Is it possible to create your own cryptocurrency?
Since the Bitcoin white paper was published in 2008 by the mysterious character known as Satoshi Nakamoto, crypto has literally taken the meaning of ‘currency’ to a whole new level. Until today, almost no one knows the real identity of this person. Nonetheless, he revolutionized the way we can transfer funds, as the white paper for Bitcoin initiated a movement that allows people all over the globe to transfer funds without the involvement of a third trusted party, such as a bank. Since then, thousands of new cryptocurrencies have been launched by various individuals everywhere. Some were also very successful, such as Ethereum and even Dogecoin: a cryptocurrency that essentially started as a joke. Although it takes some time and research to truly understand the workings of cryptocurrencies, this new form of currency enables everyone to buy and sell products without the interference of a third party, but also to create their own currency. That is something truly groundbreaking, as generally only governments were able to create and print currency.
Essentially, this means that you can also create a crypto coin. By creating a digital token, you can fund any project when you launch an Initial Coin Offering (ICO). If people invest in your coin, you don’t only gain investors, but your coin could actually become a valid coin that can be used and traded. Cryptocurrencies have grown in popularity tremendously during the past years. Since you can raise quite a bit of money with an ICO, more and more companies and individuals are developing their own cryptocurrency. Is this difficult to do? Not always. Anyone with some technical knowledge can create a cryptocurrency themselves. In this article, we will explain the process, and provide you with some insight regarding the best way to list your new coin on an exchange. You will also see, how Intercompany Solutions can assist you in making this process less costly, and also much faster and easier.
What is crypto?
Crypto, fully known as cryptocurrency, is a form of currency that only exists digitally. It doesn’t exist in any solid form whatsoever. When you buy and own crypto, you store this in a digital wallet, that you can protect by a seed phrase and various forms of security. Crypto is a general collective term used to describe various crypto coins, of which Bitcoin is by far the most famous cryptocurrency. This is similar with traditional currency, since most countries have their own currency like the Dollar, Yen, Pound and also the Euro. Although the Euro is somewhat special, since it's a currency issued by a collaboration of various nations, as you probably know already. In any case, just like there are plenty of traditional currencies, there are also plenty of different cryptocurrencies. All cryptocurrencies run on blockchain technology. Blockchain technology is the technique through which crypto exists, which controls and stores everything in data traffic. So, if you send one crypto coin to your neighbor, it is checked and stored in the blockchain on multiple computers in the network. By being monitored and stored on multiple computers in the network, it increases security and reliability. Some cryptocurrencies went even further and added technology to the blockchain, such as Ethereum with its so-called ‘smart contracts’. This technology allows people to create contracts between parties, that don’t need a third party to enforce or legitimize the contract, since it does all this by itself. It is essentially a piece of code written, which becomes active once a contract is settled. When you study blockchain technology, you can see how banks, for example, can completely be surpassed when buying or selling goods or services in cryptocurrency. This is exactly what makes crypto so interesting for ‘regular people’.
But it’s not just free trade between people that is facilitated with crypto. Crypto, as an investment, has a lot of potential. Some experts even speculate that it may take over our current money system. No one knows for sure and there are supporters and opponents of these developments, but it is certainly the right time to immerse yourself in the world of crypto. A large difference between cryptocurrency and 'normal' currency is that regular currencies are semi-regulated in value, whilst crypto prices change and fluctuate continuously due to supply and demand. If, for example, your Euro suddenly becomes less valuable, the Dutch Central Bank tries to step in to ensure that the value stabilizes. The same applies if the coin becomes more valuable.
Thus, with the exception of inflation, consumers do not regularly notice the changes in value that the Euro undergoes on a daily basis. You only really know the value of a currency, when you try to exchange it for another currency. This often happens when you travel. Also, when you go to the store, you always pay the price mentioned for any products you buy. You don’t end up at the cashier’s desk and find, that the amount you have to pay at checkout is different from the price mentioned next to the product. This is different with Bitcoin and all other cryptocurrencies, sincethe value of any cryptocurrency is influenced by supply and demand. This means that the increase in value and the decrease in value alternate continuously and are determined by the purchases and sales in the market. The alternation of an increase in value and a decrease in value is called volatility. Knowing what these terms mean will help you better understand the crypto world. So, when you want to invest in crypto or create your own coin, be sure that you understand that its value is definitely not set in stone beforehand. A flexible approach works best.
