The emergence and development of digital currencies changed the way the financial world moves and functions. Because cryptocurrencies are decentralized and unregulated, this takes banks and the government out of the equation. And, since the entire crypto system is based on blockchain, there are no intermediaries to charge users for maintenance or impose commissions.
The blockchain network is supported by a peer-to-peer community that uses users’ machines as nodes and stores the history of each transaction. That’s why crypto is a lot safer than standard money — the transactions are secure and fast, without depending on any intermediary or regulatory authority.
On the other side, crypto involves a certain degree of anonymity since you don’t have to provide a legal name or address to send or receive Bitcoin and other currencies. This is why cyber-attacks like ransomware always require payment in crypto. These funds are as untraceable as they can be when it comes to connecting the money to real-life people.
It’s natural to feel enthusiastic about a digital currency that’s decentralized and completely in the hands of users. Still, if we look at the big picture, crypto also opens the door for criminal activities. Therefore, at the end of the day, maybe we do need some government involvement in this entire story.
As it turns out, U.S. lawmakers and government agencies agree with this point of view and they’ve included some provisions for crypto regulation in the $1 trillion infrastructure bill.
The most topics that popped up are tax evasion, stablecoin, and various investment vehicles like ETFs. Let’s take a quick look at each of these topics and see what they mean and how the government can help.
According to the FINRA certification that all broker-dealers must pass to work with securities, brokerages must report tax information about their trades to the IRS. However, with the introduction of untraceable (at least with the actual systems) digital currencies, illegal activities, like tax evasion, are difficult to identify.
To prevent that, the provision would like to broaden the definition of a brokerage and include companies that work with trades in digital assets.
This means that companies that trade in crypto would also have to dismiss the same level of tax information as standard brokerages.
If the bill passes, these provisions will make life a bit easier for investors since they will receive a record of taxable events from their brokers (right now, only a few provide this type of information).
Most of the shady deals that happen on cryptocurrency platforms are possible because users exchange cryptocurrencies into cryptocurrencies (Bitcoins into Ethereum and vice-versa, for instance). Therefore, it’s very difficult to follow the initial values and extract useful information for the IRS or other government authorities.
This is why stablecoins were introduced into the game. Stablecoins are cryptocurrencies connected to existing currency in order to maintain a constant value. A great example is the USDT — this is a cryptocurrency with a constant value of $1 (its value is tied to the value of the US dollar).
In summary, stablecoins try to make the best out of both worlds — they have the stability of fiat currencies and the speed, security, and privacy of cryptocurrencies. The idea is getting traction between both lawmakers and end-users, but for now, we don’t have the necessary regulatory framework for things to work smoothly.
ETFs — When?
Cryptocurrency investing and trading are extremely popular nowadays because, if you know what you’re doing, you can make it big. However, the only way American people can make their entrance on the crypto market is by buying coins from an exchange.
You cannot buy crypto using more traditional investment accounts because the SEC has not yet approved a cryptocurrency ETF (exchange-traded fund).
Despite constant requests from investors and exchanges, the SEC is still on the fence with this move. However, they did promise to change the situation soon. Furthermore, SEC representatives made it clear that every ICO is a security, even when it’s done in crypto format.
The cryptocurrency landscape is on the verge of change as governments and financial institutions start to take it more seriously. According to the initial ideas, the focus is on making the platforms safer for investors and more difficult to navigate for those with ill-actions in mind.
So, does this mean the value will drop? Is it still a good idea to mine Bitcoin or other cryptocurrencies considering the situation? For now, nothing is different, but the news and the rumors may bring a whole new tomorrow on the market. Still, we can tell for sure that crypto is not going anywhere and that people will enjoy using it years from now.