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Faster transactions, but more taxes: crypto expert Andrew Hemingway on what future crypto regulation may bring

Robyn Abrahams

News Writer

Jan 22, 2023 at 06:49

Andrew Hemingway began his career as a political activist and, in 2010, became interested in cryptocurrency, particularly Bitcoin, and the potential of the blockchain to disrupt government and other industries. Now he works as a crypto-journalist and hosts a podcast where he interviews industry leaders and experts on various topics related to crypto and blockchain.

He spoke to Buidlbee on the future of Central Bank Digital Currencies (CBDCs) and how government regulation can affect crypto.

Here’s a summary of his answers and opinions. This article contains paraphrased insights from Andrew Hemingway on the future of cryptocurrency in the wake of global regulations. 

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Why do governments and big businesses need blockchain?

Web technology offers a lot of possibilities for optimizing efficiency. Other areas where efficiencies may be achieved, such as logistics, upgrading Web2, and government efficiency.

One example that I heard on a podcast is from a company called Bidwave. They talked about how Walmart could scan a QR code from a container, and all suppliers could get paid instantly instead of going through a settlement process that takes 30 or 90 days. This could create huge efficiencies in the marketplace. The same is true for governments.

There is an obvious problem with the fiat banking system and its struggles with settling payments. This is true of Swift, Visa, Mastercard, and most government banks. Blockchain-based cryptocurrencies are actively seeking solutions for faster and cheaper transactions. Many have already outperformed fiat currencies. This is due to their removing the extra middlemen involved in a typical transaction.

What can governments do in crypto?

Bitcoin has proven that, if left alone, it can create sound money and undermine central banks, destabilizing governments. To maintain their power, they are now trying to leverage the technology of cryptocurrency through the development of CBDCs. Swift and Visa are already working on implementing blockchain technology for faster and more accurate settlements. While this may lead to a shift towards a purely digital realm, it may not necessarily be fully in the realm of cryptocurrency.

It may not necessarily be in the form of decentralized cryptocurrencies but rather in the form of CBDCs, which would still be controlled and regulated by governments and central banks. The key difference is that these CBDCs would leverage blockchain technology to facilitate faster and more efficient settlements, potentially reducing the need for intermediaries and streamlining the financial system.

This shift towards digital currencies and blockchain technology is a natural evolution of the financial system, but the question remains whether it will be fully decentralized or still controlled by centralized authorities.

How can regulation affect crypto?

I don’t believe central bankers or centralized governments have our best interests at heart. The problem is incentives and value. What’s going to happen is the centralization of CBDCs and faster settlements by central banks, all of that will be underpinned by the World Bank and the World Economic Forum. I think there will be a singular clearing house where all countries will stay with their own currencies, but they will all be parallel, like stablecoins, and the World Bank and Economic Forum will underwrite all of it.

I am very negative about the perspective that governments will shut down decentralized exchanges and heavily regulate centralized exchanges. I don’t believe that governments and the world economy can allow true decentralized economic activity to occur. The narrative from central banks and the US Federal Reserve is that crypto is a scam, a Ponzi scheme.

They’re trying to figure out how to regulate decentralized finance, but they don’t know how to do that because it sits outside of global law. The entire way global law is written and practiced depends on a singular entity and someone to hold accountable. In a decentralized organization, there is no one to hold accountable.

Why should we expect more taxes?

When it comes to taxes in the United States, cash transactions are often not reported or recorded. However, when the same transaction is conducted digitally, it becomes a taxable event. Governments see tokenization as a way to collect taxes on these types of transactions.

For example, if someone buys college textbooks from a website, the business reports the income earned from the sale on its balance sheet, and that income gets taxed. However, if the same transaction happens between individuals, the transaction is not reported, and the income is not taxed. This is a reportable event, and it could be done through a CBDC, where the blockchain would immediately collect a tax on that transaction.

It’s important to note that this is not only applicable to legal transactions but also to illegal activities such as gambling, prostitution, and other off-market activities. The potential tax revenue from these types of transactions is in the trillions globally, and governments are looking for ways to collect on it.

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