Cryptocurrency and Blockchain Tax Issues

Cryptocurrency and Blockchain Tax Issues

In the era of ever-changing and constant technological advancements and digital evolution, it has become ever greater of a challenge for tax administrations to keep up with the running pace of new business models.

One of those challenges, unsurprisingly enough, is the rise of cryptocurrency and the use of the same in everyday situations. Even though this is still very much a new business environment (as opposed to fiat money), the cryptocurrency market cap is already reaching sky-high figures, currently at a whopping estimated total of more than $350 billion US Dollars.

Today, cryptocurrencies are used not just for trading and investing purposes by large businesses and companies, but also by the general public for making payments for goods and services – as a growing trend among many.

As a natural consequence of having cryptocurrency trading increase the economic and financial strength of people, the question of how to tax the same also arises. However, forming tax policies against cryptocurrency is not as easy as fiat money.

How Crypto Tolerance affects Tax Policies

While on one hand, some countries aim to be more crypto tolerant and may even find economic interests in cryptocurrencies, other countries tend to almost overlook its transformative benefits and focus on its potential dangers and challenges and therefore try to restrict their use. In some cases, they may even resort to banning them entirely.

However, that’s not exactly an ideal solution. To ensure the moral and ethical use of cryptocurrency and prevent fraud, it is essential to regulate them through procedural methods. But how? How do we form tax policies in a reasonable and acceptable way?

This becomes even more of a complicated thing to do once you realize that the aim of tax administrations with regards to tax legislation is to increase compliance and authority. But cryptocurrency and blockchain technology are decentralized and therefore reduce compliance.

For the whole thing to work in a coherent manner, the tax legislation must be fundamentally clear, effective, applicable, and easy so as to not cause excessive and unreasonable cost and burden on both the parties: the taxpayer and the tax administration.

However, in the case of cryptocurrencies, such legislation hasn’t been manifested yet. Such is the case because different countries tend to look at and treat cryptocurrencies differently with varying degrees of resistance. Due to the above mentioned, it seems as though a uniform, consistent, and efficient approach is a necessary solution so as to simplify the process of paying and collecting taxes.

The Status of Virtual Currencies in India

The crypto situation in India is a little complicated, and certainly, something that is necessary to study in order to learn India’s tolerance against virtual currencies. With regards to crypto and the approach towards virtual currencies in general, the Indian government seems to be quite conservative.

As a matter of fact, the Reserve Bank of India placed a ban on banks from dealing with organizations that were related to cryptocurrencies in April 2018. On top of that, the government also issued periodic warnings regarding the potential harms and risks of executing business activities through the medium of virtual currencies.

Latest reports from news sources like The Economic Times suggest that India plans to introduce a new law in the near future that will aim to ban trading in cryptocurrencies – pushing India back against other Asian countries that have chosen to exploit the newly emerging lucrative market instead.

While the federal government seems to be encouraging the idea of blockchain – the technology that essentially makes cryptocurrencies possible – they don’t appear to be keen on crypto trading.

On the contrary, rival countries like China seem to be becoming more tolerant of virtual currencies. While China banned the initial coin offerings and use of virtual currencies in 2017, they recently granted Bitcoin trading as virtual property and not as traditional fiat money.

With all the information we have so far, it appears as though India has no plans for allowing for cryptocurrencies in the future and prefers to stay away from the market of virtual currencies entirely.

However, many argue that it is not the right way to go and in order to truly save and protect uninformed retail consumers dealing via virtual currencies and ensure adequate oversight over cryptocurrency businesses, India needs a reliable regulatory framework as opposed to placing bans.

Potential Dangers of Cryptocurrency

One of the reasons why the cryptocurrency is such a controversial topic to some is because of those headlines that strike fear in the minds of people and make them resist and disregard the idea of cryptocurrency altogether.

Albeit, frauds, and malpractices like money laundering and terrorism are quite the headliners in the crypto world, but the fact of the matter is that illicit activity is not common at all when it comes to cryptocurrency. For example, as of 2019, only about 0.5% of all Bitcoin transactions, which accounts for about $829 million, has been spent on the dark web.

This accountability is due to the fact that dealing with cryptocurrencies is tied to the use of blockchain technology which keeps a public record of every transaction ever done through its medium. As a consequence, the risk of financial crime in cryptocurrency-related transactions is still manageable.

However, that does not mean that crimes done via this medium are not a treat and shouldn’t be considered a priority. One of the biggest reasons why it is hard to detect such fraudulent activities is because transactions made via cryptocurrencies are pseudonymous in nature.

This basically means that even though the transactions themselves are public and visible to everyone, the person(s) actually making those transactions remains anonymous – allowing room for crimes like money laundering. That’s why intergovernmental bodies such as the FATF (The Financial Action Task Force) work together with countries to try to counter such challenges.

Via their initiatives like the “Jurisdictions under Increased Monitoring,” also known as the FATF Grey Countries List, they aim to strategically find deficiencies in the regimes of countries like Pakistan, Iceland, Jamaica, Syria, Yemen, and more to minimize money laundering and terrorism.


It is certain that the legal and regulatory framework around cryptocurrency lawyers is nowhere near close to ideal, especially so in the case of India, making it harder for tax administrations to establish proper tax legislation that is consistent and coherent.

At the same time, however, some countries seem to be promoting the idea of cryptocurrency and blockchain technology as more of an opportunity than a threat. We hope you found this article useful and were able to gather some valuable insight.


KS – A Digital Marketing Expert By PASSION but not only by PROFESSION. Interest in making knowledge available to everybody made my entry into Online digital Marketing. Responsible for enforcing more than a few trade strategies and generate organic, paid effects grabbing attention of potential users. Helps businesses use information to power digital alternate and influences folks with the ideas of Digital Marketing.