More about blockchain technology
All cryptocurrencies are virtual assets, which are used as payment in transactions that are done online/digitally. As explained above, cryptocurrencies are not managed by banks and other (centralized) financial institutions, which means there is no third party that keeps records of the transactions that are made. As a general rule, all centralized institutions and systems record transactions. These recorded transactions are then managed by using a ledger. This ledger is normally only accessible by a very limited amount of third parties. With crypto, this is entirely different, since the system itself is completely decentralized and therefore has no need whatsoever for institutions or organizations to manage transactions. This is where the blockchain comes in: it is actually a database, that contains all transaction data as well as information about created coins, and ownership records. So it’s a ledger in itself, which is secured by mathematical cryptographic functions. The open-source part ensures, that any person can access this ledger, view all data and also become part of this system. All the transactions are ‘chained together’, which forms the blocks on the blockchain. These are added to the distributed ledger continually. Thus,; it eliminates the need for any third party to control and oversee transactions, as the blockchain itself is already doing this.
Who can create a new cryptocurrency?
In essence, anyone can decide to make a cryptocurrency, whether you are very serious about a particular project, or simply for fun and possible financial gains. Just keep in mind, that you will need to invest quite a bit of time, money and also other resources if you want to succeed, such as advanced technical knowledge, or the help of a team of experts. The creation process of the coin or token is actually the easy part, whilst maintaining the cryptocurrency and growing it often proves to be more challenging. If you are someone who is simply curious about cryptocurrency, creating one can be a very interesting side project. You are definitely not the only one, as there are plenty of coins and tokens being issued on a monthly basis. We suggest that you browse around first and read a lot of white papers, to ensure that someone else hasn’t already implemented your idea. If this is the case, try to come up with something new and exciting, as this will provide a solid basis for possible future success. The easiest way to create a new token, is by using an already existing blockchain. If you want to create something entirely new, you will have to build your own blockchain with a native crypto, but this requires highly advanced technical expertise. Launching a token on an existing blockchain platform, however, can already be done with relatively little technical knowledge. We will discuss this later in detail.
The difference between a coin and a token
There is some confusion sometimes regarding the words ‘coin’ and ‘token’. These two terms are often used interchangeably, but are different nonetheless. A crypto coin is mostly native to a particular blockchain, its main purpose is generally to store value and usage as a medium of exchange, whereas a token is built on an already existing blockchain for some decentralized project. Tokens generally represent certain assets, or it can also offer the one who is holding it specific features. Tokens also offer several distinct functions, such as security, governance and utility. Coins can be mined and earned via proof of work and proof of stake. Both coins and tokens use blockchain technology, which is sometimes also explained as distributed ledger technology. But, as we explained, tokens are built on top of existing blockchains, whilst coins are often created simultaneously with the creation of a new blockchain. You should definitely consider which option works best for you, before you start working on your project. It might also be helpful to ask for advice from an expert, he or she can tell you in more detail which possibility would suit your ideas best. The amount of knowledge you already have also plays a big part.
What are the average costs of creating a cryptocurrency?
It’s very hard to tell, beforehand, how much money you will have to invest when creating a new token or coin. The degree of customization is a huge factor. A standardized token on an already existing blockchain, such as Ethereum or Bitcoin, will generally be easier to create and therefore the least costly. If you want to modify a blockchain however, or create a new one, you should take into account that this will require much more expertise, time and therefore also money. Some platforms offer their services for free, when you want to create a standardized token. Nonetheless, if you have a very ingenious idea, creating your own blockchain and native cryptocurrency might be worth the investment.
