The USA tax authority IRS is now seeking private data from exchanges connected with Circle. Kraken and Poloniex are two of those that have been asked to provide private data of all customers. IRS claims that this is an investigation to find cryptocurrency holders that haven't declared their holdings and evade taxation in this country.
But there are fears there is more as data from international customers may be part of this investigation. It is not known which data will be transfered to the IRS, however the investigation on private data of international users of these exchanges will not be about taxation.
The IRS has recently expanded the request to American crypto users to report almost everything, even airdrops and coins forked from a split chain.
It recently announced operation "Hidden Treasure" having as target to find unregistered cryptocurrency holdings and bring those that intentionally try to evade taxes under investigation.
“If you just omitted an airdrop from prior year, but you did other reporting, that's not the kind of thing that's going to raise fraud issues,”
It announced there will be heavy fines imposed to those that found with evidence of concealment of their crypto holdings, but only when it was intented. The IRS proceeded with details on this:
Mixers and tumbling services that intentionally obscure transactions as potential examples of the kind of behaviors the IRS may target in their investigations.
The target of the IRS in this case is the mechanisms that provide increased privacy to cryptocurrency users. We already know that most exchanges do not accept deposits of coins coming from mixers, and may even seize the funds as it has happened in a few occasions.
Most cryptocurrencies are using a transparent blockchain network that is public and open for all to investigate. Lately research companies have created intelligent systems and advanced analytics that can trace most transactions and create patterns between accounts used. This data is all open for research, however manually it is not possible to make the connections. Chainalysis and Coinbase have lately sold to the IRS software that makes it easier to identify the users behind accounts in most of the major blockchains, and connect the dots.
Chainalysis is also selected by the IRS to analyze and try to break Monero encryption which is the top privacy cryptocurrency. Bittrex was the first exchange that delisted Monero, without announcing the reasons behind this decision. South Korea was one of the countries that will probably reach to a decision to ban the use of all privacy cryptocurrencies in the country. Tax evasion is one reason but also the use of Monero in online criminal networks of the dark net is a secondary.
Increased regulation may hinder innovation though, and while governments have still not come in terms with cryptocurrencies, the increase of regulatory frameworks has led the crypto market close to two trillion dollars market cap.
We have seen Russia creating legal terms to allow cryptocurrencies to be used as investment assets, and countries like Pakistan, Nepal and India, having removed the previous blanket ban and discussing terms for integration and regulation.
There are some steps ahead being made, but the regulatory uncertainty is still there, and makes the crypto market bull run subject to government intervention. The main reason governments still are reluctant is the extreme speculation.
Cryptocurrencies are still not used a lot and the last two waves of adoption didn't create an increase in crypto being really used for the purpose it was created. The only shining example is Bitcoin Cash, that has a community devoted exclusively in adoption of BCH as an electronic currency. Bitcoin Cash is the only one that holds the values of the origins of cryptocurrencies and is following the whitepaper, focusing on public acceptance and application as a currency in the real economy.
Taxation would certainly be more relaxed and innovation promoted by governments if the case of Bitcoin Cash was the example for how crypto innovation should be proceeding. It is not the speculation that governments will keep backing, but usually they just tolerate and regulate for taxation purposes.
While Bitcoin Cash also has volatile price and speculation is possible, the most important reason we invest in it, is the ability to perform as a currency.
Images from Unsplash.
