Cryptocurrency and blockchains are amazingly innovative, but dodgy as hell. Here’s some advice for governments trying to help
Cryptocurrencies and blockchains are here to stay, so now more than ever it’s important governments get ahead and regulate it correctly.
Here are six things the UK government can do to protect consumers while not stifling innovation:
1. Clear up the tax situation
Blockchains don’t work without a token, and tokens need to be traded in and out of fiat (government backed currencies like the US dollar). This means there will always be a chance to profit (in fiat terms), so HMRC needs to clarify its stance.
In the US, the 2018 tax law clarified when you should pay capital gains on crypto. One big change: crypto-to-crypto transactions are now taxable events.
Does that apply in the UK as well? CryptoTax.uk, a UK specific guide, thinks “you may be subject to tax” on these types of trades; but at the moment it’s not entirely clear. To be even more forward thinking, with Masternodes in Dash and the introduction of Proof-of-Stake, what happens when you earn a crypto-dividend? Is that taxable?
A line in the sand would be nice. Also, did someone say Crypto ISA?
2. Regulate exchanges
Almost all foreign exchange flows through banks or currency houses: what you do with it afterwards is your choice. It should be no different in the crypto-verse.
Unless you are a professional trader – the sort of person who’d self-declare as option four on a list like this – all your transactions should run through an exchange that is regulated.
Once the flow of fiat to crypto and vice-versa is predominantly through exchanges, it will be easier to combat illicit behaviour and ensure tax is paid. However, for that the happen we first need banks to open accounts for exchanges.
At the moment British banks are turning away cryptocurrency exchanges, and even closing customers’ accounts for wiring to an exchange, so even if they’d prefer to be based in the UK, exchanges have to open accounts in mainland European countries such as Slovenia (Bitstamp) or Estonia (Coinbase).
From the banks point of view, this is understandable. Without tight regulation, they fear the funds could be used by criminals on the dark web or for money laundering. If they are part of that process, they could get fined or shut down. It simply isn’t worth it.
That’s why the solution is to regulate the exchanges. If that happens, then the big banks will open their doors, making life easier for exchanges and investors alike. The banks will win from this too, because they can stop customers drifting away to more daring competitors. (Just don’t mention the fact that cryptocurrencies were invented to do away with banks altogether.)