Crypto analytics providers help bridge the gap between the crypto industry and regulatory bodies. Naturally, it makes sense to consider crypto as a challenge to regulatory and tax authorities due to the permissionless nature of blockchains.
Some countries have certainly taken this view, with nations such as China, Russia and india at various time threatening to ban cryptocurrencies altogether.
However, this isn’t the case for every country. In Europe and the US regulatory authorities have been more embracing of blockchain technology. For example, the IRS has begun considering cryptocurrencies property and has issued tax guidance accordingly.
In 2020 the EU signed into law its 5th Anti-money Laundering Directive, including regulatory scrutiny of cryptocurrency and crypto-assets.
As the usage of cryptocurrency grows, tax responsibilities are becoming increasingly relevant. For example, in the US, cryptocurrencies are currently treated as property and subject to capital gains/losses laws and taxes. Employees and employers are responsible for converting their earned/paid cryptocurrencies to fiat currencies and declaring it.
As governments groan under mountains of growing debt accumulated to mitigate the Covid19 pandemic they are likely to want to maximise tax receipts, so could conceivably rely on private or in-house crypto analytics to work out who is avoiding tax on their crypto.
The visibility of cryptocurrencies that we have described means that crypto companies may be able to work productively with regulatory authorities to build a more transparent system as we advance, it really depends on how much of a threat governments perceive.
The recent moves by the outgoing Trump administration were seen as very aggressive, specifically what has been termed the Crypto Travel Rule issued by the Financial Action Task Force, with 37 member countries, and applies to the information virtual asset service providers (VASPs) – like exchanges – send to each other. As reported by Coindesk, the detail required is a clear challenge to the anonymity of crypto.
"Obtain and hold required and accurate originator
[sender] information and required beneficiary
[recipient] information and submit the information
to beneficiary institutions … if any. Further,
countries should ensure that beneficiary
institutions … obtain and hold required
(not necessarily accurate) originator
information and required and accurate
beneficiary information …”
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