What is cryptocurrency?
What is cryptocurrency? – is probably “the” question of 2017/2018. Simply put, cryptocurrency refers to different types of digital money. Instead of a centralised banking system, cryptocurrencies use a decentralised blockchain transaction database.
In 2009, Bitcoin (BTC) became the first decentralised cryptocurrency. Many new cryptocurrencies have been created since then. Today there are more than 1000 cryptocurrencies available online and the number is still increasing.
Is cryptocurrency legal?
The legality of cryptocurrencies varies from country to country and is still in the process of being defined or changed in many. Most countries do not make the use of bitcoin illegal, but its status as money or a commodity varies, with different taxation implications.
What types of cryptocurrencies are there?
There are many different possible applications for the blockchain technology and with that many different types of cryptocurrencies and tokens. Bitcoins is known as a “store of value” or “digital gold” cryptocurrency. Other types of crypto include transactional cryptocurrencies like Litecoin (LTC) and Dash, privacy coins like Monero and ZCash, decentralised blockchain platforms like Ethereum (ETH), Neo (NEO) and Cardano (ADA). Also, utility tokens which are designed for a specific application, like the various kinds of Ethereum based ERC-20 tokens.
How is cryptocurrency taxed?
One important question when you think “What is cryptocurrency?” is whether it is a regulated alternative currency. If crypto is regulated then how do you pay vat and other taxes? Will it vary from country to country. Well yes, and in short we are in the midst of awaiting government guidelines.
How is Bitcoin taxed in the UK?
In the UK, Bitcoin (BTC), the oldest cryptocurrency on the market, is currently still unregulated but is treated as a “foreign currency” for the purposes of VAT and Capital Gains Tax. In 2014, the HMRC released the “Revenue and Customs Brief 9 (2014): Bitcoin and other cryptocurrencies” policy but this has not been updated since.
Under this policy, no VAT is due on the value of the Bitcoin (BTC) when BTC is exchanged for pound sterling or other fiat currencies, such as Euros or US Dollars. No VAT is payable on income from cryptocurrency mining activities either. But, VAT will be due from suppliers of any goods or services sold in exchange for Bitcoin or other cryptocurrencies. Profits and losses on cryptocurrencies are also subject to CGT.
How is Bitcoin taxed in the US and the EU?
In the US, Bitcoin was classified as a commodity in 2015 and is now taxed as a property. In the European Union, similarly to the UK, Bitcoin is unregulated and VAT is not payable on the exchange from or to traditional fiat currency. However, VAT and GST on a transaction using Bitcoins for goods and services is payable.
Disclaimer: This information should not be interpreted as investment or trading advice. Bitcoin and other cryptocurrencies can be extremely volatile and you should always do your due diligence and research on the product, service and legal and regulatory requirements before deciding to invest or trade. We do not take any responsibility for any possible losses you may incur.