The key to the more widespread acceptance of cryptocurrencies, just as with any currency, is the ability to use cryptocurrencies to pay taxes. Despite some initial efforts to start accepting cryptocurrency tax payments in Ohio, other states have yet to follow suit. And it will be quite a while before the IRS decides to start accepting Bitcoin and other cryptocurrencies in payment of federal taxes. But not every country is as backward as the United States is.
Bermuda has recently announced that it will start accepting cryptocurrency payments in payment of taxes, fees, and for other government services. Specifically, the Bermudan government plans to accept payments made in USD Coin (USDC), a dollar-backed stablecoin. USDC is a stablecoin launched by cryptocurrency exchange Coinbase and payments firm Circle. The stablecoin is an Ethereum token, and each coin is worth $1. Coinbase users can convert their holdings of US dollars into USDC at a 1:1 ratio.
In that sense Bermuda’s announcement is a bit of a letdown, as stablecoins have significant disadvantages as compared to cryptocurrencies such as Bitcoin. But taxing authorities are notoriously conservative, and the prospect of potentially losing money on cryptocurrency holdings undoubtedly doesn’t appeal to them. Of course, the fact that most tax payments are immediately converted into fiat currency shouldn’t hinder them, but that’s a digression. The fact that a national tax authority is at least taking a step in the right direction and accepting cryptocurrency payment is a promising sign.
The real test will be to see when a national taxing authority makes the move to accept tax payments in Bitcoin. Even though investing in Bitcoin, in Bitcoin futures, and using Bitcoin as a payment for goods and services are all well established, tax authorities find themselves reluctant to accept Bitcoin as a payment for taxes and fees. Hopefully Bermuda’s experience will convince them that cryptocurrencies are something to be embraced rather than feared.