Adoption of cryptocurrencies has been growing substantially, more so in the last few months. Several global businesses have now started to accept cryptocurrencies as payments, and the trend is gaining significant traction.
Cryptocurrencies came into existence with the sole motive of providing a potent alternative to traditional currencies for making payments. However, extreme speculations in Bitcoin kept mass adoption at bay until recently. Nonetheless, trends are changing rapidly, as mass adoption of cryptocurrencies seems possible now more than ever.
Recently, retail coffee king Starbucks announced that it will now be accepting Bitcoin for payments. This, in itself, is a great achievement for the popular cryptocurrency, as the original dream now appears to be true. And this is not only with Bitcoin. Many cryptocurrencies are being accepted worldwide.
Payments giant VISA recently revealed its plans to integrate blockchain with its global operations in order to facilitate payments through digital tokens. Similarly, IBM launched a blockchain-based global payments platform, World Wire, in collaboration with Stellar Coin, which is now functional in 72 countries and works with 47 fiat currencies. In fact, many crypto exchanges, including Binance and Coinbase, are building payments platform, to increase the liquidity of digital tokens.
Bakkt, a digital assets trading platform, is likely to launch later this year. The platform will provide crypto to fiat solutions to merchants, which would allow them to accept payments in digital currencies as payments. The merchants won’t have to deal with customers, as the platform will do the conversions, giving a seamless and trouble-free experience to merchants.
These developments in the last decade, since Bitcoin was launched, has made authorities across the globe to focus on digital assets, and frame regulations, related to functioning and taxation, for the crypto space. However, no concrete steps have been taking until now. As of date, the IRS terms cryptocurrencies as property, which means that trading a digital token for fiat currencies of other cryptocurrencies is taxable.
The tax rules currently seem quite problematic for merchants on payments platforms like World Wire and Bakkt. Especially, tracking every transaction with micro Bitcoin values would be quite difficult for calculating profit or losses, which is extremely important for taxation. Due to these complications, users might switch back to traditional transactions like on cash or card.
Mass adoption of cryptocurrencies like Bitcoin as a substitute currency is likely to remain low in light of tax regulations. However, the concerns over taxations may be overhyped. As cryptocurrencies are an emerging asset market, with almost no linkable example in the past, the taxation might be on the lower side, especially considering volatility the market is susceptible to.
The closest case scenario to which digital tokens are relatable is the application of the tax on foreign currencies. In this case, the capital gains tax is foregone if the rate of the alien currency rises before spending. This concept of similar exemption for digital currencies used in the purchase of goods and services has been strongly advocated by an organization called Coin Center, which educates and lobbies regulators on matters concerning cryptocurrencies.
Governments across the globe must realize that overburdening the crypto users with extra taxes and stringent regulations will hinder the growth of the sector, which heavily relies on decentralization and free mobility. However, appropriate taxes must be collected, which would facilitate governments to spend on creating infrastructure for crypto and blockchain companies and start-ups.
Taxing the crypto space was never thought of, which has led certain governments to either ban them completely or lay down bizarre laws for them. The best solution for this is that governments create a separate division to manage and regularize digital currencies, in the same way, which equities and forex are managed.