I have been looking at cryptocurrency with an interesting question.
How will governments tax income generated from cryptocurrency trading? Where will they find it to quantify and tax it?
This does not seem to be a big problem right now because cryptocurrencies are holding a very small amount of currency in comparison with fiat. But I think it is high time the lawmakers and their coffer managers start to take notice...
...and here are two reasons why.
Happenstance Taxation Holiday: The world is thirsty for quick and cheap money transfer and instant transactions on a global scale. But as they load their money to the blockchain, portfolio holders find that it is entering a world which is non-regulated and has no intermediaries. For example, laws exist for banks to tell a government when you receive a certain amount of money, say $10,000, to facilitate taxation and fight crime. But if you receive the same from someone in cryptocurrency, there is no way of reporting.
Smart Contract Exclusivity: The Smart Contract Technology could remove the need to hold fiat. This is more so if people move their monetary portfolios to the crypto world in search of taxation havens, and with increased acceptability, carry out crypto powered peer to peer smart contracts.
My take is that governments should research, and embrace, cryptocurrency. They should think about how cryptography could easily kill corruption, secure elections, ensure flow of taxation, make transactions easy and cheap, and more importantly, give power back to the portfolio holders about what to do with their money, e.g with voluntary tax-for-perfomance policies.
The government can always use the indirect method of taxation...inflation. Just print money out of nothing and let future generations feel the effects.
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