Cryptocurrency, sometimes called crypto-currency or crypto, is a form of currency which exists digitally or virtually and uses cryptography to secure transactions. Many cryptocurrencies are decentralised networks based on blockchain technology. It is not usually issued by any central authority, which enables them to function without any government interference or manipulation.
Crypto ensures secure online payments without use of third-party intermediaries. However, no e-commerce sites allow purchases using crypto currencies. The cryptocurrencies are hardly used for retail transactions.
Cryptocurrency received its name because it uses encryption to verify transactions. This means advanced coding is involved in storing and transmitting the cryptocurrency data between wallets and to public ledgers.
There are thousands of cryptocurrencies present in the market today. The most popular is Bitcoin. Bitcoin was founded in 2009 and remains the most popular. Other examples of cryptocurrencies are Ethereum, Litecoin, Ripple etc.
Non-Bitcoin cryptocurrencies are collectively known as “altcoins” to distinguish them from the original.
Cryptocurrencies are not backed up by any public or private entities. Therefore, it has been difficult to make a case for their legal status in different financial throughout the world.
El Salvador became the only country in the world to allow Bitcoin as legal tender for money transactions in December 2021. Salvadoran President Nayib Bukele proposed to recognise the world’s oldest and arguably the most popular cryptocurrency as legal tender and country’s lawmakers agreed.
Although, the other countries have not given legal tender to cryptocurrencies, the Library of Congress (LOC) has identified many countries that allow cryptocurrencies to be used. Here are few of them:
The United States
The US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has defined Bitcoin as a convertible currency with an equivalent value in real currency or one that can act as a substitute for real currency. FinCEN also works on rules for financial and non-financial entities to set national priorities for bitcoin tracking and reporting.
American taxpayers must disclose their cryptocurrency transactions to be taxed according to IRS requirements.
European Union
European Union considers Cryptocurrencies legal, but cryptocurrency exchange regulations depend on individual member states. Cryptocurrency taxation also varies but many member-states charge capital gains tax on cryptocurrency derived profits at rates of 0-50%.
In 2020, the European Union Commission finalised a proposal for legislation to regulate crypto-assets, which many agencies have endorsed within the union. The commission also ensures that public has access to and can safely use cryptocurrency.
Canada
Canada has a bitcoin-friendly stance like it’s neighbour, the United States. Canadians see Bitcoin as a commodity by the Canada Revenue Agency (CRA) for income tax purposes. The income gained through a transaction using Bitcoin is seen as a business income or a capital gain. Cryptocurrency exchanges need to register with the Financial Transactions and Report Analysis Centre of Canada (FINTRAC), report any suspicious transactions and keep records.
Australia
In Australia, cryptocurrency, digital currencies and cryptocurrency exchanges are legal. In addition to this, Australia cryptocurrency regulations and laws are also progressive. The cryptocurrency in Australia are subject to Anti-Money Laundering and Counter-Terrorism Financing Act 2006. Like Canada, the Australian Taxation Office considers Bitcoin a financial asset with value that can be taxed when specific events occur. The citizens of Australia can trade, gift, exchange cryptocurrencies. All of this triggers a capital gains tax. Citizens are supposed to keep records of their Bitcoin transactions for tax purposes.
India
There was a time when a complete ban was imposed on cryptocurrency in the country in the year 2016. However, the government’s stance on digital currency has changed over the past few years. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was introduced in the parliament by the government.
Currently, the status of cryptocurrency in the country is not clear, as there is no regulation or any ban on the use of cryptocurrencies. The Supreme Court of the country reversed the order of Reserve Bank of India which banned crypto transactions.
A Standing Committee on Finance, chaired by BJP member Jayant Sinha indulged in a meeting with the representatives of crypto exchanges, Blockchain and Crypto Assets Council (BACC) and concluded that the crypto currencies should not be banned in the country. Cryptocurrency was termed as a “risky area” by the Finance Minister of the country, Nirmala Sitharaman.
The cryptocurrencies are still not legal in India as the Reserve Bank of India (RBI) and the Union government have not given any recognition to the digital currencies.