Benefits and pitfalls when making your own cryptocurrency
There are some pros and cons regarding creating your own cryptocurrency. Because this technology is considered quite new, not everyone has the correct knowledge to know what they are getting themselves into. It’s much different from, for example, asking an investor for financial support, or trading on a regular exchange. Still, the fact that it is so new is actually also a big chance to achieve something valuable and original. Some of the benefits of creating a cryptocurrency involve the fact that you can customize the crypto in many ways, almost without limits. So you can make something truly unique that represents your ambitions well. Also, it provides you with a fantastic opportunity to expand your knowledge about cryptocurrencies and blockchain technology in general. Next to that, there’s also the fact that your token or coin can actually gain value, which can create financial independence for you. Some hurdles might be the lack of proper technical knowledge, which can potentially make it very hard for you to realize a new coin. The process itself is also very time-consuming and sometimes expensive, as we mentioned previously. It also requires ongoing maintenance, if you want your project to succeed. But if you already have a successful business and money to spend, you can negate this by hiring experts who do all the hard work for you. Make sure you have a decent planning and know what you want to do yourself, and what you can possibly outsource. This will make the process much easier and manageable.
The basic equipment you will need
One of the main benefits of creating a cryptocurrency, is the fact that you don’t need to invest in heavy machinery, expensive appliances or any kind of high-end gadgets. All you need is a working internet connection and a computer or laptop with sufficient specs. This will provide you with all the things you need. We strongly discourage you to try to create a cryptocurrency with your smartphone or tablet, however, since it’s almost impossible. If you aren’t very knowledgeable in the field of computing science or technology in general, you will surely also need some expert assistance. So this means, you will need to hire a team of experts who can assist you. If you know your way around, this won’t be necessary and the initial investment will not be very high. We will now outline the four different methods you can apply, to create a coin or token with blockchain technology.
1. Hire a(n) (team of) expert(s) to create a cryptocurrency for you
One of the easiest ways to create a cryptocurrency is by hiring a blockchain development team of experts. This is especially necessary, when you want the coin to be highly customized. There are very specific companies and enterprises that focus on creating and also maintaining new cryptocurrencies and blockchain networks, which are known as blockchain-as-a-service (BaaS) companies. Some of these companies can create and develop entirely customized blockchains for you, whilst others already have an existing blockchain infrastructure they use for your project. You can also decide to hire a BaaS company to create a highly customized token that runs on an existing blockchain. If you don’t have a lot of technical knowledge, or you simply want the job to be done correctly, this might be the best option for you, provided you have the funds to pay for their services. Otherwise, we suggest you try to create your own token on an already existing blockchain.
2. Create a new token on an already existing blockchain
The simplest option when you go DIY and don’t hire others to help you out, is to create a token on an existing blockchain. This makes it possible to make a new crypto without modifying or creating a new blockchain. Some platforms, such as Ethereum and its smart contracts, are actually created specifically to this end: to make it possible for many different developers to create a token that Ethereum hosts. This token is hosted by the blockchain, but not native to the blockchain, since the ETH coin already is the native coin. Even though it is relatively easy to create a token on a blockchain that already exists, you should take into account that you will need an average degree of technical knowledge. There are multiple apps nowadays that make the process much easier, so you can use one of those. We outlined some basic steps you will have to take, when creating your own token on an existing blockchain.
i. Pick the blockchain platform you want to host your token
The first step obviously encompasses choosing the blockchain platform you want to use to host your new token. There are many options, since every blockchain is open-source and therefore, viewable, usable and editable. The most popular blockchains to consider are the Ethereum platform, Bitcoin’s blockchain and the Binance Smart Chain. If you want to use the existing blockchain of Bitcoin, for example, you need to firstly download the software of the cryptocurrency. Once you have done this, you make a copy, which you then name yourself: this will be the name of your token. Since the codes are open-source as we mentioned just now, this is all allowed. Everyone can use the software, that’s the whole point of cryptocurrencies. The main goal to keep in mind, is that the new coin should offer something new and, possibly, also better, than Bitcoin itself. Also, be aware of so-called ‘cryptojacking’, this is when a malicious third party infiltrates your computer and tries to mine your coin or token. They essentially use their computing power to undo transactions in the past, which will make your token worthless. Read a bit about it, so you know how to protect yourself from such happenings.
