Vee Finance, a decentralized finance platform, has officially confirmed its hack on Avalanche. On September 20, the hacker managed to transfer funds worth $35 million. In terms of assets, it was 8804.7 ETH (around $26 million) and 213.93 BTC (around $9 million). According to the report, the stablecoin was left untouched. As for the hacker, the report confirms that they have not yet transferred or processed the funds. The team is working to provide more details of the incident. Further,…
Over the past 4-5 years, the legislation of cryptocurrencies, blockchain, and similar instruments has become one of the most important regulatory authorities tasks. Even though regulation is of utmost importance, the sudden spark has its reasons. Scrupulous practices such as ICO scams, exchange hacks, unregulated creation of monetary schemes, etc. have made it necessary. Governments worldwide are acknowledging the importance of regulatory oversight for keeping a check on the space.
This has received a lot of backlash from certain personnel within the sector. A lot of enthusiasts argue regulation and oversight diminishes the reason for the existence of cryptocurrencies and Blockchain.
Governments are majorly concerned with the cryptocurrency aspects of Blockchain technology. A Cryptocurrency directly challenges the monetary authority within their country. Introducing a new form of monetary value for daily use starts a competition between a cryptocurrency and a sovereign currency. Governments most usually perceive this as an act of hostility rather than an economic innovation.
Perception of Cryptocurrencies among Jurisdictions:
Certain jurisdiction has already taken up the task of forming regulations and taxation policies concerning cryptocurrencies. The perception of cryptocurrencies differs from jurisdiction to jurisdiction, depending upon their degree of hostility. Many countries have outright dismissed their use as it challenges their sovereign power. Some countries acknowledge bitcoin and other cryptocurrencies as monetary value, while others chose to classify them as property or assets, or commodities.
Some of the major jurisdiction and their response to cryptocurrencies are:
United States of America
The USA’s legislation dates back to 2014 when a taxation guideline was circulated, explaining taxing gains from cryptocurrencies. This guideline assumes by default that bitcoin and similar instruments are nothing but investment mechanisms. Meaning they should be taxed like any other asset or property. Its consideration as a legal tender was dismissed, but its federal nature varies from state to state. Recently, the USA also came up with The Virtual Currency Tax Fairness Act of 2020. According to the bill, anyone with gains under $200 in a tax year won’t have to report anything cryptocurrency related to their tax returns.
China has publicly condemned the use of cryptocurrencies and refuses to acknowledge its innovation capabilities reasoning the monetary nature of bitcoin. ICOs are banned as they are seen as an unregulated mechanism for raising funds, and banks are not allowed to handle anything relating to bitcoin or other cryptocurrencies. The country also doesn’t recognize bitcoin as legal tender and have continually been harsh towards cryptocurrency growth. In 2019, the president of China ignored cryptocurrencies but acknowledged the importance and influence of Blockchain. China is currently on the fast track to being a Blockchain hub of the world.
The regulations concerning cryptocurrencies are quite foggy in India. The government has effectively banned any financial institution from holding, accepting, or be involved with any business or entity dealing in bitcoin and other cryptocurrencies. There are but a few guidelines concerning its taxation. India has repeatedly delayed commenting on cryptocurrencies regulation and even refuses to consider bitcoin as a legal tender. Speculations are considered taxed under capital gains as bitcoin is considered a commodity under the Income Tax Authorities.
Although cryptocurrencies are not considered legal tender, Singapore’s tax authority treats Bitcoins as ‘goods’ and applies Goods and Services Tax. Cryptocurrency exchanges are allowed to function freely without any regulation, enabling an influx of innovation. Singapore is continually striving to stimulate innovations in the Blockchain sector to ensure its ability to be ahead of time. In 2018, almost a dozen blockchain-based startups opened up shop in Singapore, citing its friendly approach.
Switzerland has taken an open-arms approach when compared to other jurisdictions. They openly accept cryptocurrencies and their innovation capabilities. Certain cities, such as Zug, which markets itself as the Silicon Valley of Blockchain, has gone as far as accepting Bitcoin for tax payments. This frees up the hindrances in opening a Blockchain-based startup. Bitcoin is openly accepted as a legal tender, and the acceptance rate has been steadily increasing.
There are roughly three ways jurisdictions worldwide have taxed bitcoin and related cryptocurrencies.
As an Asset/Property
In jurisdictions such as the USA, India, South Korea, etc., bitcoin is generally viewed as property. Speculative gains on bitcoin are taxed under Capital Gains laws. There are three events under which Capital Gains apply. Buying/selling cryptocurrencies, exchanging one for another, and spending cryptocurrencies to buy goods or services. In all these events, users expected to take note of the price at which the cryptocurrency was bought, the price at which it was sold, the price at which it was exchanged, and the price at which it was sold was spent. This effectively ensures that the sovereign currency is used for reporting and taxation purposes.
As a Commodity
Due to its uncanny resemblance to Gold, bitcoin is sometimes considered a commodity. A commodity has a limited, typically fixed, supply, because unlike a stock certificate, you can’t just type up another ton. Also, the pricing is set almost entirely by supply and demand. Indonesia and other jurisdictions view Bitcoin in this way, meaning that bitcoins can be bought just like any other commodity such as cars, food, gold, etc. No taxation is required on speculation, but a Value added tax or its equivalent is applicable on the purchase of cryptocurrencies.
As a Currency
Unlike common fiat currency, Bitcoin, however, does not have a centralized governing authority. It is also not tied to any country or geography as fiat money usually is to everyone’s pleasure. Governments are generally not comfortable with the idea of bitcoin as a currency, as it prospectively dissolves the sovereign’s right to a monetary monopoly.
Switzerland, Malta, Estonia are places where Bitcoin is considered a legal tender, while France joined them recently. Effectively, bitcoin can be used just like any other currency to buy and sell goods and services, functioning as a substitute for the sovereign currency. In such cases, taxes are not levied on bitcoin but can be paid in bitcoin.
Advantages of Legislation
In most cases, regulation acts as a safety net for the public. Bitcoin and blockchain are merely a decade old, and most people who try to get into the ride have a bare minimum or nil understanding of the technology. Regulations will provide a barrier to scrupulous practices and protect the interest of the consumer. Well planned regulation will ultimately differentiate cryptocurrencies into different architectures based on the function they serve. They can then tokenize traditional assets in a way that reflects and enforces existing real-world regulation. Blockchain will reach its full potential in places where regulatory oversight and innovation thirst go hand in hand.
The problem faced by all the governments worldwide is that it is virtually impossible to control the use, propagation, and adoption of cryptocurrencies. They can try to slow down the propagation by asking intermediaries to disassociate themselves with anyone found to do so. Isolating the users so that the “virus” doesn’t spread.
It is in the best interest of regulators to try and form a regulative guideline for using and innovating in cryptocurrencies and blockchain. Jurisdictions that have managed to form a basic framework are reported to benefit from innovation’s inflow hugely. Blockchain start-ups can pop up in places where legislations are hugely favorable. Malta, Estonia, Switzerland have all seen immense traction in this case.
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