If you stay in the city of Lugano, Switzerland, you will be able to use Bitcoin, USD Tether and LVGA tokens for buying anything, transacting, investing or even paying all your taxes. That is what happens when a currency is accepted as a legal tender. It becomes a banknote or a coin that becomes legally tenderable for the discharge of an obligation or a debt.
The mayor of the city, Michele Folleti, announced the acceptance of these three cryptocurrencies as a “de facto” legal tender on Thursday in an event named “Plan B”, which was jointly organized in collaboration with Tether by the city of Lugano. Under this plan, Lugano is attempting to become the center for Bitcoin and Blockchain in Europe and is also aiming to have all its businesses make everyday transactions using these cryptocurrencies. This will be done by focusing on helping businesses integrate payment solutions through stable coins and by leveraging Bitcoin’s Layer 2 Lightning network for scalability. Tether and Lugano have also planned on making several initiatives like funding startups, providing scholarships for students to study Cryptocurrencies and Decentralized Finance (DeFi), mainly to focus on Blockchain adoption in Europe.
Lugano has already made many strides in Web3 space. Their homegrown blockchain 3Achain is already partnered with nearly 30 public and private sector Businesses in Switzerland. Also, the third cryptocurrency in the legal tender, the LVGA token, was announced by the city of Lugano itself. It was also announced that the Bitcoin World Forum will be held in Lugano this October.
Why is it important for Cryptocurrencies?
Lugano is the second place ever to accept Bitcoin as a legal tender, after the country of El Salvador, which accepted Bitcoin as a legal tender in early 2021. Now even though Lugano isn’t a big city, the fact that some areas in Europe and some countries are now turning to Crypto and Blockchain for promoting innovation, push people into using crypto as cash and money, as well as facilitating businesses to use and innovate more using Blockchain.
This is great news for Blockchain and Crypto since many risks have been cited by financial experts, regulators and even the World Bank on making Bitcoin a legal tender.
Back in 2021, World Bank rejected El Salvador’s request for assistance in its bid to adopt Bitcoin as a currency due to transparency and environmental issues, since solving complex puzzles is required to run these cryptocurrencies which involves a lot of electricity, thus affecting the environment if renewable sources are not used. Regulators also pointed out that Bitcoin can be easily used for financing terrorism, criminal activities and money laundering. Financial experts pointed out the potential impact on the inflation of a country or a region.
Despite all these issues, we are now starting to see regulations, acceptance and legal tender for Bitcoin around the world. Financially strong regions like the EU, United States, Canada and Australia already accept Bitcoin to a very wide extent if not regulated. Mentioned below is the status of cryptocurrencies in some financially strong regions:
According to the European Union, it is not illegal to use Bitcoin within the EU. Bitcoin and other cryptocurrencies are instead called crypto assets. According to a spokesperson from the EU, they are completely open to cryptocurrencies but there needs to be a regulation for the same, the main reason being to refrain terrorists and criminal organizations from exploiting the anonymity provided by some networks.
The United States Department of Treasury has defined Bitcoin as a convertible currency. It is considered to be a substitute for real currency, or act as an equivalent value in real currency. Any Business or entity is required to report transactions worth more than $10,000 with the U.S. Treasury. Also, multiple regulations in different U.S. states are already under development. Even the FBI is forming a national cryptocurrency unit to analyze Blockchain and virtual asset seizure.
Also, three types of new Bills are currently introduced by Congressional Members, those bills are focused on Cryptocurrency regulation, applications of Blockchain technology, and Central Bank Digital Currency (CBDC). The first set of bills focuses on how the regulatory agencies can regulate crypto and blockchain tokens. The second set focuses on ways to promote underlying Crypto technology within the U.S Government for broader use in other sectors of the economy. Thirdly, since the policymakers perceive a risk to the US Dollar’s position as the world’s reserve currency, the final bill focuses on a digital currency based on technological innovations such as stablecoins. All three of these areas are equally important.
The Canada Revenue Agency (CRA) views Bitcoin as a commodity for income tax purposes. Like its southern neighbor, the U.S. also maintains a generally bitcoin-friendly stance. All and any type of income made from transactions using Bitcoin are to be viewed as Business Income or capital gain and shall accordingly be taxed. All the Cryptocurrency exchanges are considered to be money service businesses.
Like Canada, if you exchange, trade, gift, sell, convert cryptocurrencies into fiat currency, purchase goods or services with Bitcoin, you are liable to pay Capital Gains tax on the profits. The Australian Taxation Office considers Bitcoin as a financial asset, which can be taxed when a specific event occurs.
Many other notable countries like Germany, France, Japan, Mexico, Spain, Denmark and the United Kingdom have some other forms of regulations and where transactions in Bitcoin are allowed.
Looking at these, the coming months are set to give us many different forms of regulations or possibly legal tenders around the world since greater and greater entities are now taking interest in the legalization of Crypto.