Q coins were so effective in China that they were said to have had a destabilizing effect on the Chinese Yuan currency due to speculation. Digital Currency is a term that refers to a specific type of electronic currency with specific properties. Digital Currency is also a term used to include the meta-group of sub-types of digital currency, the specific meaning can only be determined within the specific legal or contextual case.
Legally and technically, there already are a myriad of legal definitions of digital currency and the many digital currency sub-types. Combining different possible properties, there exists an extensive number of implementations creating many and numerous sub-types of Digital Currency. Many governmental jurisdictions have implemented their own unique definition for digital currency, virtual currency, cryptocurrency, e-money, network money, e-cash, and other types of digital currency.
Within any specific government jurisdiction, different agencies and regulators define different and often conflicting meanings for the different types of digital currency based on the specific properties of a specific currency type or sub-type. A virtual currency has been defined in by the European Central Bank as "a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community ".
According to the European Central Bank 's "Virtual currency schemes — a further analysis" report, virtual currency is a digital representation of value, not issued by a central bank, credit institution or e-money institution, which, in some circumstances, can be used as an alternative to money. According to the Bank for International Settlements ' November "Digital currencies" report, it is an asset represented in digital form and having some monetary characteristics.
In that case, digital currency represents electronic money e-money. Digital currency denominated in its own units of value or with decentralized or automatic issuance will be considered as a virtual currency. As such, bitcoin is a digital currency but also a type of virtual currency. Bitcoin and its alternatives are based on cryptographic algorithms, so these kinds of virtual currencies are also called cryptocurrencies. Cryptocurrency is a sub-type of digital currency and a digital asset that relies on cryptography to chain together digital signatures of asset transfers, peer-to-peer networking and decentralization.
In some cases a proof-of-work or proof-of-stake scheme is used to create and manage the currency. When implemented with a blockchain, the digital ledger system or record keeping system uses cryptography to edit separate shards of database entries that are distributed across many separate servers. The first and most popular system is bitcoin , a peer-to-peer electronic monetary system based on cryptography. Most of the traditional money supply is bank money held on computers. They are considered digital currency in some cases.
One could argue that our increasingly cashless society means that all currencies are becoming digital currencies, but they are not presented to us as such. Currency can be exchanged electronically using debit cards and credit cards using electronic funds transfer at point of sale. A number of electronic money systems use contactless payment transfer in order to facilitate easy payment and give the payee more confidence in not letting go of their electronic wallet during the transaction.
Digital Currency has been implemented in some cases as a decentralized system of any combination of currency issuance , ownership record, ownership transfer authorization and validation , and currency storage. Per the Bank for International Settlements BIS , "These schemes do not distinguish between users based on location, and therefore allow value to be transferred between users across borders.
Moreover, the speed of a transaction is not conditional on the location of the payer and payee. Since , the European Union has implemented the E-Money Directive "on the taking up, pursuit and prudential supervision of the business of electronic money institutions" last amended in Such a merger could mean that electronic money is of the same nature as bank money or scriptural money.
Provider's responsibility and consumer's liability are regulated under Regulation E. Virtual currencies pose challenges for central banks, financial regulators, departments or ministries of finance, as well as fiscal authorities and statistical authorities.
In addition, over 90 central banks are engaged in DLT discussions, including implications of a central bank issued digital currency. In March , the Marshall Islands became the first country to issue their own cryptocurrency and certify it as legal tender; the currency is called the "sovereign".
The US Internal Revenue Service IRS ruling Notice  defines any virtual currency, cryptocurrency and digital currency as property; gains and losses are taxable within standard property policies. Bank Secrecy Act applied to persons creating, exchanging, and transmitting virtual currencies. It has gathered input from bitcoin supporters and the financial industry through public hearings and a comment period until 21 October to customize the rules.
The proposal per NY DFS press release "sought to strike an appropriate balance that helps protect consumers and root out illegal activity". The Bank of Canada have explored the possibility of creating a version of its currency on the blockchain. In , Fan Yifei, a deputy governor of China's central bank, the People's Bank of China PBOC , wrote that "the conditions are ripe for digital currencies, which can reduce operating costs, increase efficiency and enable a wide range of new applications".
