Bitcoin – Is there a need to regulate?
Undeniably, the evolution and growth of payment systems has been exponential over the past decade. Various internet methods for transferring funds now exist outside of the more traditional methods. And now, we also have Bitcoin – the first decentralised virtual digital currency. Recently, a hot topic has been whether the government should regulate Bitcoin. And, if so, how?
What is Bitcoin?
Considered a virtual digital currency, Bitcoin works online using your mobile phone, laptop or desktop computer. It uses a peer-to-peer technology to operate independently of a bank with no central authority, bank or clearing house. It means you are able to send your payment via the Internet, directly to the seller, without going to a bank.
The advent of Bitcoin in the market has produced mixed reactions. Bitcoin’s impact on commercial transactions is still considered novel, and it promises convenience, security, fairness and openness. All this without government regulation. In a commercial context, this kind of innovation could be considered as a technical solution, but as with all unregulated activities – there is also risk involved.
Is it time to regulate Bitcoin?
The inventor of Bitcoin has claimed that it is still an experimental new currency that is in active development and its future is still uncertain. There are some people who are concerned that the Bitcoin system can be exploited for illegal purposes, because it operates outside of the usual system of checks and balances of a currency. Without regulation, Bitcoin can be a convenient platform to money launderers. Unlike in banking institutions and other financial organisations, Bitcoin does not have reporting obligations to the Australian Transaction Reports and Analysis Centre (AUSTRAC) as far as suspicious matters are concerned.
In October 2014, the Senate Standing Committee on Economics made an inquiry about Bitcoin. It was an inquiry on how to develop an effective regulatory system for digital currency, the potential impact of digital currency technology on the Australian economy, and how Australia can take advantage of digital currency technology.
The inquiry was also triggered by the regulation issued by Australian Tax Office (ATO) treating Bitcoin as asset for capital gains tax (GST) purposes. The ATO also considered Bitcoin transactions as barter transactions with similar taxation consequences. Thus, the inquiry was also to ascertain the most appropriate definition of ‘digital currencies’ under Australian tax laws. Such regulation drew flak from various organisations claiming that the tax treatment of Bitcoin is not technology neutral.
The Senate Standing Committee on Economics is yet to issue on March 2015 the result of its inquiry.