Paying taxes with digital currencies is already a reality in Switzerland, which is leading the European race to integrate cryptofinance into traditional banking systems.
ADVERTISEMENTAdapt or die is the prevailing sentiment around the world when it comes to the adoption of digital assets, including cryptocurrencies, by traditional banks.
For now, Europe is leading the global race, with Switzerland in the lead: some of its residents can now not only pay for their coffee in cryptocurrencies, but also their taxes.
As the European Union catches up, cryptoassets will become widely regulated when the Markets in Digital Assets Regulation (MiCAR) comes into force on January 1, 2025.
“Europe has become one of the leaders in this area, especially when we talk about this regulatory framework for cryptoassets,” explains Crypto Valley Association board member Ilya Volkov at banking symposium “Web3” of the NGO, which was held in Geneva last week.
The event brought together traditional and digital banks and blockchain service providers to discuss the adoption of the technology and cryptoassets.
So, could bitcoin end up in my regular bank account? Ilya Volkov’s answer is “For sure”.
“Customers of traditional banks are already asking them about access to cryptocurrencies”says Ilya Volkov, explaining that the evolution of this technology is similar to the transition from credit card payment to Apple Pay or Google Pay.
According to Ilya Volkov, this technology will not only be expected, but demanded by customers of traditional financial institutions.
“I think it’s very important because it’s more transparent, and it’s more cost effective”he says, referring to how the technology behind cryptocurrencies, called blockchain, is decentralized.
This means it does not require intermediaries, reducing costs, while cryptography in blockchain – the network of computers used to store records of transactions – is seen as a safeguard to protect customer assets .
A crash course in cryptocurrencies
The market capitalization of cryptocurrencies recently exceeded 2.4 trillion euros worldwide, approximately half of the nominal GDP (aka a measure of a country’s GDP using current price levels) of Germany.
They operate outside of established financial systems and are not tied to tangible assets like gold, nor governed by central financial institutions. However, they tend to be more volatile than traditional currencies.
Cryptocurrencies are created through a computer process called “mining,” which is also how transactions are officially recorded on the blockchain.
Its decentralized nature, which accounts for every transaction on this network, guarantees transparency.
Investors and analysts increasingly view cryptocurrencies as “digital gold” as they are considered secure, due to the use of cryptography which promises 100% security against breaches. identify.
Popular examples of cryptocurrencies include Ethereum and bitcoin, the latter having just reached a new record value. Critics of the concept, however, argue that its fair value – in other words, its intrinsic value – is actually zero.
“Bitcoin has failed to deliver on its promise to be a decentralized global digital currency and is still hardly used for legitimate transfers”said Ulrich Bindseil and Jürgen Schaaf, two officials at the European Central Bank (ECB), in a recent blog post.
According to them, bitcoin is not suitable as a means of payment or as an investment, because the transactions it allows to carry out are still inconvenient, slow and expensive.
ADVERTISEMENTPay for your morning coffee with stocks
Although participants in the banking symposium,”Web3″, also recognize that much remains to be done to enable cryptocurrencies to realize their full potential, they are already considering many roles in which they can thrive, including in payments and investments.
According to experts, the use of cryptocurrencies is already spreading among businesses and customers in Europe.
“For retail customers, blockchain can bring more transparency, because when you pay, you can really track the transaction, where your money is going, where it’s coming from and where it’s going, which is a really good advantage”specifies Ilya Volkov.
Even though cryptocurrency will serve as an alternative payment method in the future, Ilya Volkov believes that traditional local currencies will remain strong in the decades to come.
Once blockchain technology becomes widely adopted and coupled with traditional financial technologies, “tokenization” could be one of the most attractive benefits. This process turns various assets, including stocks and data, into digital tokens that can eventually be used for payments – even for things like your morning coffee.
ADVERTISEMENTRegarding investments, “we see more and more real world assets coming to the blockchain – tomorrow we will trade securities in the form of tokens on the blockchain”assures Ilya Volkov.
The Crypto Valley Association also believes that in the future, bitcoin and similar cryptocurrencies could serve as a primary means of storing value, challenging the current system in which centralized financial institutions pool and oversee funds.
“Now with blockchains, I think we will have some sort of requirement at some point from customers to manage assets in a decentralized way where financial institutions won’t have direct access to funds without permission special or special request from customers”, emphasizes Ilya Volkov.
What will it take to make this a reality?
Cryptocurrencies have gained popularity by operating outside the control of governments and regulatory oversight. However, for them to be widely used for payments and investments, they now need to be integrated into the traditional system with adaptable regulations ensuring security.
The task, however, is enormous.
ADVERTISEMENTNot only are there more than 13,000 cryptocurrencies, of which almost 9,000 are active or have value on the market, but there are also around 420 million users, including 31 million in Europe.
Around 18,000 companies around the world have started accepting them in hopes of gaining a competitive advantage.
Yet the world of cryptocurrencies still faces fragmented regulation, even though it promises the benefits of transcontinental payments in a short time and at low cost.
“It’s a question of compliance requirements”says Ilya Volkov. “When it comes to traditional financial institutions, traditional banks, they follow complex regulatory requirements around anti-money laundering or procedures forcustomer verification”.
“This kind of thing is actually expensive when it comes to blockchain, because we’re talking about a large number of transactions coming from different blockchains, from different coins, and a significant investment to set up properly the system within traditional institutions”he adds.
ADVERTISEMENTTo build a secure and transparent system, regulations must be harmonized. The European Union has already made progress by adopting MiCAR.
“Cryptocurrency will be regulated (as part of MiCAR) in most of its aspects, like traditional finance. In fact, the step is being taken to be able to merge traditional banking with crypto finance and crypto assets”explains Cecilia Peregrina of PwC Switzerland.
The Swiss example: paying your taxes in crypto
Coming back to Switzerland’s place at the top of the European cryptocurrency payments and regulation table, the so-called “playing field of Europe” has already implemented a Swiss cryptocurrency license .
The measure requires cryptocurrency businesses to obtain a license under anti-money laundering regulations.
The Swiss canton of Zug is one of the hottest places for new cryptocurrency businesses, where residents and businesses can pay their taxes in crypto currency.
ADVERTISEMENTMartin Burri of PwC Switzerland tells Euronews Business that income taxes in Zug can be paid in Bitcoin or Ethereum up to an amount of 1.56 million euros.
“Despite everything, the tax base is determined in Swiss francs and is then converted into cryptocurrency”he specifies. “And I expect that these rules stay in place for a long time.”
Another example is the city of Lugano, in the canton of Ticino, where the town hall recently expanded the list of municipal taxes and fees that can be paid in cryptocurrencies. They accept Bitcoin BTC and Tether USDT.
Specifically, Lugano has adopted a system in which residents scan a QR code on the bill and then select the mobile wallet they want to use for payment.
Such measures are extremely useful for the city’s population familiar with cryptocurrencies: around 15% of residents use them in their daily lives, and more than 300 stores and places accept payments in this currency in the city, including restaurants .
ADVERTISEMENTSwiss civil law is another point of reference for evaluating European regulations, which, according to experts, has shortcomings compared to its Swiss neighbor.
According to Cecilia Peregrina, under Swiss law, the transfer of bitcoins between individuals allows authorities to determine ownership and beneficiaries. Additionally, regulations govern how you can pass bitcoins to your children in the event of your death.
“More importantly, if a financial institution goes bankrupt, what will happen to your bitcoins? Will bitcoins go bankrupt and disappear?”
“Or will you be able to take them back and collect them from the company?” adds Cecilia Peregrina. “And this is something that the regulations European does not address”.
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