Written by: Averroes
(1.0) Introduction
To better understand what is Bitcoin and cryptocurrency, we would have to first identify what they are and its purposes. Bitcoin is a form of decentralised and unregulated digital currency, with a bitcoin address. The entire system that it is operated are pseudonyms with the individuals themselves too are anonymous. It was introduced by Satoshi Nakamoto in 2008.
Being decentralised, they have their own global public ledger of past transactions, with miners forming a blockchain that confirms the transactions taking place to the rest of the network. This creates a distinction between legitimate Bitcoin transactions, rather than it being re-spent elsewhere.
It uses cryptographic hasing algorithm to secure a network. Hence, no one could fraud bitcoins and security. Everything is mathematically calculated. It is difficult to hack or alter, according to one interviewee.
Since Bitcoin are regulated among the miners themselves (peer-to-peer), people trust blockchain more than third-parties with institutional authority. There would be cons if miners were to entrust amongst themselves as well. On the contrary, miners of Bitcoin could be exposed to malicious attacks, since their mining machines IP are visible.
Without legal enforcers from legitimate financial institutions or authorities, there is a possibility of scams to occur. No sanctions or action could be taken against dishonest traders. One interviewee defended this, by stating that a Bitcoin minor would have to join a pool of reputable and honest ones.
Bitcoin has the traits of a Fiat currency, which is not pegged to a physical commodity such as gold or government guarantees. Fiat currency is valuable due to its scarcity, guarantee of value from the issuing state and the laws of supply and demand.
(1.1) Why do people use Bitcoin
With bitcoins, you can use it to purchase anything in the conventional sense, the same as currency. Any merchants could accept it. It can also be sold to others who wish to use it in a similar vein. Under the guise of anonymity and decentralisation, it is a sought for form of currency.
The absence of central bank or government allows faster transactions, without being filtered or vetted. Bitcoin merchants or traders, have greater autonomy over it. Frankly, it is instantaneous.
As of 2nd March 2019, a price of one Bitcoin is USD$10,980. Convert the dollars to Malaysian ringgit, it is an easy ticket to become superbly rich by just selling it. That is why, people nowadays are mining Bitcoin, one of many routes to amass large chunks of wealth. They are willing to continuously invest in this industry by upgrading their equipments and compete with other bitcoin miners.
Other than that, we may never know what it could be used for. Perhaps for transaction in the deep or dark web, human-trafficking, drugs, weapons, money-laundering, hire hit-men or for other illegal-syndicate motives online. Through Bitcoin, when no institutional authority such as the Banks or Government to intervene, they do not have to pay taxes or report for what purpose, legal or illegal their transactions are.
(1.2) Is Bitcoin mining sustainable?
Bitcoin mining is becoming more expensive. The hypothesis is that, the more energy or power required to mine it, the more expensive it is to mine as it comes with tight-maintenance of mining equipments. The mining machines are expensive and to garner money, one would have to join a pool of miners to make profit.
One interviewee stated that, mining bitcoin costs him RM100,000 per month on electricity bills. Unless the income margin exceeds the the RM100,000, only then there would be profit. The mining machines would also produce too much heat.
The impacts are dreadful toward the environment, with 75% Bitcoin mining in China being the leading country in this industry to ban it. Since heat and energy is extraordinarily needed, it could increase global warming above the 2 Celsius mark and other climate issues.
According to research, Bitcoin is responsible for 13,000kg of CO2 emissions for each bitcoin mined, that that is 40,000kg of CO2 per hour. Mining Bitcoin itself per year, is equivalent to the electricity consumption of Pakistan and Norway at 120.56 and 124.13 TWh annually.
Together with Bitcoin, other cryptocurrencies such as Etherum, Litecoin and Monero were responsible for 3 to 15 million tonnes of CO2 emissions. Mining Bitcoin may be sustainable in certain countries with high GDP, as they do not rely much on non-renewable energy (natural gas and coal) for electricity.
(2.0) Malaysia's legal and socio-economic views
According to a Cambridge University study, Malaysia ranks 6th in the world for mining Bitcoin. Previous Finance Minister, Datuk Seri Johari Abdul Ghani, he states that Bitcoin will not be outright banned on that cryptocurrency. Bitcoin could lead to innovation and creativity in the financial sector, especially in financial technology.
However, Bank Negara Malaysia issued a policy document on Anti-Money Laundering and Counter Financing of Terrorism of Digital Currency, which states that digital currencies including Bitcoin are not legal tenders. Since mining Bitcoin could allow oneself to hoard large fortunes of lucrative wealth, it would be unfair not to tax them, as others work ends meet to pay their taxes too.
(2.1) Can Bitcoin be taxed?
On 19th January 2018, the CEO of Inland Revenue Board Dato' Sri Sabin Samitah said that according to section 3 of the Income Tax Act 1967, the law states that, "where tax shall be charged upon the income any person accruing in or derived from Malaysia", also includes cryptocurrency traders.
