Government Regulation: Fear Not For Their Power is Limited
Cryptocurrencies have the power to transcend governments of even the largest and most sophisticated economies. This fact, however, will not stop efforts to exercise control. Rather than causing disruption, these attempts provide cryptocurrency naysayers with fodder to make loud noises.
Consider recent trade publication headlines that stated:
“Government Crackdowns and Regulation Could Take Shine off Cryptocurrencies.”
“Ripple CEO Favors Government Regulation of Cryptocurrencies.”
Do these headlines mark the addition of another uncertainty to the future of things like Bitcoin and Ethereum? Cryptocurrencies were founded on the principal of decentralization and the absence of regulation. So government intervention of any kind is seen in some circles as a big cloud hanging over the future.
If you look closely at the opinions of industry participants, you will find there is a lot of bias based on their special interest. Here is why the prospects of serious regulation are not likely.
Government regulators everywhere in the world face the same problem. It is virtually impossible to control the use and exchange of cryptocurrencies. There is not a central bank in existence that can control the production of coins. That, of course, is because they are mined using ultra fast computers. In addition all transactions are registered on the blockchain and accessed by anyone.
This means that geographic boundaries are meaningless. In September China announced that Bitcoin exchanges would be suspended. However, over the counter transactions will continue to be allowed.
News of this sent the price of cryptocurrencies tumbling for a brief moment until the reasons for this move were understood.
This move indicates several things unique to China. First is shows the governments desperation to control massive currency outflows from China of which cryptocurrencies offer a near perfect solution. More importantly it reflects the “wild west” business practices in some of the local cryptocurrency exchanges.
The most that the Chinese government can do is to ensure the exchanges are held accountable for their practices. Their control is not over the blockchain but over the humans that operate with out regard to ethical conduct. This is a good thing since it promotes better business practices. Exchange firms could even be forced to compensate customers for losses.
As powerful as China’s government maybe, their power is limited to national issues and little more.
For all the attention given to the Chinese announcement, the price of benchmarks like Bitcoin initially took a hit, it was a temporary set back. A month after the Chinese moves, prices of Bitcoin set new records.
Taxation: When All Else Fails
In addition to their inability to regulate cryptocurrencies, governments everywhere are tempted to tax the purchase and sale of cryptocurrency. The greedy US Internal Revenue Service in 2014 arbitrarily classified cryptocurrencies as property like real estate so they could collect the most tax revenues.
Finally the US Congress recognized IRS efforts amounted to double taxation. In September, Rep. Jared Polis introduced the Cryptocurrency Tax Fairness Act of 2017. This bipartisan legislation treats cryptocurrency similar to foreign currency transactions by exempting the first $600.
Countries like Australia gave up the practice of taxing the purchase of cryptocurrencies when it was identified as a double tax: once on the cryptocurrency and a second tax on the use of the currency to acquire goods and services.
Blood Sucking Tax Policies Won’t Work
There is plenty of evidence in history of outright excessive use of taxation. Just look at your next mobile phone bill, airport rental car or resort hotel bill. Taxes on these items can easily add 15%-20% to the total cost. With cryptocurrencies it is a different story.
Without a uniform global approach, all local efforts will fail. The likelihood of any such global tax policy is less than the odds of winning the lottery. The most likely result is confusion on the part of governments and tax avoidance on the part of cryptocurrency holders. What happened in the US Congress and with the Australian government are some examples of confused and failed tax policy.
For those who firmly believe that the powers to regulate and tax in the hands of any government will kill cryptocurrencies, we relate this thought from Shakespeare’s Macbeth. “. . . . . . . . . lots of sound and fury signifying nothing”.
James Waggoner, SilentNotary PR & Communication