BITCOIN – Acceptance around the world
As humans evolve the future where automation and robots replace and / or compliment all professionals, including cab drivers, doctors, engineers, and even sex workers; some version of crypto-currency for the micro-payments shall enable several new age business models.
The first version of crypto-currency, Bitcoin was introduced in 2008, for one major reason – to get away from a centralized system where financial institutions, state and regulators were not trusted. Remember, the first whitepaper on Bitcoin appeared in November 2008, after the Lehman Brothers bankruptcy in Sep 2008, when several financial institutions did not honor their commitments. Bitcoin has been a major disruption of the 21st century. Who would have imagined in 2009, that people would be giving away their real hard earned money (almost $1,000 for 1 digital virtual coin), to get a digital currency which nobody owns, no central bank guarantees, is not backed by any gold or any other asset, is not even accepted for most real world products and services and can be lost if you lose your digital access.
Bitcoins are ‘mined’ by computer software, transferred directly among users and recorded in an untampered ledger called Blockchain without the interference of third party, all the transactions can be viewed by anyone but as digital addresses which secures the identity of the parties involved in that particular transaction. Much like internet which is free from geographical boundaries, Bitcoin therefore is ‘the global currency of the internet’.
Bitcoin regulation in different countries
Since everyone transacting in Bitcoins is digitially anonymous, it’s harder for Governments to track where the Bitcoins are being earnt and spent. Bitcoin regulation poses the following challenges. If a country accepts Bitcoin as a currency, then it needs to be regulated (in the best interest of its citizens), which is almost impossible given Bitcoin’s anonymous nature. If Governments deny it as a currency, they need to have corresponding legislation to define the penalties in case it is used. Hence, several countries do not accept or deny it as a currency.
Developed countries like US, UK and Canada have broadly embraced Bitcoins. Estonia, Denmark, Australia and Sout Korea are also among the Bitcoin friendly countries. Canada, Netherlands and Estonia are among the countries who have Bitcoin ATMs too. Amsterdam has even hosted a Bitcoin Embassy as well.
Several of these countries however do regulate illegal use of Bitcoins. For example, Bitcoin is being regulated under the anti-money laundering and counter- terrorist financing laws in Canada. Canada also seeks reports of all Canadian dollar conversions into Bitcoin, so they maybe able to track any illegitimate use of Bitcoins. This is an acceptable level of regulation for Bitcoin in our opinion.
Following is the overview of the several Governments’ reaction to Bitcoins.
Several emerging countries have challenges in controlling their domestic currency, corruption and several other illegal activities. They have shown hostility towards bitcoin, including countries like Bangladesh, Bolivia, Thailand and Vietnam. Bangladesh has even specified that trading in bitcoin and other digital currencies could lead to a punishment of 12 years in prison.
India has officially not taken a stance yet, except a central bank paper stating Bitcoin as speculative and risky. Indian central bank though recently has tested a proof of concept on the Blockchain technology.
Given that 90% of all Bitcoin mining is done through China based miners; Bitcoins have been acceptable for Chinese citizens, though the financial institutions are barred from transacting in Bitcoins. Recently though, PBOC (People Bank of China) surprisingly have begun an investigation on the three biggest global bitcoin exchanges, BTCC, OKCoin and Huobi, on possible rule violations, including market manipulation, money laundering and whether there has been any breach of foreign exchange rules.
Taxation of Bitcoins in Various Countries
The countries that allow Bitcoin transactions, need to tax the Bitcoin transactions. Taxation treatment on Bitcoins differs from government to government.
The exiting framework applies to miners. Mined coins are recorded as income from mining and are taxable, and expenses are deducted. Many miners sell their bitcoins, and miners are taxed on the increase in Bitcoin value from the time the coin were mined and the value for which they sold. If this is a loss, then loss can be declared.
US IRS in its March 2014 clarified that digital currency is viewed as capital assets and this subject to capital gains taxes. Trading and spending is a taxable event and capital gains must be calculated in USD. Also, stated that mined bitcoins are treated as immediate income.
Whereas, US CFTC (Commodity Futures Trade Commodities) US ruled that Bitcoin can be treated as a commodity and are taxed with 60/40 rules, which leads to confusion for the taxpayers as to which method to follow, which calls for another clarification from IRS and is awaited.
Some places are better than other when it comes to taxation. European court of justice has recently ruled out that Bitcoin would not be subject to VAT which undoubtedly would have a positive impact on Bitcoin businesses.
On the other hand, Australia’s tax authority decided that the GST applies to all sales of Bitcoin. And there are countries like South Korea, Bulgaria where there is no tax applied to capital gains at all, which leads to no tax obligation for owners or traders of Bitcoin.
Bitcoins circulation and acceptance by merchants
With the increased Bitcoin circulation around the world as shown in the graph below, increasing no. of merchants have been accepting Bitcoins.
Tech companies like Microsoft, Dell and Tesla gave Bitcoin major publicity boost which encouraged people to buy and sell more Bitcoins. Even auditors like Ernst and Young in Switzerland have started accepting Bitcoins. There are around 300,000+ global merchants accepting Bitcoin currently.
Bitcoins acceptance by merchants in different industries is highlighted below,
While Bitcoin has been a great innovation, it has got some challenges too. Bitcoin community has not decided whether the number of Bitcoins will be increased or not, the Block size of Bitcoins shall increase or not and whether the Bitcoin’s consensus mechanism be simplified to bring efficiencies. Whether Bitcoin grows, or evolves into another version, it’s clearly a leapfrog invention of the 21st century that will become more relevant, especially as machines start interacting with machines in the automated platforms driven future.
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