The process of creating a token differs a bit with each blockchain and native coin. If you want to use the Ethereum blockchain to create your token, for example, you need to find the standard codes on the internet and download these. The special feature of the Ethereum blockchain is its smart contracts, which revolutionized the way we can settle contracts between tow or multiple parties, and make sure all obligations are met. The contract is added to the blockchain, with all relevant provisions and conditions, and is carried out automatically. This basically eradicates the need for third parties, such as lawyers, notaries and even judges. Also, bets can be made this way to ensure everyone keeps their promises. In any case, if you like to and have the knowledge to do so, you can add extra functions on top of the existing blockchain and thus, create your own token. Keep in mind, that, with the Ethereum blockchain, you pay for every transaction. The value of the new currency must therefore certainly be higher than the cost per transaction.
ii. The creation process of the token
Once you have decided on the blockchain you want to use, you can start the actual creation process of the token. The difficulty level highly depends on the level of customization you wish to apply to the token. The more customized, the more technical knowledge is required to realize the token. There are some online apps and tools, however, that take you through the process step by step. Some apps even facilitate the process in a few clicks, but this doesn’t generally create a very unique token. You can browse on the internet and look at the apps and tools, to see whether this might help you.
iii. Minting your new crypto token
When the token itself has been created, it’s time for the next step: minting the token. Minting is actually a very old concept, which goes back as far as the 7th century BC. It was essentially an industrial facility, where precious metals such as gold, silver and electrum were manufactured into actual coins. Since this period, minting is an integral part of economics, since this is literally how money is made. Every modern day society that has a central authority that creates currency, mints (prints) regular fiat money. With crypto, the minting process is obviously a bit different, since cryptocurrencies aren’t physical or even comparable to fiat money. The process itself involves validating transactions made with the token, which will then be added as new blocks on the blockchain. As you can see, this is where the previously mentioned ‘cryptojackers’ come in, since they undo the transactions you just validated. Best be on the lookout for such malignant interferences, if you want your token to succeed. Minting also supports the validation of transactions in so-called proof-of-stake (PoS) blockchain networks.
Please also note, that minting and staking are somewhat alike, since these two concepts both support blockchain networks. However, where minting involves validating transactions, creating new blocks on the blockchain and recording data on-chain, staking is the process where you buy cryptocurrency and lock them on an exchange or in a wallet for a specific amount of time, which in turn is favorable for the security of the network. When you use a well-known blockchain such as Ethereum, chances are that you won’t have to invest in a lawyer or auditor to issue your tokens. Keep in mind that tokens generally benefit from the safety of the security that an established blockchain offers, even though they are less customizable than coins. If you are a starting crypto creator, creating a token is the safest way to begin and build experience. Also, the blockchain you are operating on might offer some interesting and innovative options for everyone who creates a token on this particular blockchain. In general, it helps to be associated with a well-established blockchain platform, since this can help immensely to enhance the value and credibility of your token.
3. Modifying the code of an existing blockchain
A third and interesting option involves the modification of an existing blockchain, which is simpler than creating an entirely new blockchain, but then also more difficult than using an existing blockchain to create a token. What you basically do is copy the source code again, just like you do when you create a token on a blockchain that exists. Only this time, you start by modifying the source code itself, to make changes that might somehow be beneficial to the blockchain. If you modify the source code, you can create a coin instead of a token, which will be native to the new blockchain you just created. This option does require more advanced technical knowledge, since you might need to modify quite a bit if you want to reach your objectives exactly, so a lot of customization might be involved. Note, that you will need to hire a lawyer or blockchain auditor, once you finish modifying the code and creating the coin. You need to figure out where you stand legally, since this varies enormously per country. For example, it’s illegal to create crypto in China. Make sure you meet all legal requirements, before you start minting your cryptocurrency.
4. Making your own blockchain and native cryptocurrency
Creating your own blockchain is the hardest way to create crypto, but it also allows for the largest amount of customization and originality. It’s very complicated to create an entirely new blockchain, meaning that you will need a very high level of expertise and probably also a degree in programming and coding. Generally, only top-notch programmers are able to create a new blockchain, so don’t try this if you are inexperienced. We strongly advise that you look for a solid course, if you want to be able to do this by yourself in the future. Then, you will be able to write your own unique code to support a new native cryptocurrency. If you would like to create a crypto that is completely new or innovative in some way, this is principally the best way to do it. You have the freedom to design your coin exactly how you like, and the upside is that you don’t have a token, but a real coin, which is considered to be slightly superior to a token. Building your own blockchain involves a few standard steps, which we will explain below.
