Home CryptoCurrency News The need to define cryptocurrencies for government entities

The need to define cryptocurrencies for government entities

With the growing activity of cryptocurrencies in the economic development of many countries, it has become essential that the various regulatory entities are dedicated to the mission of investigating and knowing in depth everything related to cryptography. Since last year we have begun to observe this activity of investigating in more depth the cryptocurrencies that have begun to emerge around the world, and even more with the rise of ICOs. Although there are many statements regarding bitcoin for example, about whether it is a basic product, a property, a simple virtual currency, money for payments, etc. even governments do not agree on what definition to take on Bitcoin and cryptocurrencies in general.

The complexity of cryptocurrencies is that they challenge the possibility of categorization, as well as for example considering them a commodity, an asset or a physical currency.

And what are cryptocurrencies really?

We could say that cryptocurrencies are digital elements that have value and can be exchanged despite not being ruled by a government entity, something like a precious metal like gold or silver, but with a value given by those who use them to exchange goods and services. However there is an important detail, and that cryptocurrencies are completely intangible. Another important detail to understand them is that unlike “normal” currencies, cryptocurrencies require a great computer effort that is known as mining, as well as mining gold or silver, in order to obtain them.

Although average people do not need to look for gold, we give it a material value. Or we use it as exchange material, or purely ornamental value. However, in cryptocurrencies the complex is in the Blockchain, which becomes the accounting book that manages the transactions irreversibly to manage the records or the maintenance of these, in an immutable record. The original and primary use of Blockchain is moving to some tokens or cryptocurrencies from different projects, whose system phenomenon is becoming very popular and can reach practically all kinds of financial assets such as certificates of deposits, loans and even P2P communications .

Understand cryptocurrencies and the blockchain

Regardless of the analogies used to explain cryptocurrencies, government agencies will always look for ways to use the cryptocurrency or classify them as something that can be regulated, and this is something perfectly understandable and necessary. But they do not regulate the cryptocurrency as such, but the activity that is carried out with it. For example, if a person is sending Bitcoin to his family abroad, the regulators will see this transaction as a money transaction and therefore subject to tax declaration and payment. Another way to be understood by the regulatory entities in this example, is as if they were an exchange of raw materials in relation to the bitcoin swaps or their derivatives, leading to the payment of some tax for operations.

We must be vigilant so that the technological rules limit certain governmental policies and thus there may be a freer innovation approach, without this implying abandoning the users against potential scams. Balance is fundamental.

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