In October , the PBOC announced that a digital renminbi would be released after years of preparation. Recipients of the currency could make both offline and online purchases, expanding on an earlier trial that did not require internet connection through the inclusion of online stores in the program.
Around 20, transactions were reported by the e-commerce company JD. Contrary to other online payment platforms such as Alipay or WeChat Pay , the digital currency does not have transaction fees. The Danish government proposed getting rid of the obligation for selected retailers to accept payment in cash, moving the country closer to a "cashless" economy.
A law passed by the National Assembly of Ecuador gives the government permission to make payments in electronic currency and proposes the creation of a national digital currency. The electronic currency will be backed by the assets of the Central Bank of Ecuador", the National Assembly said in a statement.
On Jun 9, , the Legislative Assembly of El Salvador has become the first country in the world to officially classify Bitcoin as legal currency. Starting 90 days after approval, every business must accept Bitcoin as legal tender for goods or services, unless it is unable to provide the technology needed to do the transaction. The Unified Payments Interface UPI is a real-time payment system for instant money transfers between any two bank accounts held in participating banks in India.
UPI is agnostic to the type of user and is used for person to person, person to business, business to person and business to business transactions. Transactions can be initiated by the payer or the payee. The VPA can be assigned by the bank, but can also be self specified just like an email address. The simplest and most common form of VPA is 'mobilenumber upi'. Money can be transferred from one VPA to another or from one VPA to any bank account in a participating bank using account number and bank branch details.
Transfers can be inter-bank or intra-bank. UPI has no intermediate holding pond for money. It withdraws funds directly from the bank account of the sender and deposits them directly into the recipient's bank account whenever a transaction is requested.
A receiver can initiate a payment request on the system to send the payer a notification or by presenting a QR code. The system is extraordinarily user friendly to the extent that even technophobes and barely literate users are adopting it in huge numbers. Government-controlled Sberbank of Russia owns Yandex. Money — electronic payment service and digital currency of the same name.
Sweden is in the process of replacing all of its physical banknotes, and most of its coins by mid The Riksbank is planning to begin discussions of an electronic currency issued by the central bank to which "is not to replace cash, but to act as complement to it". No decision has been currently made about the decision to create "e-krona".
In her speech, [ when? In , a city government first accepted digital currency in payment of city fees. Zug, Switzerland , added bitcoin as a means of paying small amounts, up to CHF , in a test and an attempt to advance Zug as a region that is advancing future technologies. In order to reduce risk, Zug immediately converts any bitcoin received into the Swiss currency. In , the UK's chief scientific adviser, Sir Mark Walport , advised the government to consider using a blockchain-based digital currency.
The chief economist of Bank of England , the central bank of the United Kingdom, proposed the abolition of paper currency. The Bank has also taken an interest in blockchain. One suggests that the economic benefits of issuing a digital currency on a distributed ledger could add as much as 3 percent to a country's economic output.
Government attitude dictates the tendency among established heavy financial actors that both are risk-averse and conservative. None of these offered services around cryptocurrencies and much of the criticism came from them. Hard electronic currency does not have the ability to be disputed or reversed when used. It is nearly impossible to reverse a transaction, justified or not. It is very similar to cash.
Soft electronic currencies are the opposite of hard electronic currencies. Payments can be reversed. Usually, when a payment is reversed there is a "clearing time. Many existing digital currencies have not yet seen widespread usage, and may not be easily used or exchanged. Banks generally do not accept or offer services for them.
As such, they may be shut down or seized by a government at any time. According to Barry Eichengreen , an economist known for his work on monetary and financial economics, "cryptocurrencies like Bitcoin are too volatile to possess the essential attributes of money. Stablecoins have fragile currency pegs that diminish their utility in transactions. And central bank digital currencies are a solution in search of a problem.
From Wikipedia, the free encyclopedia. Currency stored on electronic systems. For the 20th century brand, see Ecash. For the record label, see Internet Money. Main article: Virtual currency. Main article: Electronic funds transfer. Main article: Cryptocurrency. See also: List of cryptocurrencies. The examples and perspective in this section may not represent a worldwide view of the subject.
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Unsourced material may be challenged and removed. February Learn how and when to remove this template message. Issues in Informing Science and Information Technology. Retrieved 12 May Bank for International Settlements. There is no central authority or central bank managing the system and no-one owns it. Its acceptance as a means of payment ultimately depends on the confidence generated by the currency. However, doubts have emerged regarding its security with the disappearance of MtGox, to date the main platform for trading and handling bitcoins, victim of a massive theft by hackers.
