Analysis: Why people don’t use Bitcoin to pay in their daily lives

Source: LongHash

Editor's Note: The original title is "Why don't people use Bitcoin to pay?"

Almost no one now uses Bitcoin or other cryptocurrencies as an option for daily payments. There are many reasons for this, including bitcoin price fluctuations, but this is far from the only problem. Although bitcoin has become a more stable means of value storage over time, the tax problem of using bitcoin for payment remains an obstacle to its widespread adoption.

Although some bitcoin enthusiasts don't mind the legal loopholes and even violate the law to avoid capital gains tax on cryptocurrency payments, mainstream consumers are not necessarily willing to take the risk. At the Bitcoin 2019 conference this summer, Bitrefill CEO Sergej Kotliar and ShapeShift CEO Erik Voorhees debated a capital gains tax on bitcoin payments.

However, the question is not just whether consumers are willing to follow the rules. Even those who voluntarily voluntarily pay taxes on bitcoin payments still have a headache, and they must go through complicated accounting to make sure they are not breaking the law.

In many countries and regions, consumption in Bitcoin is a taxable event.

In many countries and regions of the world, the use of Bitcoin to purchase goods or services is a taxable event. For example, if someone buys some bitcoin and then buys a new TV with these bitcoins after the BTC/USD exchange rate rises, then the person must pay taxes on the proceeds. From a tax perspective, when someone uses Bitcoin to buy goods or services, the behavior is actually equivalent to the sale of Bitcoin.

Cryptact CEO Amin Azmoudeh told Longhash:

“In Japan and the United States, every cryptocurrency payment (including bitcoin and other cryptocurrencies) needs to be tracked to complete the tax return.”

Robin Singh, CEO of Koinly, told LongHash that bitcoin payments have tax-related issues in most countries and regions around the world. According to Coin Central, Belarus, Portugal and Singapore are capital gains taxes that do not prevent Bitcoin and other cryptocurrencies from acting as a payment mechanism.

Stabilizing coins is another unique example. The issue of capital gains tax has little impact, because the stable currency theoretically anchors the value of domestic currency.

Singh said:

“Overall, what we see about stable coins is that because they need to pay for the stable currency, and their value does not fluctuate (or has little fluctuation), people end up losing money.”

Of course, in the case of stable currency linked to non-national currency or a basket of currencies, stabilized currency users may also face tax-related issues, which is how Facebook's Libra project will work in the future. Under this setting, there may still be cases where the stable currency appreciates the user's domestic currency and generates taxable events.

Although these tax-related issues are not necessarily a big issue today, they can evolve into serious usability issues as cryptocurrencies are used more frequently for payments. Currently, crypto assets are still mainly used for transactions with the purpose of speculative investments.

Singh said: "Bitcoin investors are not entirely investing in it because they want to use it to buy goods. The price volatility and the dream of getting rich overnight is still the fuel for Bitcoin investment."

Can this problem be solved by code?

There may be an automated solution to this problem. According to Singh, his company can help cryptocurrency users correctly complete their tax filings, and tracking cryptocurrency spending can be made easier than tracking transactions in traditional financial systems.

“Unlike credit cards or cash, tracking cryptocurrencies is a very simple process, all you need is a wallet address and a complete transaction record in a common format,” Singh said.

“To tell the truth, you only need to enter the wallet address to get a report that can be sent directly to the IRS. In comparison, in traditional transactions, you need to download the PDF version of the quarterly report from the bank and then manually enter the data. In a tax software. The most important thing is that even if additional tax obligations can be challenging – it can be easily overcome, but the bigger challenge is to make cryptocurrencies attractive enough, just like they are at all. As described in the hype propaganda.

Azmoudeh also believes that software can be used to some extent to automate the tax pain points associated with payments in cryptocurrencies, although he also believes that regulatory uncertainty is a lingering problem.

“In a nutshell, the ledger and tax portion of our platform services is a comprehensive general ledger that combines transactions from all sources (exchanges, wallets, P2P) to create chronological (or periodic) Record so that the cost basis of the payment or transaction can be accurately calculated," Azmoudeh explained. “Another issue related to the cost basis is that accounting for specific transactions (airdrops in the wallet, hard forks of the already owned cryptocurrency) is not always clearly enforceable in the jurisdiction in which the user is located.”

However, the services provided by Koinly and Cryptact are not built into the software used by most cryptocurrency users. Although some exchanges send automated tax reports based on each customer's personal activity, this is not a common practice and does not provide a complete user's capital gains tax payable—for example, they may use multiple Exchange.

In addition, many users have shifted their funds to unmanaged wallets that don't automatically generate reports, which complicates the resolution of the problem. It is likely that a large number of users have not realized from the outset that they are experiencing tax problems with cryptocurrencies.

Legal amendments may help

In addition to better bitcoin wallet software, it may also be helpful to revise the tax code or at least clarify taxable events. In the United States, Coin Center helped promote a bill under which Bitcoin and other cryptocurrencies would be treated in a manner similar to traditional foreign exchange when it comes to capital gains tax. The general idea is that when people buy a product or service in Bitcoin, they create an exemption for transactions that cost less than $600 (including $600); however, this proposal has not received any formal attention so far.

Password punks and other toughest bitcoin believers may think that the interests of government tax authorities are irrelevant, but ordinary people may not be too accustomed to breaking the law every time they want to buy coffee in cryptocurrency. This means that if Bitcoin wants to become the mainstream payment method, then the revision of the tax law may be unavoidable.

Actions taken by the US Internal Revenue Service (IRS), the Canada Revenue Agency (CRA), and other tax authorities around the world have shown that these institutions are closely monitoring the activities of cryptocurrency users, so they often spend on cryptocurrencies but don’t pay capital gains. The tax person may be destined to be violently awakened from the dream.

LongHash , read the blockchain with data.