Within the digital currency world, cryptocurrency regulation is frequently viewed as a murky term, especially when someone considers the ideal principles described in the hallmark Bitcoin whitepaper of Satoshi Nakamoto. The ideological goal was to produce a financial system that depends on no third party, nor managed by outside actors such as central banks or governments. And because of this, Bitcoin enthusiasts requested a platform that has no interference from the outside.
However, the crypto industry has since developed in more ways than one — distinctly in terms of media interest, global awareness, and multi-billion dollar market capitalization. As foreseen, it caught the attention of regional and national regulators. But on the other side, many people think that if the blockchain phenomenon is to obtain mainstream adoption, it demands a strict regulatory structure to make sure that users are provided the same safeguards as what is expected in the real world. But, can we achieve this without hindering innovation?
What is Cryptocurrency?
In general, cryptocurrency is a decentralized digital asset that depends on encryption methods to confirm exchanges and transfers. Cryptocurrencies are introduced as decentralized since transfers don’t require an intermediary like a payment processor or bank. Instead, we can transfer digital assets straight from buyer to seller.
Learn more about Cryptocurrency in the Eyes of the Government
Generally, blockchain is the underlying technology behind cryptocurrency, by which a lot of consumers or “nodes” all hold a comprehensive record of all transactions that have ever happened on the platform. Because the complete ledger of significant transactions exists across all networks on the blockchain, it is challenging to fabricate fraudulent transactions. Each user has access to an entire, validated record and could detect any miscalculations that arise from foul play. It’s introduced as a “distributed ledger.”
Computers on the network should come to an agreement that the new block is legitimate. They do so by solving a mathematical equation known as “mining.”
The Law and Cryptocurrency
As a comparatively new aspect, cryptocurrency has attracted the attention of governments all over the world. However, how it will be managed remains unsure. In the U.S., the Securities and Exchange Commission (SEC) rules most crypto as securities. Their position as a securitized holding has made it challenging for small businesses to make use of cryptocurrencies as distinctive legal tender.
But it could change soon. The legislation works its way through Congress to discuss the uncertainty around acquiring digital assets as payment. While the production of the latest cryptocurrencies and their distribution would continue a concern for the SEC, new regulations could eliminate restrictions to utilizing digital currencies as payment.
The policy for tax remains as obscure as the regulatory landscape. Taxation ranges from place to place. That’s why it can be challenging for businesses to exactly know what their responsibilities are when they begin accepting digital currencies. Usually, companies receiving cryptocurrency must account for it based on its cash equivalent.
For instance, if you send out an invoice for $2,000 for landscaping services and you allow to receive a payment in cryptocurrency, the $2,000 should be charged as revenue, and income taxes need to be paid on the same, despite not receiving the physical cash.
But what will happen if that cryptocurrency fluctuates its value? If you receive a payment as cryptocurrency and the token rises in value, that could be recognized capital earnings and be subject to the applicable taxes.
Accepting cryptocurrency could instantly lead to a notable increase in keeping records. Be ready to track all your transactions in cryptocurrency and changes in its value if you decide to accept crypto payments. What are the results if you failed to do it? The U.S. Internal Revenue Service or IRS recently signaled that it is about to crush on cryptocurrency tax avoidance.
According to Gary Alford, an IRS tax investigator, the agency is determined to start criminally charging Bitcoin holders who don’t pay their taxes. IRS is already aware that there are cases that they need to process. But IRS didn’t know if they were at the point where they can bring it for a criminal prosecution, and they believe they are at that point now.
Let’s Free the Air
Bitcoin and other cryptocurrencies now exist in a legal gray field. Some countries made cryptocurrencies illegal like Bolivia, Egypt, and Nepal, to name a few. However, most countries, including the United States, currently handle bitcoin as a kind of property. Since some don’t view it as currency, this significantly limits how we can use and interact cryptocurrencies with small and large businesses, investment firms, financial institutions, and so on.
For example, it is understandable that several retailers are preferring not to get involved with cryptocurrency in part because of a lack of legal interpretation and fear that getting involved with crypto could be a lot more stress than its worth. That’s just a speculation for some, but it is quite expected to be true.
So what’s the next step to help crypto get over this current roadblock that’s hindering improvement? The answer to that is transparent and smart regulation.
For some cryptocurrency maximalists, regulation is something of a curse word. It takes to mind pictures of jackbooted thugs hitting down doors. Moreover, the word regulation implies an increased analysis of crypto transactions and the damage of easy-access privacy. But are these worries organized?
Is Crypto Regulation a Positive Thing or a Bad Thing?
Regulation is frequently seen as a dirty word within the field of cryptocurrency, especially when someone thinks the visionary principles outlined in the hallmark Bitcoin whitepaper of Satoshi Nakamoto. The ideological intention was to establish a financial method that depended on no third party, nor ordained by outside participants such as central banks or governments. As a result, Bitcoin supporters demanded a program that was free from outside intervention.
However, the industry has since improved in more methods than one, prominently in terms of a media interest, global awareness, and multi-billion dollar market capitalization. As expected, it caught the attention of regional and national regulators.
On the other side, a lot of people believe that if the blockchain sensation is to attain mainstream adoption, it needs a strict regulatory structure to guarantee that consumers are afforded the same protection as expected in the real world. The critical question is, can we achieve without impeding innovation?
Most cryptocurrency investors believe that regulation will occur whether we need it or not. The only means that cryptocurrency won’t be regulated is if the whole ecosystem were to vanish, hence hindering any need for regulation. But as acceptance becomes more widespread and used cases multiply, regulation becomes unavoidable.
So instead of attempting to build regulation as a kind of boogie man, it’s better if we thoroughly rely on it and guide it in ways that are beneficial and productive to all parties.
We can consider a few of the ways that crypto regulation could profit cryptocurrency and its users. First, cryptocurrency regulation would mean recognition and a precise definition. This situation may not sound very overwhelming at first, but it would substantially switch the way that financial institutions, banks, and businesses could interact with cryptocurrency.
It would end the current frightening impact that we are feeling because of the notions of the law as it lasts. Small and large businesses that have had their focus on cryptocurrency can currently dive in head first, completely assured that they understand the benefits and consequences of what they are doing.
The Future of Cryptocurrency Regulation
One of the most promising sectors of current innovation is that of security. After observing various catastrophic exchange strategies over the past several years, ending in millions of dollars worth of stolen cryptocurrency, protection is reasonably a top priority for developers of blockchain.
An emphasis on substantial security systems is becoming the norm instead of the exception for further exchanges. For instance, the ECXX exchange lately joined into a partnership with Ledger Vault. This partnership offers multi-authorization wallet administration resolutions for users.
ECXX partners with Ledger to form a robust security-driven figure in the industry of digital asset exchange.
The platform of ECXX is not alone with this opinion. With the recognition that both upcoming and existing regulatory innovations can and will be harmful to most exchanges, the urge to expand regulatory workarounds is high.
Regulatory bodies do have the most beneficial intentions. Built to protect users from the hazard of predatory and dangerous financial situations generated by large banks, the premise of regulation is firm.
Another fact is that the intentions of blockchain developers are virtually indistinguishable. The purpose is to protect users from abuse. It just occurs in a completely distinctive manner through the application of blockchain.
The significant benefit investors can enjoy with blockchain resolutions is the obscure lack of third party engagement in their financial transactions. With blockchain, rather than disposing of huge amounts of cash through fees and profit distributions, the power continues in the hands of people, both large and retail investors.
For more information about cryptocurrency law check us out at redroadlegal.com