Bitcoin, dogecoin, ethereum, binance, and all other cryptocurrencies are flooding the news feed these days, saying their value has increased. You may have only recently heard of cryptocurrency, but it has been in the market for a few years now.
In the hope of speeding up the receipt of payments, paying employees, and making it easier for federal agencies to pay the government contractors, the Biden administration is jumping toward the crypto bandwagon and creating a United States central bank digital currency or CBDC.
Knowing that contractors wait from thirty to one hundred twenty days to receive payment, anything that provides a faster process may be worth the risk. But should the federal do it?
Here’s what you need to know about cryptocurrency and whether federal agencies should use it.
What is cryptocurrency?
Cryptocurrency, sometimes known as crypto, is a decentralized digital currency that is becoming increasingly popular around the world. Many people refer to it as “bitcoin,” but that name is actually a brand.
The digital currency is not backed by any government entity and is subject to differing conversion rate like most currencies. As a result, international purchases can be completed more quickly with crypto or bitcoin payments.
Paying with crypto is often done through QR code scanning or online wire transfer, then the transacting parties receive a notice once the payment has been successfully transferred.
In these recent times, only a few big-name companies accept payment by crypto or bitcoin cash, for it is not mainstream in the business industry yet. Moreover, only a limited number of contractors choose to have crypto to accept payment at this time.
The value of crypto can change rapidly in a short amount of time. Like the stock market, crypto can change its worth as the market changes. Therefore, the amount you will need to pay on your given purchase will vary depending on the value of the crypto. At the same time, if you are paid with a cryptocurrency, the cash value you will receive may be deducted with taxes.
Others say that crypto is considered immune from inflation because there’s a fixed supply, and the federal cannot manipulate the value.
Benefits of using cryptocurrency for contracting companies
One of the major benefits of using bitcoin or currency alike to pay for goods and services or paying employees’ wages is that there are fewer fees, and the money is available almost instantly.
Payless — and get paid faster
Instead of paying transfer tax for wire transfers or credit card processing, a user-pay only less than a cent per transaction in crypto. Additionally, crypto can be transferred instantly into cash or be deposited into a bank account. That being said, it can cut down the time before it takes you to get paid. Allowing yourself to receive crypto payments for wages, profit, or compensation can get you paid faster than the traditional paper checks payment.
Simplified international transactions
International vendors paid with cryptocurrency can avoid the exchange rate calculations and convert cash into different currencies. International payments are more manageable because individuals can transact with the same money and exchange it with their local currency.
As mentioned above, cryptocurrencies can gain value depending on the market. That being said, vendors can manage the currency in their crypto account, wait for the value to rise, and cash it in. However, this can also mean that the money can lose its value, creating a potential loss.
Vendors have more control over their funds
The transaction cannot be reversed when transacting using digital currency, which means that vendors control the funds in their accounts. Having that said, crypto users are protected from people who make purchases and then cancel them and don’t return the merchandise.
It’s easy to get started
It’s simple to open a crypto account. After successfully registering for an account, you will be given a virtual key that will allow you to accept and transfer funds. Many different service providers are available in the market, so before you sign up, make sure that you fully understand their terms and conditions.
Offering crypto payments can be good for public relations
It’s a good idea to accept cryptocurrency payments from your customers if you want to improve your public image. It can serve as your marketing material to show that your business is up to date with the current payment methods.
Things to be aware of cryptocurrency
Since cryptocurrency has not been in the mainstream market, there are a lot of customers that we’re unable to use the service. However, digital currency is expected to grow in the next few years. With that, you can expect more people to find out the benefits of using cryptocurrency.
No legal payment protection for transactions
When customers pay with credit cards or other forms of payment, there is legal protection between the customer and the payment provider. However, legal protections are unavailable in cryptocurrency, and you must rely on trust.
Once payment has been sent, you can no longer get your money back unless requested as a refund initiated by the vendor. Having that said, many consumers are discouraged from using cryptocurrency.
