Now, many nations are actively considering what to do with cryptocurrencies (CCs) because they do not want to lose tax revenue and to some extent believe they need to regulate this market space to protect the consumer. Knowing that there are scams and incidents of piracy and theft, it is commendable to think about consumer protection at these levels. The Securities Exchange Commission (SEC) was born in the United States for this purpose, and the SEC has already established some regulations for CC exchanges and transactions. Other nations have similar regulatory bodies and most are working to develop appropriate regulations, and “rules” are likely to be dynamic for a few years, as governments will figure out what works well and what doesn’t. Some of the advantages of CCs are that they are NOT controlled by any government or central bank, so it could be an interesting tug-of-war for many years to see how much regulation and control will be imposed by governments.
The biggest concern for most governments is the potential to increase revenue by taxing the profits generated in the CC market. The central question being addressed is whether to treat CCs as an investment or as a currency. To date, most governments have opted to treat CCs as an investment, like any other commodity in which profits are taxed through a capital gains model. Some governments consider CCs to be only one currency that fluctuates in daily relative value and will use tax rules similar to foreign exchange transactions and investments. Interestingly, Germany has found itself straddling the fence and has decided that CCs that are used directly to buy goods or services are not taxable. It seems a bit chaotic and unfeasible if all the profits from our investment might not be taxable if we used them to directly buy something (say a new car) from time to time. Maybe Germany will adjust its policy well or rethink it as it moves forward.
It is also more difficult for governments to enforce tax rules, as there are no consistent global laws requiring CC Exchange to allow CC transactions to be reported to government. The global and distributed nature of the CC market makes it almost impossible for any nation to know all the transactions of its citizens. Tax evasion is already occurring, as there are several countries that offer global banking services that are often used as tax havens, protecting funds from taxes. Right there, the nature of CCs was born in a realm of scant regulation and control by governments, and this has both disadvantages and disadvantages. Governments will take a long time to work on all of this through trial and error: it’s still new and that’s why we promote CC and Blockchain technology as “game changers”.