i. Selecting a consensus mechanism
A blockchain has a certain operating protocol, which is also referred to as the consensus mechanism. This is the term for all incentives, ideas and protocols that make it possible for a network of nodes to be able to agree on the state of a blockchain. Consensus mechanism is often referring to either proof-of-work (PoW), proof-of-authority (PoA) or the previously mentioned proof-of-stake (PoS) protocols. Keep in mind, though, that these are actually particular components of consensus mechanisms that protect against certain attacks, such as Sybil attacks. The most used consensus mechanisms are PoS and PoW.
ii. The architecture of the blockchain
You also need to think about the design of your blockchain. This is actually where you can put all your unique ideas to work. How do you want your blockchain to differ from already existing blockchains? What do you want to offer and achieve with your self-made blockchain? What kind of functions or options would you like to design? Do you want your blockchain to be public, or private? Permissionless, or permissioned? You get the chance to design every bit of it, which makes this process so interesting if you know what you are doing, since you can now showcase the reason you want to make a crypto coin. Your blockchain is literally the building block of your crypto, so design wisely and put a lot of effort and thinking into your project and white paper. Also, make sure you can explain your idea well, you will need to be able to pitch if you want to attract investors in a later stage.
iii. Audit and legal compliance advice
After you have designed the blockchain itself, you need to hire an auditor or lawyer to audit the blockchain you created, including the code. Most independent developers hire a professional to sort this out, mostly because an expert will also be able to pinpoint any flaws or vulnerabilities that you can correct before you start minting. It is also very important that you verify that you comply with all laws and regulations. Without the verification of legal compliance, you don’t know whether what you are doing is even legal, so make sure you never miss this step to protect yourself. A legal professional can confirm your cryptocurrency is in line with all national and, if relevant, international laws and regulations.
iv. Minting your new crypto token
As already explained in the part about creating a token on an existing blockchain, this is the time you are ready to mint your crypto. You are completely free to decide the amount of coins you want to issue, as well as whether you mint them all in one go, or if you decide to increase your supply over time gradually when new blocks are added to your blockchain. You should definitely ask for advice from an expert, if you want to maintain everything the best way you can. You can now proceed with listing your coin on an exchange, or start an ICO.
How Intercompany Solutions can help you
With many years of experience with the establishment of Dutch companies and offering advice with ICO’s and listing your coin or token on an exchange, we can assist you with a wide variety of services. If you would like to start a new crypto project, for example, we can help you with listing the crypto on (de-)centralized exchanges, please take a look at this article for more information. We can also help you with any business plan or white paper you might need to write, or provide you with information regarding Dutch compliance regulations. If you would also like to establish a Dutch business, adjacent to your crypto aspirations, we can take care of the entire registration process in just a few business days. Feel free to contact us with any pending questions you might have, or if you would like to receive a personalized quote.
The increasing popularity and global growth of cryptocurrencies have resulted in questions regarding the regulatory status of this novel financial phenomenon. Cryptocurrencies are entirely virtual and organized via a network called a blockchain. This is a register keeping secure records of all completed transactions. The blockchain is practically controlled by no one, as it is distributed across all computers with Bitcoin wallets. Therefore there isn’t a single institution that manages the network. Logically this implies the presence of various legal and financial risks.
Cryptocurrency start-ups raise early funds by using the so-called Initial Coin Offering (ICO). In an ICO campaign a company sells digital coins publically to finance its operations and achieve other business goals. ICOs are currently unregulated by governmental agencies or law. The lack of statutory framework has been a matter of concern due to the considerable potential risk assumed by the investors. Consequently, volatility has also become an issue. Unfortunately, investors losing funds in this process have no standard options for recovery of the amounts.
Virtual currencies and the EU
The risks inherent to virtual currency use have prompted the EU institutions to adopt regulations. Still, regulation at the EU level is complicated because of the developing EU statutory frameworks and the inconsistencies across the Member States (MS).
Cryptocurrencies remain unregulated at the level of the European Union and without close supervision by public authorities. Nevertheless, the participation in virtual currency schemes may lead to liquidity, credit, and legal and operational risks. Therefore MS authorities should decide whether to accept or, alternatively, regulate and formalize virtual currencies.
