Understanding bitcoin and other cryptocurrencies is important for accountants as they will soon have to audit blockchains and audit companies that deal in cryptocurrencies. In today’s post, we are going to be covering the need to regulate cryptocurrencies to provide further understanding around blockchain and blockchain products.
In the financial markets, anything unregulated and unregistered causes doubts and uneasiness.
In the case of cryptocurrencies, such as bitcoin, financial regulators all over the world have found ways to regulate blockchain, or the record of all cryptocurrency transactions, as well addressing the irregularities presented by virtual currencies that mostly bypass financial firms, exchanges, and regulated banks.
The most popular cryptocurrency, bitcoin, operates outside of the conventions of a financial system; and this worries regulators as it has the potential to be linked to money laundering, tax evasion, fraud, and terrorist funding.
In a recent case, a businessman from Brooklyn was charged with promoting currencies, which are backed by investments in diamonds and real estate that, according to the US prosecutors, do not exist. The Securities and Exchange Commission also filed charges.
Earlier this year, more than half a billion dollars in cryptocurrencies from a Japanese exchange called ‘Coincheck’ was stolen by hackers. Experts say that more attacks can be expected in the future, as all of the hackers in the world may now be targeting cryptocurrencies.
For investors and owners of cryptocurrencies, this is worrisome.
A list of what US regulators are currently doing to address doubts on cryptocurrencies are as follows:
Securities and Exchange Commission
SEC is a federal agency responsible for protecting investors and keeping order in markets. In a statement released in March, the SEC argued that under US security laws, digital assets such as coins and tokens offered and sold in initial coin offerings (ICOs) fall under the definition of “security.” The statement may mean that trade digital currencies would be required to be registered with the SEC, just like all of the national securities exchanges such as the New York Stock Exchange.
Internal Revenue Service
For tax purposes, the IRS states that bitcoin must be considered as property; therefore a capital gain or loss must be recorded, or be accessed through the blockchain as if it were an exchange that involves property. The tax implications of bitcoin and other cryptocurrencies will no doubt impact big 4 accountants for years to come. Learning about these cryptocurrencies now will have a huge benefit to your career.
If it is used as payment, it should be treated as currency, and the bitcoin price must be converted to its fair market value checked on an exchange.
Department of Treasury
The department of treasury is taking the lead by bringing federal agencies together to coordinate regulation on cryptocurrencies.
It has formed a virtual currency working group, which includes other government agencies such as the Securities and Exchange Commission, which will be watching bitcoin and other cryptocurrencies closely.
Cryptocurrencies started out as “stateless” entities, but the cynicism towards these obscure currenceies highlighted that regulation is necessary. By introducing cryptocurrency regulations, California and New York, which are home to a large number of crypto businesses, are taking the lead.
Other states are quickly catching up. The National Conference of Commissioners on Uniform State Laws voted in favor of providing a model act for the regulation of cryptocurrency businesses at the state level.
There have been increasing measures in regulating cryptocurrency, and we can expect more developments in the future. Reports on irregularities, scams, and fraud surrounding cryptocurrency are indeed alarming, which is why it is important to understand these currencies as an accountant as they will no doubt impact financial markets in the future.
Article originally published on Hogan Injury: