5 Important things Cryptocurrency Questions Answered

1) HOW COULD CRYPTOCURRENCIES AFFECT ECONOMIC EFFICIENCY AND GROWTH?

Many cryptocurrencies are set up at least in part to make payments or other processes faster and more efficient. To what extent would these advantages improve the economy? Are there other effects that would increase the benefits or offset them? Are there alternative technologies that offer the same improvements with lower risks? The answers vary significantly with the specifics of the cryptocurrencies and their design and use.

2) WHAT WOULD BE THE POTENTIAL IMPACTS ON FINANCIAL STABILITY IF CRYPTOCURRENCIES WERE ADOPTED WIDELY?

Cryptocurrencies could impact financial stability either directly, as payments and investments denominated in Bitcoin or other virtual currencies become sizable, or indirectly by changing the size, profitability, and stability of existing financial institutions and markets.

3) HOW MIGHT MONETARY POLICY BE AFFECTED BY CRYPTOCURRENCIES?

Monetary policy primarily operates by affecting the amount of a nation’s money and the interest rates charged in the economy for using that money. At the extreme, the more people use cryptocurrencies for their monetary needs, the less important a country’s own money becomes, except for any secondary effects on cryptocurrencies. How much substitution will occur for conventional currencies? Would central banks be able to find alternative approaches to achieve their monetary policy objectives? How much would it matter if their monetary policy tools become less useful?

4) HOW COULD FISCAL POLICY BE AFFECTED BY CRYPTOCURRENCIES?

There are two first-order effects on fiscal policy. First, by decreasing a government’s benefits from creating money instead of borrowing to make payments. Second, cryptocurrency transactions can generate tax revenue, which may be higher or lower than equivalent conventional transactions would produce. Looking beyond the tax rules themselves, some fear that cryptocurrencies could aid in tax evasion, reducing government revenues.

5) WHAT ARE THE OPTIONS FOR TAXING CRYPTOCURRENCIES?

Depending on whether cryptocurrencies are viewed as currencies, investment assets, fixed assets, or something else, there are a variety of different potential tax treatments. The distributed nature of cryptocurrencies, without a central home, also challenges traditional frameworks that treat money earned domestically differently from foreign earnings.