Financial regulators are struggling to regulate Bitcoin around the world. Here are some of the regulatory challenges around Bitcoin.
Some people think Bitcoin is in its infancy, but others have used this electronic currency for years. Since its launch, this virtual asset has gained increasing popularity and value. Today, Bitcoin is among the most lucrative digital assets to own. Almost every investor wants to include this crypto asset in their investment portfolio.
But like investors and traders, regulators are also familiarizing themselves with this cryptocurrency. Perhaps, that’s because of the increasing acceptance and usage of this virtual currency alongside fiat money. Today, people can purchase Bitcoin on crypto exchanges like Bitcoin Profit and use it to pay for services and goods. Perhaps, you can learn more about Bitcoin trading on this bitcoin profit official website before using Bitcoin.
A country like El Salvador has made Bitcoin a legal tender, meaning El Salvadorians can use Bitcoin alongside the dollar. Ideally, Bitcoin has gained more popularity and value, prompting financial regulators to think differently. While most governments want to regulate this virtual currency to prevent tax evasion, financing funding, and other financial crimes, others fear that more people will turn to Bitcoin, lowering their control over monetary policies.
But regulating Bitcoin is not a walk in the park due to its decentralized nature. Ideally, Bitcoin is freewheeling, meaning no specific agency or country can control it. Here are the regulatory challenges that surround Bitcoin.
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No Entity Can Regulate Bitcoin Alone
A primary challenge around Bitcoin regulation is its classification. For instance, Canada and the U.S treat Bitcoin as a property. That means people should pay capital gain tax when they sell their Bitcoins. On the other hand, El Salvador treats Bitcoin as a currency or legal tender. Thus, people can pay for services and items using Bitcoin, and merchants should take payments in this cryptocurrency the way they accept the dollar.
Calculating tax liability requires sophisticated software, making it hard even in countries where regulators treat Bitcoin as a property. Tracking cost days and the basis for this software requires blockchain knowledge. Recording Bitcoin transactions alone is not adequate when calculating cryptocurrency tax liability.
There’s No Mechanism for Regulating Bitcoin
The global portability and unique characteristics of Bitcoin present another regulatory challenge. For instance, people can trade Bitcoin in a crypto exchange whose headquarters are not in their country. They can also hold their tokens in cryptocurrency exchange in a different country.
What’s more, Bitcoin transaction details do not reveal the real-world identities of the involved parties. That means somebody can trade Bitcoin anonymously and circumvent regulations in their country. Ideally, there’s no mechanism that regulators can use to enforce laws for regulating Bitcoin. And this can apply only if Bitcoin users agree to adhere to regulations their countries implement.
Regulators Can’t Confiscate Bitcoins
Even if regulators develop laws regulating how people use Bitcoin, they can’t confiscate tokens for people against their will. The only way you can transfer Bitcoin from a crypto wallet is to have a private key for accessing it. That means regulators will have to request the crypto wallet’s owner to provide the key or transfer the tokens in it. If the person doesn’t do it willingly, law enforcers might not have a way to confiscate their digital coins.
Bitcoin presents innovation whose primary purpose was to cut intermediaries and governments’ interventions. Ideally, Satoshi Nakamoto wanted people to enjoy the independence of spending their funds without governments and banks monitoring or controlling them. Consequently, regulators will have difficulty determining ways to regulate this virtual currency. Whether financial regulators succeed in regulating Bitcoin depends on how this virtual currency evolves. Nevertheless, financial regulators will have to overcome these challenges to regulate Bitcoin.