Operating with bitcoins requires both parties in a transaction to have accounts called «bitcoin wallets». To transfer the currency, sellers must give buyers their password and buyers send bitcoins to sellers using a software application. The bitcoin user network provides the computing power of its members' devices for the system to verify that the vendor is the legitimate owner of the transferred bitcoins and to register the transaction.
This process, whose aim is to guarantee the system's security, involves the solution of a complex mathematical problem and can take from one minute to one hour for very large transactions. Users helping to solve this problem are rewarded with new bitcoins called «digital mining». Bitcoins can also be acquired through other exchange platforms operating in real time. After the sudden closure of MtGox, Bitstamp has emerged as the most popular platform to handle and trade in bitcoins against other currencies.
A virtual currency such as the bitcoin can have several advantages. Firstly, its low transaction costs in comparison with the commissions charged for credit card payments or the costs associated with a bank transfer. However, the security offered by the bitcoin system is still not comparable to that of traditional payment systems for example, it's more vulnerable to theft via hacking. Another feature valued by its users particularly by those who devote themselves to illegal activities is the almost anonymity in transactions and the fact that bank account numbers or credit card details do not need to be shared.
Moreover, users can also generate several different bitcoin addresses to differentiate and isolate each transaction. Lastly, another attractive feature of the system is that it has been designed in such a way so that the supply of bitcoins the total number of units in circulation grows at a pre-established rate until reaching a maximum of 21 million the current supply totals This undertaking to limit the supply of currency in circulation, unlike the practice of central banks which continuously increase the money supply, aims to anchor the currency's long-term value and thereby encourage its role as a store of value and its use as a medium of exchange.
Bitcoin use as a medium of exchange is still very limited. At present, on average 42 transactions are carried out per minute while Visa carries out more than , per minute. The first transaction with bitcoins was carried out in two pizzas for 10, BTC. The price of these pizzas at the current bitcoin value would be close to 5. The bitcoin's value basically reflects speculation on its future value.
As with all fiduciary currencies, i. The greater its acceptance, the more it will tend to be worth in its equivalent in dollars or euros , given a certain quantity of bitcoins in circulation. But the degree of future acceptance is an unknown factor.
This is also considered digital currency. Other systems only sell through third party digital currency exchangers. Some community currencies, like some local exchange trading systems LETS and the Community Exchange System, work with electronic transactions. A number of electronic money systems use contactless payment transfer in order to facilitate easy payment and give the payee more confidence in not letting go of their electronic wallet during the transaction.
A cryptocurrency is a type of digital token that relies on cryptography for chaining together digital signatures of token transfers, peer-to-peer networking and decentralization. In some cases a proof-of-work scheme is used to create and manage the currency. A virtual currency has been defined in by the European Central Bank as "a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community".
The US Department of Treasury in defined it more tersely as "a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency". The key attribute a virtual currency does not have according to these definitions, is the status as legal tender.
Since , the European Union has implemented the E-Money Directive "on the taking up, pursuit and prudential supervision of the business of electronic money institutions" last amended in Doubts on the real nature of EU electronic money have arisen, since calls have been made in connection with the EU Payment Services Directive in favor of merging payment institutions and electronic money institutions.
Such a merger could mean that electronic money is of the same nature as bank money or scriptural money. Provider's responsibility and consumer's liability are regulated under Regulation E. Virtual currencies pose challenges for central banks, financial regulators, departments or ministries of finance, as well as fiscal authorities and statistical authorities.
On 20 March , the Financial Crimes Enforcement Network issued a guidance to clarify how the US Bank Secrecy Act applied to persons creating, exchanging and transmitting virtual currencies. In May the U. Securities and Exchange Commission SEC "warned about the hazards of bitcoin and other virtual currencies". Unlike the US federal regulators it has gathered input from bitcoin supporters and the financial industry through public hearings and a comment period until 21 October to customize the rules.
It has been criticized by smaller companies to favor established institutions, and Chinese bitcoin exchanges have complained that the rules are "overly broad in its application outside the United States  ". In addition, over 90 central banks are engaged in DLT discussions, including implications of a central bank issued digital currency. The Bank of Canada have explored the possibility of creating a version of its currency on the blockchain.
