”For every ETH Sold, you’ll only pay tax after one year of holding”, Germany tells investors and miners.
The bane of every financial market is a lack of regulation to guide its investors and traders, and build confidence in skeptics. For a long time, the cryptocurrency market has been riddled with a glut of questions on the usefulness of regulations, and for years, many have kicked against it. Whether it is the debate on taxing the best pos coin, or regulating how much traders can have, the debate has been raging for more than one year.
What type of regulations will be suitable for the cryptocurrency industry?
Should the industry even be regulated at all?
Isn’t regulation against what cryptocurrency and blockchain technology stands for?
If regulations exist, won’t the powers that control flat currency be in charge of cryptocurrency?
These questions, and more, have troubled both the governments of Nations and concerned investors and traders.
THE TIDES ARE CHANGING
But the tides are changing. Countries are not accepting crypto as legal tenders. Big financial institutions are not buying and storing crypto. Others are accepting crypto as payment for goods and services. The adoption, although some might say slow, is moving.
One major positive for any currency, whether new or old, is the level of acceptability from the government. No matter how obstructive any technology is, its use and adoption is limited or enhanced by government’s acceptance.
If the government is against the idea, then no level of innovation will change its impact. Citizens who’re banned from using the currency will either innovate in fear, and we all know that is not a great place to innovate from, or they’ll abandon innovation and cryptocurrency altogether. Whichever way, government’s approval is sacrosanct for crypto’s adoption and growth.
Over the last one year, we’ve witnessed diverse government reception to cryptocurrency. While some are accepting crypto as legal tenders, others are banning it outrightly. While some, like Germany, are accepting it, but are being cautious about it as well.
Countries like China had banned cryptocurrency outrightly in their country, while others, such as Russia, placed restrictions on what can be done and not done with cryptocurrency assets. Another set of countries, the United States, for example, are making enquiries on how to use the law to regulate the wild West of the financial market, the cryptocurrency industry.
HOW GERMANY HAS BEEN PROACTIVE WITH DIGITAL ASSETS
It is not out of place to find governments of different countries exude extreme skepticism about digital currencies.
You can’t regulate what you don’t know. Plus, the crypto space is so new that there’s so much to learn, so much many don’t know about, and gazillion potentialities in blockchain technology and cryptocurrency. This vagueness makes it hard for many countries to actively involve themselves in crypto.
However, when a country decides to learn, they learn fast and implement strategies to not only regulate this new digital currency, but to position itself as a hub for blockchain technology.
As far back as 2019, Germany was already taking proactive steps in the cryptocurrency industry. It adopted a national blockchain strategy in 2019, a move that saw it provide 10 guiding principles that will help the country unlock the benefits of blockchain technology. This step was built upon the next year when Germany started issuing crypto licenses to businesses who needed to operate blockchain technology-based services or products.
As the country welcomed blockchain technology, businesses in Germany thrived, with a plethora of them obtaining these licenses, and others branching into other forms of blockchain technology-based services.
Cryptocurrency license is the official permission a government gives businesses and individuals to operate crypto-based businesses in the country. These licenses are important because without them, businesses who use cryptocurrency assets in any way will face the hammer of the law.
Also, these licenses open a floodgate of opportunities for businesses who can’t operate in anti-crypto, anti-blockchain technology countries to operate with freedom.
For example, companies like Apple Pay, Bitkom, and Neufund started working with blockchain technology and cryptocurrency after they were issued a crypto license.
In light of all of these regulatory advancement, Germany is taking steps forward by issuing no tax on traders, investors and miners who hold their cryptocurrency for more than a year without selling.
HOW DOES THIS WORK?
So, in 2021, Germany sought the insights of individuals, companies and institutions well versed in blockchain technology and cryptocurrency to help it with creating laws and regulations that’ll help it (Germany) tax cryptocurrency. The government understood that its lack of knowledge of the technology would be limiting. It knew that to properly understand how Ether blockchain explorer worked, and other intricacies of blockchain needed industry experts.
The insights given by these people, companies and institutions helped Germany create tax laws that covered the cryptocurrency industry.
CONCERNS RAISED ABOUT A SECTION OF THE LAW
The commendation from the international crypto community was short lived when details of a section of the law was exposed.
A clause in the income tax law, section 23, stated that any asset sold after one year of purchase will be tax free.
The clause was welcomed but loopholes as to what defined an asset as being held were asked.
If a trader staked a cryptocurrency in a liquidity pool, for example, are the profits after a year still tax free since the trader was also earning from the asset over that one year?
However, the finance minister in Germany clarified these issues. He said that a part of the clause that stated tax-free for assets held does not cover such crypto peculiarities.
The law also provided no taxation for bitcoin miners who hold their BTC for one year.
These incentives are put in place to encourage more adoption, and get blockchain technology-based companies to invest and build in Germany.
For holders, Germany provides a favorable ground to invest in crypto currency. While more can still be done in the cryptocurrency space, Germany are showing that with an open mind, countries can incorporate digital assets into their economy without jeopardizing the current system — and increasing the opportunities for the democratization of currencies and spread of wealth