Bitcoin a Method of Payment

Bitcoin a Method of Payment

Bitcoin a Method of Payment

By Ali Ahmed

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In February of 2017, Bitcoin.com reported that the first Japanese bill containing digital currencies, recognizing Bitcoin as a method of payment, was expected to enter into force sometime in April. The Japanese Financial Services Agency (FSA) officially announced that the date that bill became law was April 1 on 2017. The bill recognized Bitcoin as a method of payment but not currency. It has “asset-like values”, explains the largest bitcoin exchange by volume, Bitflyer. They are “usable as payment to indefinite parties for the cost of purchase or rent of items or receipt of services and which can be transferred by means of electronic data processing systems”, the exchange describes, adding that:

The new law defines Bitcoin and other virtual currency as a form of payment method, not a legally-recognized currency. Bitcoin will continue to be treated as an asset unless there are future revisions or directives to Japanese tax law.

With Bitcoin being touted as a way to conduct anonymous transactions and as way to compete with government currency, many small business owners wonder what’s the right way to accept and account Bitcoin, or if it’s legal or ethical, or whether and how they should pay taxes on income received through Bitcoin.

Bitcoin has been formally recognized by some governments and authorities as a “currency”, but in practice, Bitcoin is no different than accepting payment in other forms such as cash or gold or scrip or gift cards or foreign currency. We think that it is pretty much the same as the local businesses of Great Barrington, Massachusetts choosing to accept their locally-printed “Berkshire Bucks” to support their local economy.

  • Asset with a Value – Cryptocurrencies are assets and used as mode of payment

  • Mode of Payment – Displacing cash and encouraging a cashless society.

  • Send from anywhere – Does not require the hefty transaction cost

  • Real-time Price Change – A currency with a constantly changing value

  • BlockChain Technology – Developed to mine and record transactions

  • Fixed supply – Has only a limited supply with a decreasing computational ability over time.

Most cryptocurrencies are designed to gradually decrease production of currency, placing an ultimate cap on the total amount of currency that will ever be in circulation, mimicking precious metals. Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies can be more difficult for seizure by law enforcement. This difficulty is derived from leveraging cryptographic technologies. A primary example of this new challenge for law enforcement comes from the Silk Road case, where Ulbricht’s bitcoin stash “was held separately and … encrypted.” Cryptocurrencies such as bitcoin are pseudonymous, though additions such as Zerocoin have been suggested, which would allow for true anonymity

Burden on Exchanges and their Customers.

Along with making Bitcoin an officially recognized method of payment, the bill also imposes a number of requirements on bitcoin exchanges. They will be required to register with the Prime Minister and must meet a number of requirements.Japan Prepares to Recognize Bitcoin as Method of Payment on April 1

For example, they must have a minimum capital of 10 million yen as well as a sufficient IT system for theft and loss prevention. They must also establish several systems and processes, such as employee training, internal rules, governance, and guidance for outsourcing.

The bill that will go into effect on April 1 also revises ‘the Act on Preventing of Transfer of Criminal Proceeds’. Bitcoin.com recently reported on how this affects bitcoin exchanges as well as their customers. To comply with the rules set forth in the bill, exchanges are introducing stricter know your customer (KYC) procedures.

Accounting Uncertainties.

Nikkei Asian Review reported on Wednesday that the bill “poses an accounting dilemma” for Japan’s early Bitcoin adopters. The current Japanese accounting standards do not address digital Japan Prepares to Recognize Bitcoin as Method of Payment on April 1currencies so there is no guidance on how to report them properly for tax purposes.

Therefore, many people and companies simply leave their digital currency holdings off their books. Those who report them often mark their bitcoin holdings as “inventory” on their balance sheets. Issuers usually report them as a “liability”. However, the lack of standards means, “there is a risk that companies that hold virtual currency could turn out to have distorted valuations or that huge losses surface suddenly”, said Chikako Suzuki, a partner at Pricewaterhousecoopers Aarata. Nikkei Asian Review wrote:

The Accounting Standards Board of Japan decided Tuesday to begin consideration, expected to take six months, of a framework for treatment of virtual currency.

What do you think of the new Japanese bill to recognize Bitcoin? Let us know in the comments section below.

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2018-09-30T11:57:55+00:00 November 9, 2016|

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