Cryptocurrencies in Holland
The national Act on Financial Supervision (AFS) states that electronic currencies are monetary values stored magnetically or electronically. Their intended use is to perform transactions and they are accepted as payment by parties different from the party issuing the money. Cryptocurrencies, however, do not match the definition of electronic money, since they do not meet all statutory criteria. This begs the question how exactly to define them. In the framework of the AFS a virtual currency is just an exchange medium. Individuals are free to perform barter trade and no legal permission (license) is required. The Finance Minister expressed an opinion that it is not advisable, at least up to this point, to revise the existing definition of e-money, considering the comparatively low acceptance level, restricted scope and limited economic importance of bitcoins. He pointed out that only consumers carry the responsibility for cryptocurrency use.
The District Court of Overijssel and the Finance Minister of the Netherlands accept virtual currencies, e.g. Bitcoin, as exchange media. In an appeal procedure, the Dutch Court acknowledged that bitcoins qualify as objects for sale by virtue of Art. 7:36 of the Dutch Civil Code. It also concluded that virtual currencies can be considered as exchange media, but they do not satisfy the criteria for legal tender. On the other hand, the Court of Justice of the European Union (CJEU) ruled that cryptocurrencies should be perceived as a means of payment, thus suggesting indirectly that they are comparable with legal tender.
Read here for information on bitcoin and tax
Conclusions
The issue of cryptocurrency regulation proves to be quite complex and the CJEU will likely need to go into terminology clarification. Any MS choosing to adopt terminology different from the legislation of the EU may thus cause difficulties with law interpretation on the background of the European Union legislation. Having this in mind it is recommended that MS follow the terminology of the common EU legislation while amending their national laws.
In case you are planning to start a cryptocurrency business in the Netherlands, do not hesitate to get in touch with our team. They will give you more information on the situation with cryptocurrencies in the Netherlands and help you establish your business.
During the past decade virtual currencies, such as Bitcoin, Qtum, Litecoin and Ethereum, have become increasingly popular. They are currently used as both methods for payment and investment instruments. The emergence of cryptocurrencies led to a legislative vacuum that had to be replaced by adequate regulations.
The present publication focuses on Bitcoin (by far, the most popular virtual currency) taxation. Bitcoins substitute real currencies and have a real monetary value. This means that they can be converted into US and Australian dollars, Euros or any other virtual currency. Most Bitcoin transactions are anonymous and take place on the Internet. Bitcoins are not regulated and do not depend on backings from central banks and governments.
Even though under most jurisdictions the Bitcoin currency is not considered as legal tender, some taxation systems recognize its significance and the respective authorities have proposed a particular fiscal treatment. Below is a brief overview of methods for Bitcoin taxation in the USA, the EU, UK, Germany, Australia and Japan.
Taxation on Bitcoin in the USA
In collecting federal tax, the Revenue Service of the United States considers Bitcoin as property, not as a currency. All transactions with Bitcoin are taxed in line with the principles valid for property taxation. Therefore details on Bitcoin transactions need to be submitted to the Revenue Service for the purposes of taxation.
Taxpayers offering services or goods paid in Bitcoin are required to report the amount of gained Bitcoin in their yearly tax returns. Bitcoin value is calculated taking into account the fair value on the market in US dollars (exchange rate) at the time of receipt of the payment.
If the taxpayer is using the cryptocurrency as a capital asset (as investment property such as bonds, stocks, etc.), he/she should consider any taxable losses or gains. Taxable gains result from transactions where the received value in dollars is higher than the virtual currency’s adjusted basis. Alternatively, a loss results from transactions where the received value in USD is lower compared to the virtual currency’s adjusted basis.
In the United States, people involved in mining of Bitcoins (validating transactions and maintaining a ledger) are also obliged to pay taxes. In case of successful mining, they have to add the value of mined Bitcoins to their total annual income.
Failure to fulfil the tax requirements for virtual currencies can result in penalties. Compliance with the US tax regulations and accurate assessment of taxes related to Bitcoin transactions can be achieved through maintenance of detailed records.
Bitcoin taxation in The EU
In 2015 the highest court in the European Union (ECJ) determined that transactions in Bitcoin shall not be charged with VAT in connection to the legislative provisions for transactions in bank notes, coins and currencies as means for payment. Therefore the European Court of Justice considers Bitcoin as a currency rather than property.