No government oversight
Another thing you shall note with cryptocurrency is the lack of government oversight. Whenever something goes wrong with the transaction, no help from the federal will be available. That is why you must understand all the conditions and agreements for using crypto services.
Subject to capital gains tax
When the money is received, all the sales made through crypto may pass through a taxable fair market value. This means that vendors have to keep accurate records of the currency’s worth every time they receive a payment.
They also have to pay capital gains taxes on the profits they make from an increase in market value. Those values shall be recorded and must be reported into your company’s financial statement as taxable income.
Anonymity carries risks
Because creating an account is so simple, the majority of users prefer to stay anonymous. This anonymity issue is a risk because people with corrupt intentions may take advantage of this.
Crypto’s cash value may still be volatile
The cash value of cryptocurrency right now is highly volatile. As mentioned earlier, cryptocurrency depends its value on the market trends, which can lead to gains and losses, which can be reflected on taxable income that must be reported to the IRS (Internal Revenue Service)
Does the US government have a cryptocurrency?
No cryptocurrency is owned by the United States of America. However, in an article written last January 2022, the Biden administration is preparing to release an executive order for digital assets and ask federal agencies to assess the risk and opportunities they pose.
For some years, federal agencies have apparently been investigating various legislative and regulatory responses to digital currencies, but not in a cohesive and coordinated manner. The Department of Commerce, Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC) are among the regulatory bodies that have issued guidance letters, released informal statements, or engaged the public rule-making efforts regarding how the emerging crypto industry should comply with federal laws and regulations.
The underdevelopment executive order is expected to address the regulatory, economic, and national security challenges posed. The Financial Stability Oversight Council (FSOC), whose continuous mission is to evaluate risks to the US financial system, is set to issue a damning report.
Simultaneously, the executive order is intended to give particular duties to a wide range of federal departments and agencies in order to establish a complete digital asset strategy. The executive order is also expected to comment on the possibility of issuing a central bank digital currency.
Which cryptocurrency is backed by government?
Central bank digital currencies are paying digital assets that are similar to cryptocurrency. Many countries are developing CBDCs in the hope of transitioning their fiat money or banknote and coins to digital currencies as their financial systems.
Although fiat money is still accepted in the market, many countries have experienced a significant decrease in its use. In addition, the Covid-19 pandemic has accelerated the shift toward digital payment methods.
The introduction and evolution of blockchain technology and cryptocurrency have created further interest in cashless societies and digital currencies. So when governments and central banks worldwide implement an official use, these currencies could be working just like fiat money.
Is the US government buying bitcoin?
The United States executives regularly hold auctions for its numerous supply of bitcoin, ethereum, litecoin, and other crypto. The federal government’s relationship with bitcoin has generated multiple headlines over the years. In fact, in February 2022, the United States had a total of $4.08 Billion of bitcoin, making them the most outstanding currency buyer.
Can the government regulate cryptocurrency?
Bitcoin and currency alike have many roles:
- Speculative digital asset
- A platform for smart contracts
- Even a store of value
When it comes to regulation, however, there is a lot of dispute over how cryptocurrency should be classified legally.
Because the securities market has a regulatory framework, some participants believe cryptocurrencies should have one as well. Contrary, others are concerned that regulation will be overly restrictive and obstruct innovation.
Financial regulation aims to safeguard investors, prohibit fraudulent conduct in the crypto ecosystem, provide clear advice to allow companies to bring something new in the crypto industry, and handle environmental concerns associated to crypto mining.
However, regulation needs to come with the right balance. Too much or poor regulation might make it challenging to engage with cryptocurrency, curbing its use. As things are, crypto regulation is a bit of a blur. Advocates or broader crypto adoption say there is a need to resolve how U.S federal views cryptocurrency.
In the end, whatever the government decides will have a knock-on effect on crypto investors and companies devoted to building out the industry’s future.