Out of the wonderful world of technology has come a major headache for governments around the world.
Cryptocurrency has caught the imagination of millions.
It is estimated that there are 800 cryptocurrencies in existence. The most talked about today is Bitcoin.
Opinions on Bitcoin are as varied as the number of people you ask. Stephen Poloz, the Governor of the Bank of Canada told an audience at the Canadian Club Toronto last week that cryptocurrency is ‘closer to gambling than investing’.
Others have called it the next best thing. All opinions have a story attached.
This article, however, concentrates on the risk to governments.
As a currency, Bitcoin and other cryptocurrencies are digital currencies that are not regulated by governments or central banks.
Among other things, governments are in the business of collecting taxes.
While Bitcoin isn’t an ‘official currency’ from the Bank of Canada or the Royal Canadian Mint, it is still subject to the Canadian Income Tax Act. The CRA expects when you file your taxes you report any gains or losses from selling or buying digital currencies.
Also, any goods or services purchased using cryptocurrency has to be included in the seller’s income tax — GST/HST also applies.
For all this to happen, the government has to be aware that financial transactions have taken place.
Enter the world of cryptocurrency where transactions can be made discreetly.
And where government regulators haven’t caught up with the technology to monitor the encrypted digital legers of those transactions.
Ownership of cryptocurrencies can be virtually anonymous.
For the most part when you buy digital currency, you have to verify your identity in Canada, but you can get around that. However, if you want near-anonymity it will cost you somewhere in the neighbourhood of 5 to 10 per cent extra for the privilege.
It should be noted that there are many legal reasons a person may want to keep their cryptocurrencies anonymous, such as becoming a target of fraud should others know how much they own, but there are also many criminal activities that fall into that category as well.
There has been phenomenal cooperation between governments of countries to monitor financial transactions in order to prevent money laundering and terrorist financing.
Money laundering is the process where funds made from illegal activity are filtered through a number of financial transactions to make these funds appear legitimate.
It seems that virtual currency is here to stay.
It is so popular at the moment that the Canadian Anti-Fraud Centre reported that Canadians have fallen prey to cryptocurrency scams to the tune of $1.7 million in 2017, which is double that of 2016.
There are over 300 Bitcoin ATMs in Canada. Last month police in York Region reported that 40 victims sent money to fraudsters using these machines.
It will be interesting to watch what governments do in relation to the increasingly-popular digital currency.
Cryptocurrency’s black eye at the moment is in money laundering, terrorist activity, tax-evasion, and citizens being scammed.
For governments, this is a major headache.
