How do the Leading Governments React to Cryptocurrencies Explosion?
Since the birth of bitcoin in 2009, the increase in popularity for cryptocurrencies keeps increasing with no sign of slowing anytime soon. With digital currencies taking the entire world by storm, however, the government have become concerned about whether they could actually pose a risk to our economy and, most importantly, the security of it. Generally, the use of cryptocurrencies is unregulated in most countries, though a few have come to ban the notion entirely. Either way, the question still remains – will we see regulations from the government in the future? What will they contain? Why should cryptocurrencies be regulated by official governments? All shall be revealed soon.
The Use Of Cryptocurrencies In The EU
The EU currently consists of 28 countries, and none of these countries have any regulations on the cryptocurrency. However, it is worth noting that VAT and GST are not applicable when trying to convert fiat currencies and bitcoin, so there is – understandably – an attempt to put policies in place to ensure that the currency is used safely and fairly. In addition, it has been stated by officials that other taxes alongside VAT should still apply to any transactions made involving bitcoins for any goods and services, making the use of the currency fair and similar to those of fiat currencies. According to judges however, taxes shouldn’t be charged on cryptocurrencies because they should be treated as a means of payment, so, arguably, this isn’t a fair application to the currency.
In 2014, it was stated by the European Banking Authority that cryptocurrencies such as bitcoin should not be accepted by banking institutions, at least not until an actual regulatory scheme is put in place to ensure that people use them appropriately. With all of these suggestions in place, there could be a policy in the making. A proposal was created by the European Parliament last year in order to ensure that virtual currencies are used correctly, following the emergence of digital currencies being used for money laundering and acts of terrorism. As well as this, there is a parallel proposal going through an approval process, aiming to prevent tax evasion, which has also become and common act since cryptocurrencies were freely released into the economy. All suspicious activity with digital currencies will be monitored by cryptocurrency wallets and exchanges in the future moving forward.
Banning Of Cryptocurrencies
While many civilians are free to use cryptocurrencies however they desire, some countries around the world have taken firm action against the trend, most of which reside within Asia. Government officials in these countries believe that such a currency could cause financial harm to thousands, if not millions, of people, and thus see the logical approach as prohibiting use of the currency altogether. In fact, the Central Bank of Bangladesh has claimed that trading bitcoin or other digital currencies under this policy could have consequences of imprisonment, up to 12 years in fact.
China, however, is a slightly more complex country. Many are under the impression that the cryptocurrencies as a whole are banned here, but that isn’t actually the case, as China is actually one of the largest bitcoin trading markets. Instead, China has simply banned banks from involving themselves with cryptocurrencies. The central banking authority here, also known as The People’s Bank of China, is owned by 70% of the Chinese government, making complying to these new policies absolutely vital. Under this law, banking institutions and employees alike are restricted from engaging in any bitcoin-related business, as well as servicing or participating in any business activities within the bitcoin industry.
Other countries across the world have their own reasons for banning the use of cryptocurrencies. Firstly, Ecuador have banned the currency due to personal economic issues, which seems to be the most reasonable out of all of the bans. As of current, Ecuador is building a nation-wide electronic cash system, and is therefore finding cryptocurrencies threatening to this movement. Therefore, banning them altogether will protect their new currency from the popular digital currencies. However, a crazier ban originates from Thailand. The use of bitcoin was made illegal in July 2013, although the reasoning behind the matter seems pretty ridiculous. In fact, it was stated by the Bank of Thailand that bitcoins were banned simply because there were no regulations put in place regarding them. Despite this, many bitcoin organisations have managed to obtain a license to do trade, but the policy does still exist, even if not fully in force.
Rising Crime Because Of Cryptocurrencies
Whilst there are currently no bans placed on cryptocurrencies in several countries, or very vague policies at the least, we can’t expect the digital currencies to carry on being unregulated. With small anonymous transactions involving cryptocurrencies, the entire ordeal seems like a much smaller threat to our economy, however with the popularity sky-rocketing upwards, larger transactions will be more difficult to monitor and control. If the government hold back on regulating the use of bitcoins and other digital currencies alike, collecting taxes or combating criminal activity will become a very challenging process. Many governments across the globe are concerned about the more frequent use of cryptocurrencies, as there has been cases where the currency is being used for several criminal activities, including tax evasion, drug dealing and money laundering.
In the US, cryptocurrencies are currently taxed similar to gold assets, where there are capital gains tax due once the value has appreciated. Having said this though, it remains unclear as to high the assets are for bitcoin users with US tax liabilities. Naturally, this is different across the globe, particularly in Japan. The Asian country is currently undergoing an experiment, where the government has indicated that all bitcoin exchanges will be closely monitored, ensuring that criminal activity is absent by collecting information on deposit holders. Some are weary about this movement though, as it’s questionable as to how detectable criminal activity is when many bitcoin transactions occur completely anonymously.
Employing Transactions Policies
As we have already seen, cryptocurrencies are somewhat regulated in the EU, however people are still relatively free to use them however they desire until certain bills are passed by government officials. However, it may soon be decided that a transaction policy needs to be placed, with punishments enforced for those who break the policy. For example, governments could declare this as legal tender, meaning that they’re able to construct a focal point around the individuals that can coordinate on a particular asset. So, by stating that the countries primary currency is a legal tender, and that bitcoin isn’t, there could be some alignment on the dollar. Plus, since governments play a very powerful role in the economy, this movement would be completely feasible.
So, if the cryptocurrency is starting to have an upper-hand on the country’s primary currency, it may be worth enforcing a transactions policy, which will ultimately prevent digital currencies such as bitcoin from gaining a widespread acceptance by the country’s population. By spending currencies such as dollars and pounds as opposed to bitcoin, the government will still receive a high demand for dollars, limiting the potential network size of bitcoin and other cryptocurrencies alike. Unfortunately, not all governments will be big enough to enforce such a policy; however the use of cryptocurrencies can still be regulated via punishments, which we will come onto next.
Using Punishments To Regulate Cryptocurrency Use
So, if a government isn’t large enough to restrict a large population from predominantly using bitcoin for all of their transactions, they could still gain order by enforcing immediate punishments for those who do. If smaller governments are able to punish those using alternative currencies, people will start to forget about the benefits of using the currency altogether. With a transactions policy, larger governments are aiming to determine the medium of exchange for the digital currencies; however, a government of any size, big or small, can monitor this through the use of punishments. However, those smaller governments will need to put quite a severe punishment in place, otherwise people will still freely use cryptocurrencies and fail to feel the real consequence of doing so.
Whilst this approach to regulating cryptocurrencies seems like a good idea, there are some obvious limits to the method. Of course, punishments are only feasible if you catch the person, however the anonymity of cryptocurrency transactions can make it exceedingly difficult to catch the culprit. In addition to this, bitcoin and other digital currencies have been described as pseudonymous, which simply means that connecting and individual to their balance of digital currency can be a very challenging mission. As challenging as it may be though, it certainly isn’t impossible. During the transaction process, there is a loophole where professionals are able to track down your identity, allowing governments to enforce their punishments. Alongside this, there is an entire range of transactions associated with cryptocurrencies, and detecting them all would be strenuous and extremely difficult for governments, especially small ones.
As the years fly by, we are slowly seeing and introduction of policies in a range of differing countries, simply due to the rise in crime as well as the risk that they pose to the current economy. As these currencies are being used more and more frequently, it’s become more apparent that regulations need to be put in place if they’re to be viewed as a legitimate currency. Otherwise, the threat will hang very low in many countries across the globe, and we will lose all value for our trusted, primary currencies. After all, policies are what governments are for, right?