The banks used the CAD-Coins to exchange money the way they do at the end of each day to settle their master accounts. The Danish government proposed getting rid of the obligation for selected retailers to accept payment in cash, moving the country closer to a "cashless" economy. The Danish Chamber of Commerce is backing the move. Nearly a third of the Danish population uses MobilePay, a smartphone application for transferring money.
The Deutsche German central bank is testing a functional prototype for the blockchain technology-based settlement of securities and transfer of centrally-issued digital coins. Government-controlled Sberbank of Russia owns Yandex. Money - electronic payment service and digital currency of the same name. South Korea plans national digital currency using a Blockchain. Sweden is in the process of replacing all of its physical banknotes, and most of its coins by mid However the new banknotes and coins of the Swedish krona will probably be circulating at about half the peak of 12, kronor per capita.
The Riksbank is planning to begin discussions of an electronic currency issued by the central bank to which "is not to replace cash, but to act as complement to it. No decision has been currently made about the decision to create "e-krona". In her speech Skingsley states: "The first question is whether e-krona should be booked in accounts or whether the ekrona should be some form of digitally transferable unit that does not need an underlying account structure, roughly like cash.
In , a city government first accepted digital currency in payment of city fees. Zug, Switzerland added bitcoin as a means of paying small amounts, up to , in a test and an attempt to advance Zug as a region that is advancing future technologies. In order to reduce risk, Zug immediately converts any bitcoin received into the Swiss currency.
Here is a list of terms and countries where they are most frequently used:. While Bitcoin was launched in , the first official statements on virtual assets were published at the level of national authorities in France. Many jurisdictions have already come up with the relevant laws and regulations since then. Last year the Cambridge Centre for Alternative Finance published an in-depth analysis of virtual asset regulations in 23 jurisdictions.
The main takeaways from them and the above-mentioned overview of tax treatments compiled by OESD are as follows. Please note! If your jurisdiction lacks a special regulatory and taxation policy for virtual currencies, you will use them at your own risk. If your counterparties refuse to pay you, it may be hard to take legal action. Income received in virtual currency by individuals natural persons is taxed on the same legal grounds as income received in fiat currency on any other property.
Virtual currency trading is similar to trading in securities, shares, other financial instruments. Therefore, the same approach can be adopted to defining whether a trade is being conducted or not. Likewise, the existing Securities Tradings legal regulations can be used as a general framework for virtual currency trading. Investors do not pay taxes for buying and storing virtual currency. This means that you will be subject to crypto taxation only when you sell or trade virtual currency.
Failure to report income generated from such a transaction could result in penalties. Capital gains tax CGT on virtual currencies is the same as for other assets. In case of a loss in transactions, you can claim the loss and save on tax deductions. In many countries, CGT is charged at a flat rate. This tax can be of two types: long-term and short-term. That is why individuals need to keep records of every transaction. The CGT rates vary by country and by taxpayer category.
A firm, a corporation, a company, or any other legal entity is generally subject to taxation when it generates revenues from virtual currency transactions. The tax does not depend on the holding period when the company keeps the virtual currency , and there is no tax exemption related to the holding period. Mining qualifies as self-employment, so virtual currency miners have to pay taxes on their revenues. They pay the self-employment income tax and can deduct expenses, such as electricity and storage costs.
Income derived from the ICO is taxable, but capital might not be — depending on the jurisdiction. As for the VAT, the terms are country-specific. In most countries, the exchange of virtual currencies is not subject to VAT. However, the supply of taxable goods and services paid with virtual currencies is subject to VAT.
For tax purposes, almost all countries consider virtual assets to be a form of intangible property. There is a list of jurisdictions that do not levy a separate tax on virtual currency transactions as of January :. Virtual assets are likely to be subject to property taxation in countries that levy inheritance, gift, wealth, or transfer taxes.
In Belarus, natural and legal entities are allowed to mine and trade in virtual currencies, participate in international exchanges. Local banks are encouraged by the regulator to raise funds by getting involved in issuing tokens for trading and other transactions. It provides cryptocurrency trading services with Visa payment cards.
