The history of cryptocurrencies is just over a decade old; however, the journey from the first Bitcoin transaction to becoming a multi-billion-dollar industry has been nothing short of dramatic.
Mahatma Gandhi once said, “first they ignore you, then they laugh at you, then they fight you, and then you win.” Quite similar has been the case with cryptocurrencies too. In the initial days, Bitcoin was termed as one of the many internet bubbles, which sprang up after the turn of the millennium. However, as time flew by, people realized the true potential behind decentralized currencies, and as of date, crypto is among the top assets.
In the last couple of years, governments across the globe have made serious efforts to regulate cryptocurrencies. Countries like India, and China, which are the two fastest-growing economies, have put strict restrictions on any crypto activities. So, what’s all this fuss about? Why is the government tracking crypto so keenly? Let’s find out:
What is the government actually trying to control?
Any government requires a few strings in its hands, to maintain control over the country. This control is important for implementing policies, necessary for the growth and development of the country. The monetary system is an important tool to control the economy and keep inflation, deflation, corruption, etc. in check. However, decentralized currencies are free from any regulation, and hence governments have no control over them, which makes them a preferred choice of people who believe that government control over their wealth is illegitimate.
For instance, crypto promoters like John McAfee have lashed out at the governments’ tax policies, and McAfee himself stated that tax is institutionalized theft of the public’s wealth. The governments argue that the control over the monetary system is important for aspects like security, revenue for public infrastructure, and preventing illegal activities. So here comes the second question.
What are the concerns of the government?
Governments officials have often voiced that the use of cryptocurrencies poses several threats. Just a couple of months ago, US President Donald Trump had tweeted that the use of crypto promotes terror funding, money laundering, and other evil activities. Moreover, these concerns have multiplied in recent times, with the number of cyber attacks and hacks taking away crypto worth hundreds of millions of dollars, which could be used by anti-social elements.
However, the biggest threat which a country like the US faces is the loss of domination over global trade and politics. Businesses can easily transact with countries under sanctions using Bitcoin or any other crypto. Russia, America’s arch-rival, is set to launch its own cryptocurrency for global trade. This will weaken the sanctions, and hence, the country’s power to pressurize other governments.
Then there’s the tax problem. The governments impose a tax on almost every financial and trade activity, which comprises the major chunk of their revenues. For imposing taxes, governments need to assess the total income of individuals, which becomes next to impossible if crypto is not regulated. The use of crypto, if left unregulated, can lead to heavy loss in direct tax revenues.
Should Cryptocurrencies be regulated?
The core reason, which Satoshi Nakamoto gave for the creation was liberating the people economically from the clutches of corrupt systems. We have seen in the cases of Venezuela and a few other African countries, how crypto helped the citizens to escape hyperinflation and other establishment-created calamities. If regulations are imposed, the people in such countries will again lose their monetary right to fight injustice. Taxes can only be imposed with regulations, and that can kill resistance.
So what’s the solution?
The solution to this problem is still unknown, but there’s hope. No matter what, the crypto industry is still extremely young, and hence, is quite complex to handle. However, with time, governments will have to make provisions for crypto taxes, which must allow anonymity, privacy, and taxation simultaneously, and for achieving this goal, it must closely work with crypto experts — until then, imposing any regulations must be avoided.