other cryptocurrencies are perfectly legal in Canada though regulated under anti-laundering laws and any individuals or companies dealing in cryptocurrency are treated as financial services and businesses.
What should be done?
In light of the release of the Panama papers, countries need to look for stricter regulation on digital currency and other similar financial assets to come down hard on money-laundering practices abusing loopholes in the law for tax evasion and other white-collar, fiscal crime activity.
Digital currency is not a legal tender in Canada as it is not supported by Canadian authorities nor is it managed by financial institutions such as banks based in Canada. However, it is perfectly legal to trade using cryptocurrency and any digital financial transactions are subject to the same tax laws as cash or debit and credit transactions.
Like in the US, cryptocurrency is considered to be a commodity in Canadian law and is subject to barter rules under the Income Tax Act.
What’s so different with cryptocurrency?
Cryptocurrency is revolutionary – it is the first financial system that separates money from the state. While governments and banks can regulate its use, they cannot affect price through inflation, providing a freedom to the market that was never possible before widespread adoption of digital funds on the internet.
However, it is worth pointing out that digital currency is still in its infancy, a financial experiment and susceptible to market manipulation.
All being said, there are many advantages to adopting a digital currency which can be traded around the world, especially given the recent drastic globalization and an economy that is more interconnected than ever as long as it is properly legislated and strictly regulated.