Virtual currency transactions in Belarus are qualified as conventional activities of commercial enterprises. Otherwise, they need to register as private entrepreneurs and pay the income tax as any other proprietor. Belarus is currently very appealing for virtual currency investors. Virtual currency is treated not as a currency but as an asset or commodity.
The Canadian tax agency qualifies the use of virtual currency as a barter transaction when it is used to buy goods or services, and taxes revenues accordingly. Half of all the acquired revenues can be deductible from the taxes. Traders maintain accurate records of crypto-trading activities for capital gains tax purposes. Virtual currency transactions are subject to laws and regulations for securities. Such laws are stipulated on the level of each province and territory, not the federal level. Though they are largely harmonized, taxation of virtual currency remains confusing.
The central bank is in the progress of launching its CBDC, the digital loonie. It declared virtual currency illegal in and ousted ICOs and exchanges based on fraudulent activities. Any non-compliance with the prohibition can result in criminal charges. However, income received by individuals through virtual assets purchase and sale on international platforms is taxable. According to reports, China is starting a pilot project for a state-sponsored national digital currency.
Virtual currencies are generally viewed as assets, not as currencies. There is no single tax regulator in the EU. Back in , the Court of Justice of the European Union CJEU ruled that Bitcoin transactions are exempt from consumption tax under the section on activities involving currencies and coins of legal tender. Transactions qualify for other tax categories, i. Mining is considered a business activity and is taxable.
Individuals profiting from investments made in virtual currency are subject to capital gains tax. Every EU member state is free to design its specific taxation policy for virtual currency transactions. Besides, the taxes depend on the type of the transaction, the price, the level of AML. The term used for virtual assets: digital asset. The French regulators do not recognize digital assets as a means of payment and do not classify them as legal tender.
The definition does not include any particular virtual currencies, especially anonymous ones. Virtual currency is treated as property. It says that the main aim is to better harmonize the French AML approaches with FATF principles and to respond to new risks presented by the use of digital assets in France.
It is also meant to calm relations between the crypto and more traditional industries. The Council of State redefined how to file crypto taxes in France. Crypto-to-crypto transactions remain tax-exempt. VAT is payable in case a virtual currency is used to buy a good or service. There are two exceptions, though.
The entire mechanism of tax calculation is very sophisticated. Many taxation uncertainties are in such areas as the processing of credit card transactions with virtual assets, the staking or savings income, leveraged operations, digital asset lending, etc.
Mining is currently taxed as non-commercial income but this stipulation may be revised soon. A license is not required when a trading platform sells its own digital asset. Such activities that can be qualified as a payment service provider, a virtual asset exchange, a custodial wallet provider, an electronic money issuer need to be licensed.
If commercial banks refuse to open accounts, the Bank of France will designate a financial institution that will be legally obliged to open an account for the company in question. The German Federal Ministry of Finance BMF does not consider bitcoin to be a means of payment and classifies it as private money, treating it as foreign currency or intangible property. No value-added tax is levied when exchanging or trading virtual currency.
Bitcoin is also not considered as an investment. Trading in virtual money is considered a private sale. If the virtual assets are sold after a holding period of at least one year, the profits from the trade are not taxable. Also, trades are tax-free when the capital gains for trading are less than EUR annually.
There is no license needed to create and use virtual currencies, including mining. However, there are licensing requirements for trading platforms and exchanges. Virtual currency is considered a virtual commodity. The taxation of virtual currency transactions excludes capital gains tax, but profits made are subject to income tax. The framework for the taxation of crypto transactions has not been clearly shaped yet.
But virtual currencies are currently not banned, and paying taxes is inevitable for investors who hold virtual currency. Crypto-assets are classified as digital products on a par with various software products. Under the new legislation, there will be adopted a new classification of virtual currency activities. Transactions outside the country are subject to a flat fee on goods and services and are also treated as export-import transactions in goods.
Virtual currency is defined as a means of payment with intellectual value a specific class of asset. In , crypto legislation came into effect. Crypto exchanges need to be licensed. Income from virtual currencies is taxable. Virtual currency is treated as commodities, so transactions are subject to corporate, capital gains, and income taxes.
Japan is generally friendly to digital assets. Japan is currently developing a tracking system that will supply information from transaction intermediaries to the National Tax Agency.
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