Why Bitcoin cannot be Banned, Regulated or Taxed?
Bitcoin is the world’s first peer-to-peer money transfer network that comes with its own currency. As it’s distributed widely and decentralized it is impossible to stop it technically, however, governments being govts ( i.e control freaks) have thought of banning it legally but soon realized it’s not possible, as this ban will trigger massive PR for Bitcoin, which will even question the legitimacy of the Government itself.
Here’s a detailed article on why Bitcoin can never be banned
Here’s where things get interesting, the ownership of bitcoin is simply determined by possession of a private key ( a long password sort of thing ) whoever possesses the key is the ultimate owner of the funds.
No KYC, No Passport, No pictures required.
Historically Monetary assets of value have always been linked with a personal identity!
Think about it for a second!
Your house, your bank account, your broker account, your land holdings, your bank deposits, even your locker — all these need a strong KYC done by a service provider. Along with KYC, these providers are forced to comply with AML, sanctions, and numerous other laws that essentially give governments unlimited control.
There is a big problem with this Unlimited Control governments possess, whenever the economy takes a bad turn, governments look for all kinds of reasons to raise more monies.
The best govts look for creative ways to exert more control and extract more TAXES. The more rouge ones simply skip the formalities and seize the assets straight away. This is the real ugly story of modern economies.
Truly decentralized monetary assets never existed before bitcoin, This is sort of the Achilles heel of the modern economy.
There was never an asset in the history of the world that could be simply stored by a long password ( written or memorized ) that offered complete control of funds without a govt control.
This changes the course of human history forever!
This is far more powerful than the change brought by the internet.
Let’s look at why crypto can never be taxed.
No GST, No capital Gains, No income tax, Nada! if you are an investor this must sound like music to your ears!
why No GST / VAT
Indian govt after mulling over banning Bitcoin outright has realized that since the ban is impossible has softened its stance and now wants to impose GST and collect taxes on its sale.
Govt weighs imposing 18% GST on bitcoin trade — Times of India (indiatimes.com)
But unfortunately, that’s not possible either, here’s why ( it was something that was bugging me too for a while and I had an epiphany moment last week)
Imagine this, let’s assume govt imposes an 18% GST on every sale of Bitcoin. As you know only the Indian users who buy from registered centralized exchanges will be forced to pay this additional tax, users who buy from peer-to-peer exchanges like localbitcoins.com or thecoin.exchange will not pay the tax as the sellers there are small-time unregistered sellers.
Govt can never effectively control these small-time unregistered sellers who can set up shop with a simple bank account, hence Govt’s taxation plan will only affect the registered centralized exchanges. Govts of developed countries like the USA, Japan, and Europe have realized this and have dropped the plan to impose GST / VAT for this reason.
Why no capital gains tax?
First things first, unless you are a dumb moron, you shouldn’t be selling your Bitcoin for the next 10–20 years, coz there is no other asset that offers the growth potential and safety like that of Bitcoin
Here’s an article explaining why investing in Stocks, Real estate, or Gold is riskier compared to Bitcoin ( insert link )
Let’s say you indeed want to cash out from the Bitcoin gains,
let’s assume you are an HNI who holds more than $1 million worth of Bitcoin. you should ideally simply borrow ( USDT / USDC ) against your Bitcoin and use that money for your immediate financial needs from various service providers like Vauld, Celsius network, etc. A lot of these loan-against-crypto providers offer very low-interest loans as they take Bitcoin as collateral which is constantly appreciating.
Given the fact that FIAT Money ( USD, EUR, INR ) is constantly inflating and losing value, borrowing in FIAT currency makes a lot of sense as the loan burden gets lower over time.
Now say you want to clear this loan a few years later, you can simply relocate to a Bitcoin-friendly jurisdiction like the Cayman Islands where capital gains tax is zero!
If you are a middle-class investor, you should never sell Bitcoin until you become an HNI with your Bitcoin (you can also look for the capital gains tax exemption limits and only sell that much. Also, simply only shop in places like Dubai, etc which doesn’t attract capital gains tax like what the rich Asians do)
Tax laws are not like laws of physics which apply universally, they majorly apply to the rich /upper-middle-class folks.
So one needs to be creative when it comes to minimizing tax burdens and crypto sure makes it incredibly easier.
Conclusion
Cryptocurrencies make it incredibly easy for you to store your wealth securely from prying eyes and make it impossible to attach KYC information to your wealth, which means no one can ever be convicted for crypto assets ever in a court of law.
Traditionally, gold and cash didn’t need KYC either, but both being purely physical are easy to be seized by govts or stolen by thieves.
Bitcoin changes that paradigm, the smart and rich folks will see the true value of this incredible phenomenon.