Even though Bitcoin transactions are not subject to VAT, they may incur other taxes, for example on income or capital gains. Bitcoin is treated differently for the purposes of taxation depending on the EU Member State.
United Kingdom
The United Kingdom treats Bitcoin in the same way as foreign currencies. Bitcoin transactions are subject to the rules for taxation applicable to currency losses and gains. On the other hand, transactions with Bitcoin that are considered “speculative” may be exempt from taxes. The information on measures for tax enforcement connected to transactions in Bitcoin provided by the local tax authority (HMRC) is rather vague. It implies that such exchanges are to be considered on a case-by-case basis, depending on the particular circumstances and established facts.
Germany
Since 2013 the country has been treating Bitcoin as private money. Even though the virtual currency is taxable at a rate of 25 percent for capital gains, the tax is chargeable only in case the Bitcoin profit is accumulated in the course of 1 year after the virtual currency was received. Therefore taxpayers holding Bitcoin for more than a year are not liable for tax on capital gains. In this case, any virtual currency transactions will be considered as private sales that are non-taxable. In Germany Bitcoin is treated in a way similar to shares, stocks and other investments.
Taxes on Bitcoin in Japan
The country recognises Bitcoin officially as a method of payment. Since July 01, 2017 the currency is not subject to consumption tax. Japan considers virtual currencies as values similar to assets. As such, they may be transferred in a digital manner or used for payment. Therefore profit from trade in Bitcoin is treated as business income and generates tax liabilities for capital gains and income.
Bitcoin taxes in Australia
The country considers all transactions in Bitcoin or any other virtual currency as barter arrangements. The national taxation system recognizes Bitcoin as an asset generating capital gains rather than as a foreign currency or money. All Bitcoin transactions must be properly documented, recorded and dated. Received payments must be declared in Australian dollars in the same manner as normal income.
Personal transactions with Bitcoin are exempt from taxes if they meet the following conditions:
1.) the virtual currency is used for purchase of services or goods intended for personal purposes
2.) the transaction value is below 10 000 AUD.
Bitcoin exchange and mining for the purpose of conducting business is taxable as stock trading.
Conclusion
The legal framework determining Bitcoin taxation varies by jurisdiction. Some countries (EU Member States) perceive Bitcoin as a currency, while other (Australia, USA) recognize it as an asset or property. Then there are jurisdictions, such as Japan, that have adopted an intermediate approach and define Bitcoin as a value, similar to an asset.
If you would like to receive more information on Bitcoin taxation in the different EU Member States or how to start a European cryptocurrency business please contact our legal advisors. You can also read on cryptocurrency regulations in the Netherlands.
Capital gains from transactions in cryptocurrencies such as Bitcoin are increasingly becoming taxable in countries worldwide. Therefore taxpayers are under the obligation to include cryptocurrency transactions in their yearly tax returns. Non-compliance may lead to serious penalties. This raises the question whether tax authorities are able to adequately identify cryptocurrency owners in order to collect the liabilities.
The anonymity issue
The main concern connected to taxation of cryptocurrencies is their traceability: virtual money is often gained, spent and traded on the internet with full anonymity. Furthermore, additional techniques for anonymization, e.g. private networks for virtual trade and mixing services, provide protection of personal details making transactions virtually untraceable.
The search for solutions
Some countries are taking measures to identify cryptocurrency owners in an attempt to solve the problem with anonymity. The following text discusses the actions taken by China, where most transactions in Bitcoins are concluded (95 percent of global trade for 2017).
Aiming to combat unlawful transactions in Bitcoins, the government of China has lately adopted regulations that require local exchangers and traders to follow the new policy of the National Central Bank with mandatory verification of personal account details. Thus Bitcoin users are officially required to provide particular information about their transactions, including login details, account information, description of funding sources and history of transactions. These regulations allow the Chinese authorities to collect more details about people exchanging cryptocurrencies, including Bitcoin, to determine their sources of capital and to mitigate the risk of illegitimate actions with virtual money.
Surveillance of internet traffic
Some countries do not have comprehensive strategies and policies intended to make Bitcoin traders respect the relevant tax liabilities and to stop money laundering involving virtual currencies. Thus the local authorities rely on people to report voluntarily their income from Bitcoin transactions by including it in their yearly tax returns. Such is the case with taxpayers in the USA, who are obliged to keep records of cryptocurrency transactions and report any generated income. However, up to now, the reporting level is comparatively low. For example, in the USA only 802 persons reported their income from cryptocurrency transactions in their annual tax returns for 2015.
