[ad_1]
Dennis Jarvis, CEO of Bitcoin.com
Two things in life are certain: death and taxes. As we know – taxes can be confusing and daunting, especially when the rules are convoluted. For this reason, common sense voices in governments have righteously fought for more equitable and less complex tax regulations, often battling against entrenched special-interests.
While victories in this battle are infrequent, the Senate’s proposed bipartisan crypto regulatory framework – drafted by Senators Cynthia Lummis (R – Wyoming) and Kristen Gillibrand (D- New York) – brings necessary clarity and simplicity to the taxation of virtual currencies by establishing a system that will help facilitate and expand one of crypto’s founding use cases: as a means of payment.
We in the crypto world are sometimes accused of overcomplicating blockchain’s use cases. While the technological potential for long term revolution in fields ranging from decentralized finance to digital ownership models is clear, focus on these use cases often comes at the expense of crypto’s founding purpose as a frictionless peer-to-peer payment system.
Pros of Payments
Due to price volatility, crypto advocates often ignore payments as a core use case. However, in the coming years, as innovation continues and high market cap cryptocurrencies begin to hit their maximum levels of market penetration, we will see relative real price stabilization. This in turn will make crypto viable as a means of payment.
The benefits of such a mass payment system are revolutionary. Expensive third parties, such as banks and credit card providers, would be forced to adapt to the new system or be made obsolete – saving consumers millions of dollars in fees. Transactions could be instantaneous, immutable and irreversible, creating high levels of financial security. In anticipation of this reality, it is paramount that taxation and regulatory frameworks set the stage for an innovative crypto payment ecosystem.
A Just Crypto Tax Framework
At the moment, misaligned tax incentives in the United States mean that a viable crypto-based payments order is too costly to be feasible. Currently, crypto is taxed like property and other types of dedicated investment vehicles. When such investments are purchased and sold for a profit, any return is subject to capital gains tax. This is a variable rate, greater than 10% for short term gains, applied to any earnings from a speculative investment.
Capital gains, rightly, is not applied to currency exchange. Consider this: you are traveling from the United States to Europe, so you convert dollars into euros. At the end of the trip, you convert your excess euros back into dollars. Because of favorable exchange rates you earn a slight return on the conversion. If you were to apply the short term capital gains framework to this type of conversion, you would have to pay a relatively high tax rate on this exchange. If this were to be replicated at scale, it would have a highly detrimental effect on international trade and cross border finance.
Aligning small dollar crypto transactions with the tax structures of traditional currency exchange is a necessity. Thankfully, the proposed Senate legislation will change this. The bill stipulates:
“Gross income shall not include gain or loss from the disposition of virtual currency in a personal transaction (as such term is defined in section 988(e)) for the purchase of 25 goods or services.”
Translated from legalese, this means that crypto – under $200 of value – can be transmitted without a tax penalty. The benefits of the language are two fold. One, it creates an obvious alignment between cryptocurrency and traditional currency as a medium of exchange, reducing barriers between our past and future financial systems. Two, it validates the legitimacy of crypto’s founding use case.
The Senate Bill: A Return to Crypto’s Ethos
Regulation in and of itself is not a bad thing; however, thus far regulatory entities have chosen to fixate on issues like bureaucratic jurisdiction, ad hoc rulemaking, and ex post facto legal action. Much of it has been ineffectual, stifling, or both. This Senate bill is different. It focuses on implementing rules that strengthen arguments raised in Satoshi Nakomoto’s white paper. The bill is in effect a seal of approval for the founding principles of cryptocurrency
While not perfect, this bill is the most comprehensive and level headed approach to cryptocurrency to come out of the US government. I call on Congress to debate this legislation in good faith, and move to pass it, expeditiously,
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
[ad_2]
Source link
