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Cryptocurrency and Taxation Challenges

Cryptocurrencies have been in the news recently because tax authorities believe they can be used to launder money and evade taxes. Even the Substantial Court appointed a special Investigating Team on Black Money recommended that trading in goldshell kd5 such currency be distressed. While China was reported to have banned some its largest Bitcoin trading operators, countries such as the USA and Canada have laws in place to restrict stock trade in cryptocurrency.

What is Cryptocurrency?

Cryptocurrency, as the name suggests, uses encrypted codes to effect a transaction. These codes are recognized by other computers in the user community. Instead of using paper money, an online ledger is updated by ordinary bookkeeping entries. The consumer’s account is debited and the seller’s account is credited with such currency.

How are Transactions Made on Cryptocurrency?

When a transaction is initiated by one user, her computer sends out a public cipher or public key that interacts with the private cipher of the person receiving the currency. If the individual accepts the transaction, the beginning computer hooks up a piece of code onto a block of several such encrypted codes that is known to every user in the network. Special users called ‘Miners’ can attach any additional code to the freely shared block by dealing with a cryptographic puzzle and earn more cryptocurrency in the process. Once a miner confirms a transaction, the record in the block cannot be changed or wiped.

BitCoin, for example, can be used on mobile phones as well to enact purchases. All you need do is let the individual scan a QR code from an instance on your touch screen phone or bring them one on one by utilizing Near Field Communication (NFC). Note that this is very similar to ordinary online wallets and handbags such as PayTM or MobiQuick.

Die-hard users trust by BitCoin for its decentralized nature, international acceptance, anonymity, permanence of transactions and data security. Unlike paper currency, no Central Bank controls inflationary difficulties on cryptocurrency. Transaction ledgers are stored in a Peer-to-Peer network. That means every computer chips in its precessing power and copies of sources are stored on every such node in the network. Banks, on the other hand, store transaction data in central repositories which are in the hands of private individuals hired by the firm.

How can Cryptocurrency provide for money Laundering?

The very fact that there is no control over cryptocurrency transactions by Central Banks or tax authorities means that transactions cannot always be tagged to a particular individual. This means that we don’t know whether the transactor has obtained the store of value legally or not. The transactee’s store is similarly suspect as nobody can tell what consideration was given for the currency received.

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