Over the years, blockchain technology critics have always mentioned the potential of Bitcoin and other cryptocurrencies being used in illicit activities. However, it is becoming clear each day that the capital flowing on the blockchain may not be as private as everyone used to think.
For one, though you may have a pseudonym at best, your records are actually public. Also, there are companies today that are becoming highly specialized when it comes to blockchain forensics. Companies such as Elliptic and Chainalysis are already becoming industry leaders in this particular niche.
Nonetheless, a lot of officials have grown concerns regarding the privacy of the cryptocurrencies especially in 2017 when more and more people became interested in investing in Bitcoin and other digital currencies.
Future of Privacy
There is really no way that we can predict how the current technology is going to advance. However, regulations are leaning towards slowly taking privacy out of the picture for digital currencies. And most of it is primarily motivated by economics.
For instance, US just declared that cryptocurrency profits will be taxed by next year. The recent change in US taxation is the very first law to tackle cryptocurrency taxation in the US.
Benjamin Dives, CEO of London Block Exchange mentioned that “In this world, nothing can be said to be certain except death and taxes. Cryptocurrency may be new and unique but it is not exempt from tax liability”. Those who are gaining from Bitcoin investments will have to settle their capital gains tax. This is just the same as getting income from stocks and shares as well as other investment instruments.
So what if it is a company investing in Bitcoin and other cryptocurrencies? If it is a company that is trading Bitcoin, this would fall under corporation tax which is 19%.
Possibility of Tax Evasion
Regulators are looking closely at the privacy features of cryptocurrencies mainly because of the possibility that it could be used for both money laundering and tax evasion. Daniel Bianchi, an assistant professor of Finance at Warwick Business School mentioned that “Other than the dark web, tax evasion, and money laundering are the two main ways one could use Bitcoin to break the law”.
But as it becomes mainstream, Bitcoin being used for tax evasion is becoming less likely and less appealing. Exchange houses are now dealing with regulators forcing them to provide details about their customers. These companies need to comply with both “Know Your Customer” and “Anti-Money Laundering” protocols.
Do Cryptocurrencies Provide Privacy?
To some extent, you can still have a bit of privacy when you are using Bitcoin. On the other hand, everything else will be recorded from the amount sent to the destination address. These are recorded on the blockchain and therefore it is possible to actually trace a specific wallet address.
According to experts, what Bitcoin currently offers is pseudonymity but not really complete anonymity that allows the users to avoid taxes and use cryptocurrencies for illicit activities.
For 2018, expect more regulators to take away the privacy that many investors used to enjoy. And is this good for cryptocurrencies and its investors?