Can Crypto Actually be Used for Tax Evasion?

The relationship between the crypto business and the rest of the world is a bit of a mixed bag. On the one hand, it has had tremendous success in recent years, with greater public awareness and more people entering the market than ever before. 

At the same time, the crypto business has been the target of criticism and accusations from both ordinary people and regulatory organizations over the years. One of the most popular allegations is that cryptocurrencies will be used to avoid paying taxes. This has been used as a basis for anti-crypto regulation as well as public anti-crypto sentiments. Is this, however, a valid claim? How easy (or difficult) would it be for crypto to be used for tax evasion?

How Crypto Can be Used in Tax Evasion

One of the most significant characteristics of cryptocurrencies is that it is decentralized, meaning that it is not issued by a central bank and operates largely autonomously. Crypto users can open anonymous crypto wallets via which they can transfer and receive cryptocurrency, with no single entity being able to block them. 

One of the most significant advantages is that enormous sums of money can be transmitted from one user to another with lower fees and better privacy for all parties involved. This is where the fear of cryptocurrencies being utilized for tax avoidance arises. What's to stop people from giving money to each other via crypto wallets and not disclosing it as income?

The fact that cryptos are money and that the value of money/crypto is derived must be remembered. While it is still feasible to cheat taxes with cryptocurrency, it is getting increasingly difficult and unlikely. 

To begin with, buying bitcoin on exchanges while avoiding taxes is far more complicated. Many exchanges now require official ID before creating accounts for users, and UK-based exchanges are required to record crypto transactions to tax authorities, with penalties for failure to do so each year.

Even if a person sends bitcoins to another person to avoid taxes, the cryptocurrency must be converted to fiat before it can be used. For a tax evader to be entirely crypto-reliant, there aren't enough shops that accept crypto, and once the funds are converted and deposited in a bank account, they may need to be accounted for in some way. 

Cash payments for products and services have been around for a long time, but many of them go undiscovered since cash can be used for real-world purchases without the complexity that crypto brings.

Even if people go through the extremely difficult procedure of transmitting money via cryptocurrency and do not reveal it, this would represent a very small minority of crypto holders, who are already a small minority of the world's population. 

Even in recent news on tightening crypto tax regulations around the world, the fact that these cases are largely minor is acknowledged.

Crypto Taxation Around the world 

While there are some loopholes that can be used to use cryptocurrency to escape taxes, they are being closed all around the world. 

While anyone can open a cryptocurrency wallet without having to identify themselves (there are crypto wallets with millions of tokes whose owners are unknown), registering an account on an exchange is becoming increasingly difficult without giving some form of government identification. 

In some locations, exchanges are even forced to report users' activity to tax authorities, and crypto tax codes are being amended all around the world. There are other businesses emerging to assist cryptocurrency owners in filing their taxes automatically and staying on the right side of the law. 

There is widespread worry regarding the use of bitcoin for tax evasion. According to all data, this is a distinct possibility, albeit a minor one. The vast majority of cryptocurrencies are not used for criminal reasons, and the few loopholes that do exist are being closed all around the world.

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