One may argue that, we do not have to pay our taxes with cryptocurrency or Bitcoin, because it is an income generated overseas, not within Malaysia. Though, Malaysian Bitcoin traders or merchants would have to prove that it was generated from abroad and it is difficult, because Bitcoin transactions are already anonymous and we do not know from who or where it came from.
Moreover, even if cryptocurrency is vaguely recognised in Malaysia, the case of Lindsay, Woodward and Hiscox v IR Commrs (1932) 18 TC 43 states that illegal profits made from illegal trades are subjected to tax.
One would also claim that they are not subjected to tax as they are not tax residents in Malaysia. If the Bitcoin trader were to suggest that they generate the Bitcoin and trade it as a form of hobby only, it could be counter-argued that in Hawes v Gardiner (37 TC 671), a taxpayer was subjected to taxes, as training and breeding dogs as a hobby was a form of trade, and his profits from the sales were taxable.
(2.2) Offences related to Bitcoin
As stated, mining or trading in Bitcoin is not illegal, however, it is illegal if a person where to source electricity or energy to continue mining operations. The very nature of mining Bitcoin requires large supplies of energy. Malaysia is not really among the most renewable or sustainable countries in producing energy, in the author's opinion.
This explains why Bitcoin miners are willing to steal or vandalise electrical generators or circuits, by stealing them from public amenities to service their machines and equipments. For instances, the heat from the machines ignited a fire in an unoccupied shophouse in Miri with remnants of cryptocurrency servers in debris.
According to Tenaga Nasional berhad (YNB), since 2018 there were 610 cases of electricity theft involving Bitcoin. It rose up to 2,475 cases in 2020. In 2021, TNB found 1,359 cases until June. From here, TNB together with the assistance of the Energy Commission, local councils and Royal Malaysian Police conducted raids.
Stealing electricity could land a person for an offence under the Electricity Supply Act 1990 with a fine up to RM100,000 and up to 10 years jail. Additionally, they could also be charged for theft or mischief under section 379 and section 427 of the Penal Code respectively.
(3.0) Conclusion
To conclude, Bitcoin is a form of cryptocurrency without regulation and free from central authorities such as Banks or the Government. They operate anonymously on Blockchain and managed by themselves through peer-to-peer and transactions are easy and feasible, without time delays or constraints. It is generally safe to use and difficult to hack and have high privacy securities. People are now seeking profit from Bitcoin mining as it is a attractive form of business and investment. On the side-note, due to anonymity, we never know the motives of people transacting it, could be intended for illegal trade or purposes in the dark-web.
However, there are legal and socio-economic effects from Bitcoin mining. A person may exclude themselves from paying taxes, as it is not well-defined whether profits from Bitcoin are taxable. This creates inequality and injustices to others who also work hard to pay the government their taxes. Furthermore, Bitcoin mining contributes to global warming and the increase of CO2 emissions, since the machines require high-levels of energy consumption. Paying for the machines and electricity is painstaking, which causes the miners to steal electricity from public amenities and facilities. Hopefully, there would be better regulations or changes to the law to cater to this problem.
(4.0) References;
Yew, C. (n.d) CRYPTOCURRENCY: TAX IS NOT VIRTUAL. CurrentIssues. Retrieved from, https://www.crowe.com/my/-/media/Crowe/Firms/Asia-Pacific/my/CroweMY/Insights/Cryptocurrency---Tax-Is-Not-Virtual.pdf?la=en-GB&modified=20190208232425&hash=3CFBE91BFD2AA94C6EEAA7E50D944D7C02CB600D
Irni Eliana Khairuddin and Sas, C. (2019) An Exploration of Bitcoin Mining Practices: Miners’ Trust Challenges and Motivations. CHI. Retrieved from, DOI: 10.1145/3290605.3300859
Alonso, S., Jorge-Vázque, J., Fernández, M., & Foradellas, R. (2021) Cryptocurrency Mining from an Economic and Environmental Perspective. Analysis of the Most and Least Sustainable Countries. Energies. 14. Retrieved from, . https://doi.org/10.3390/en14144254
Yeong, Y., Khairul Shafee Khalid, & Savitra K. Sugathan. (2019) Cryptocurrency Acceptance: A Case of Malaysia. International conference on Recents Advancements in Engineering and Technology (ICRAET-18) . Retrieved from, https://www.ijeat.org/wp-content/uploads/papers/v8i5C/E10040585C19.pdf
Dzof Azmi (July, 2021) Bitcoin mining: China's loss is Malaysia's gain (and TNB's loss). Retrieved from, https://www.digitalnewsasia.com/business/bitcoin-mining-chinas-loss-malaysias-gain-and-tnbs-loss
Comments
Post a Comment