2018: Will it be the Year for Cryptocurrency/Bitcoin?
After GST, cryptocurrencies have been making a lot of noise across the nation. And why not! We are talking about an electronic cash system, a decentralized one.
Before we dive further deep, here’s a simple understanding of Cryptocurrency. ‘Currency’ is the most basic need of humankind, The word ‘crypto’ as we fathom is coined from ‘cryptography’. In short, ‘Cryptocurrency’ is the digital exchange of currency or cash in an encrypted manner so that the transactions are absolutely secure.
Unlike before when the supply of currency in form of printed flat money or a demand for digital banking ledgers were activities controlled by a central authority, the cryptocurrencies concocted recently are decentralized in nature such that their utility and reception are publicly known. The first ever decentralized cryptocurrency, Bitcoin was conceived in 2009 by pseudonymous developer Satoshi Nakamoto to catapult a smooth and secure payment system to be used across the globe. The system works without a central bank or a single administrator controlling the aesthetics of this digital currency platform.
In India, cryptocurrency recently earned a lot of popularity, especially amongst developers, bankers, consultants and scientists, since the system’s easy-going nature. Individuals and communities are still finding the whole concept a little overwhelming and confusing.
Since the inception of Bitcoin cryptocurrency, the demand for online currencies built up drastically and so did some major concerns related to it. Some rated it as the next gen of the electronic cash system, while some critics were of the view that this futuristic technology could boil down to helping anonymous web criminals in misusing its efficiency. These critics also expressed concerns as to how Cryptocurrency networks lack governance of any sort which could attract suspicious users who may be involved in money laundering and tax evasion.
Let’s understand the impact of cryptocurrencies on tax.
There’s no denying that cryptocurrencies, more or less, are bypassing difficulties users face during online payment transactions. It’s only fair to say that the digital currencies are making life easier in some way. But there’s one more side to the story which cannot be ignored. By now, we very well know that transactions made through such electronic platforms are usually independent from the formal banking systems, leading to probable chances of tax evasion. Since taxes on an individual’s income are charted based on the goods and services they receive, it is a challenging, almost impossible task to figure out or track transactions that are made through cryptocurrencies. The anonymity offered by these smart electronic cash systems also becomes a sweet-spot for money laundering.
Given the massive interest in bitcoins, a circular or tax amendment from the income tax department is being highly expected. Without doubt tax is payable, but can one treat this as a capital asset or not. If considered a capital asset, what about the period of holding to qualify as a capital asset and in case of a long term capital asset, whether indexation would be in order. Or should one rather consider it as income from other sources and pay tax as per slab rate applicable. While clarity is awaited from the tax department, the RBI has cautioned from investing or dealing in these currencies and considers them illegal.
How does technology get affected by cryptocurrencies?
Driving innovation across industries, cryptocurrencies have already found their place in the technology bazaar. Given the encryption and registry techniques (known as blockchains) that are used to regulate the generation of these currencies independent of a formal banking system, this development is being observed as one of the best implementations of technology so far. The only and concerning drawback being the cyber security issues. Crypto or cyber currencies actually pose as a solid ground for hackers trespassing their way through web transactions. This can be alleviated only if users have a stronger security infrastructure in play.
Owing to certain disadvantages and low scalability many intellectuals and industry experts suggest cryptocurrencies may not sustain in the long run.
But based on the recent emergence new markets of cryptocurrencies like Bitcoin, the interest in them will continue to flourish and will stress governments on how to regulate them.
