Why is the government prohibiting people from making use of bitcoin?

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The government of some countries may prohibit the use of Bitcoin and other cryptocurrencies for various reasons. One reason may be to prevent money laundering and illegal activities that can be conducted using anonymous and decentralized digital currencies.

Additionally, some governments may be concerned about the potential for cryptocurrencies to destabilize the economy or undermine traditional financial institutions. It’s also possible that some governments do not yet fully understand the technology and its implications and, thus, may choose to err on the side of caution by prohibiting its use.

It’s important to note that not all governments have prohibited the use of Bitcoin, and the regulatory landscape for cryptocurrencies can vary significantly between countries.

Businesses that embrace the Bitcoin protocol are taking advantage of a decentralized ledger maintained by independent miners worldwide. In addition, websites like https://immediate-edge.co/ serve the best UI and trading tools suitable for novices and professional bitcoin traders.

These invaluable qualities can give you an edge over your competitors, lower your operational costs, and create new lines of revenue to stay afloat in today’s highly competitive landscape.

But it comes at a cost, namely government regulations aimed at eliminating all possibilities for capital gains taxes through bitcoin transactions initiated by traders on exchanges or individuals trading with one another outside of these exchanges. Of course, the irony is that Bitcoin currency itself is not taxable at all.

You cannot be taxed on transactions that use the currency or even transactions mined with bitcoins (on a machine outside a bank). You will only be taxed on the gain from selling your bitcoins for fiat.

Only some of those gains are taxable; that tax rate depends on how long you have held the bitcoin. The government’s chief problem with bitcoin trading is how it conceals the origin of its capital from tax collectors.

The government is attempting to regulate the use of bitcoin:

Government authorities are now attempting to regulate the currency so that it is required to report all transactions that have occurred, just like a bank account.

Once bitcoin dealers are forced to report their transactions, the authorities can then identify precisely who is trading in bitcoins and what they are doing with the currency.

The problem is that this entire system depends on traders being able to identify each other and on them willingly reporting their tax obligations. It may sound impossible, given its decentralized nature.

Still, this system makes perfect sense if you look at what governments have done over time when trying to keep track of capital outflow.

Decentralization is a reason why the government doesn’t want people to use bitcoin:

Decentralization is a significant factor that gives Bitcoin its appeal to a specific demographic. Still, when analyzed, government regulators realize they only need to break bitcoin down into smaller components to regulate and finally tax it.

Although Bitcoin is a beautiful idea, the government needs help keeping track of it due to its decentralized nature.

To eliminate capital gains tax evasion, all regulators must do is regulate the exchanges converting bitcoin into fiat currency and require them to keep track of all trades.

This way, government agencies could identify who was involved in every single bitcoin transaction and then force them to pay their taxes. It would also resolve another significant issue for governments: how to keep track of capital flows across borders.

Regulating the cryptocurrency exchange:

The problem with this use case is that it would require bitcoin exchange platforms to collect personal information on their users. And as we all know, giving out personal information to an unregulated third party has its risks in terms of security and privacy.

The business model of these bitcoin exchanges depends on users giving them their full names and contact information (along with a photo ID) when they sign up.

It is a massive point of contention in the bitcoin community and is something the authorities are keenly aware of. It makes it very hard for the government to force them into compliance without shutting them down altogether or requiring stricter user regulations.

Bitcoin is volatile:

However, bitcoin users want to see the currency remain independent from the control of government and regulators. Therefore, they need to get serious about using it for more than just trading on exchanges.

The best way to do that is by embracing its decentralized nature. For example, suppose people use bitcoin daily and avoid linking their bank accounts to any exchange.

In that case, the government will only have a way of forcing exchanges into compliance if shutting them down completely.

One interesting thing about cryptocurrency payment gateways is that they make it easy for big businesses to accept bitcoin payments no matter where they are located because the company sends money directly into its users’ bank accounts.

So there are many ways that people can use bitcoin in place of fiat currency without involving exchanges or linking bank accounts.

Unfortunately, the volatility of bitcoin payments is also a problem for governments since it makes it nearly impossible to predict the exchange rate between bitcoin and fiat. So as this technology grows, the government will have to think of new ways to regulate it.

Any third party does not control Bitcoin:

Many believe that all bitcoin transactions are subject to tax because they occur through exchanges or third parties. However, there are many examples of people trading bitcoins without using an exchange or linking their bank accounts to any exchange platform.

You will often find people using bitcoin as a direct payment gateway into their bank accounts. It is why government authorities need help coming up with ways to tax bitcoin users.

However, Bitcoin is not like traditional fiat currencies, and tracking the capital flows that occur through its use is a problem that governments must solve.

It would be too easy for them to shut these exchanges down and force their owners into compliance by fining them for remaining in non-compliance.

The most complex part of regulating bitcoin is identifying transactions between its users since many of these transactions occur outside any exchanges or third parties’ platforms.