When the expectation for voluntary reporting is not fulfilled, governmental organizations may resort to intercepting Internet traffic in order to identify Bitcoin users involved in cryptocurrency transactions. This method is working especially when users:
1) mention online personal details such as name/Bitcoin address;
2) Exchange Bitcoins for other currencies. Currency exchange often requires verification of identity, such as copies of personal identifications documents and bank statements. Therefore these transactions could be used to track Bitcoin traffic in both directions: outgoing and incoming;
3) use Bitcoins for payment. The purchase of services and goods online most often requires contact details, e.g. address for delivery (when delivery is not digital). Therefore the taxmen can identify the recipients of these goods; and
4) use Bitcoin wallets without options for masking the IP address.
Conclusion
As described above, the anonymous use of virtual money raises many issues related to tax collection. More countries are gradually adopting measures to resolve the matter. In 2017, after the government of China enforced specific regulations, the EU Parliament and Council prepared a proposal aiming to identify cryptocurrency owners. The document states that the responsible authorities need to monitor virtual currencies since anonymity is an obstacle, not an asset to the Community.
Read here in case you are interested in starting a cryptocurrency business in the Netherlands.
The Netherlands qualifies among the most progressive countries worldwide in regards to financial technology. The sector has a branch that uses blockchain wallets for buying and selling cryptocurrencies. Furthermore, the country has established WestHolland: a centre for development and research employing innovations to provide new technology for all areas of the economy. In the summer of 2017, the National Bank of the Netherlands officially announced the establishment of a new department for blockchain technology development.
If you are planning to open a business with cryptocurrency in the Netherlands our company incorporation agents can help you throughout the registration process.
The Netherlands as a top destination for cryptocurrency businesses
International investors, who consider opening a company that operates in the sector of finance, and particularly in the field of blockchain technologies can benefit from the fact that the country is among the few states worldwide that accept the usage of virtual currencies. Furthermore, the Dutch Central Bank has created a digital currency called DNBCoin. And the Dutch town Arnhem is famous as the ''Bitcoin City'' because all of its companies operating in the field of electronic commerce accept cryptocurrency payments.
The Dutch central authorities also recognize the potential contribution of cryptocurrency technologies to the future of the finance industry. Our consultants in company formation can provide you with detailed information on the procedure for starting a business with cryptocurrencies in the country.
Incorporation of a cryptocurrency company in the Netherlands
The opening of a cryptocurrency business in the country is not regulated by special requirements. Nevertheless, you need to register a company in the Commercial Registry in order to start operation. Our Dutch consultants in company incorporation can help you register your cryptocurrency business.
Investors planning to open Dutch companies involved with Financial Technologies with the aim of trading in virtual currencies need to be informed that the Netherlands has an established framework of such transactions.
If you need assistance in registering a virtual currency company in the Netherlands, please, do not hesitate to contact us.
Starting a crypto exchange in the Netherlands
The Netherlands has experienced a lot of Bitcoin and crypto initiatives in the early days of the new Digital currencies. The Netherlands is home to several Bitcoin and crypto vendors, who buy and sell cryptocurrency, as well as a Bitcoin exchange.
The platform has offered some insight into the regulatory framework of the Dutch Central Bank (The Financial Markets regulator). The position of the Dutch Central Bank, according to the platform is that a crypto exchange does not need a license, as long as general KYC practices are met. Customers need to be adequately identified, and Anti Money Laundering policy and compliance need to be met, which is more or less comparable to the customer identification standards of Dutch law firms.
The lenient stance on cryptocurrency exchanges has not been noticed by the main crypto platforms to date. Not only the Dutch regulators are open to Crypto platforms, a variety of Dutch banks have- and are currently facilitating the Dutch Crypto vendors- and exchanges.
The Netherlands could be an easy access to the European market, with a warm stance on crypto companies and a stable investment climate and clear regulations.
Intercompany solutions can provide you with the practical know-how to start your Dutch Cryptocurrency business or exchange. Contact us for a free consultation on your case.
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