The new Wild West: Cryptocurrency
Muhammad Rayhaan
May 12th, 2022
Via the Telegraph
In today’s world, it is no shock that cryptocurrency has taken a paramount stance in the world economy. What started in 2009 as a simple, digital currency to provide an alternative money transfer system, Bitcoin, and the wide array of cryptocurrencies the emerged ever since have made their move today, totalling up to roughly $2.48 Trillion in value, almost 7% of the global narrow money, as calculated by The Money Project.
Despite its fame, Cryptocurrencies today are still majorly seen as an asset, like Gold, or Shares of a Publicly traded company as in buying, holding, and selling them at a better price for profit. But it lies in the fact that cryptocurrencies today, have so much more use than what meets the eye, some for the better and some for the worse.
We're dealing with something that gained massive popularity in the past 2-3 years. With global lockdown, employment was hit heavily, and many looked for an alternate, semi-reliable source of income. What we all knew as assets, cryptocurrencies showed a new face of themselves. Crypto Mining. By this time, we have all come across this term. A way to make money, without having a risky investment. Regulations around crypto mining were straightforward, you can mine crypto in a region where crypto traded is legal, but the regulations were not detailed and to the point.
In mining, for each block added, a miner makes an average of 6.25 bitcoins, estimated to be $176435.62 in today’s value. However, the positive benefits of crypto mining were soon outweighed by its drawbacks. Bitcoin mining in the US has generated an estimated 40 billion pounds (18.15 billion kilograms) of carbon emissions, owing to the large electricity consumption of the mining rigs. For the same, many countries have completed restricted the usage of cryptocurrencies, including trading. China was among the first to fully curb its usage and was soon followed by Russia, Qatar, Egypt, Turkey, etc. The sheer inaccuracy in Crypto law, surrounding mining, has created an enormous impact in developed countries.
A cryptocurrency mining farm.
This inaccuracy in crypto law has led to a great deal of subjectivity surrounding it, with certain US states like Wyoming still incentivize mining. The vast differences in mining laws from regions, as well as mixed opinions of the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Internal Revenue Service (IRS), and Financial Crimes Enforcement Network (FinCEN) have led to difficulties in taxing. Obviously, like shares of a company, there is no limit to how much cryptocurrency one can buy or hold. The problem lies in the fact that the SEC sees crypto as a security, and applies security laws to it, while the IRS sees it as a property and not a security.
Therefore, the entirety of crypto escaped the wash sale rules since they are also classified as properties. Crypto Investors also are able to sell crypto for a loss and claim a tax benefit or take a profit by selling at a higher price. They also escape any penalties for a 30-day period before or after the sale of a security. Cryptos, being virtually held in digital wallets, avoids all form of jurisdiction. For a long time, taxing on crypto was only applicable to transactions, not holding, which caused a huge stir.
Crypto also draws a blank when it comes to consumer protection. In case of any breach, the consumer is unable to produce acceptable evidence of recovery of damages. Japan earlier fell for the trap when it lost $6 Billion worth of bitcoin to the Mt. Gox hack. Victims of Cryptocurrency fraud have no remedies available to them.
Since crypto lacks legal tender status, there are quite popular for a variety of financial crimes like money laundering (legitimizing illegitimate money by concealing its origin), and terrorist funding. Transaction of Crypto currencies provide a considerable level of anonymity, which makes them a method of choice for all kinds of transactions over the dark web. This becomes particularly harmful when it falls in the wrong hands, like moving global funds or purchasing arms by terrorists. In 2015, The Charles Hebdo attack in Paris was funded by the Al Qaeda in the Arabian Peninsular (AQAP) through crypto financing. Ghost Security Group disclosed that Bitcoin Funding sites were exploited with a digital wallet containing roughly $3 Million.
Currently, according to the World Economic Forum's Global Future Council on Cryptocurrencies, there has been no internationally coordinated regulation of cryptocurrencies - though international bodies have been working on assessing risks and appropriate policy responses to the rise of cryptos. Globally, central banks and regulators already have their eyes on this growing trend. Though they share a common objective — stabilizing their monetary systems and spurring innovation and economic growth — countries from China to El Salvador have already started weighing up and implementing different regulatory options. This lack of coordination, as well as the high volatility, anonymous nature and different viewpoints and therefore different laws and regulations opens many doors to exploit and loopholes.
Between those who are just trying to make some money, and those who have a rather large illicit agenda in mind, crypto is a common choice for all, but the truth remains that it is still very much in the grey area, and its impact today may be highly circumstantial to the user.