By Josiah Wilmoth
A member of the Connecticut General Assembly has introduced a bill designed to place a fee on all cryptocurrency transactions, a move that would likely stifle blockchain-based innovation in the state.
Connecticut Bill Aims to Tax Cryptocurrency Transactions
The full text of the bill reads:
“Be it enacted by the Senate and House of Representatives in General Assembly convened: That the general statutes be amended to establish a fee to transfer or trade virtual currency in this state.”
The bill does not go into further detail, so it is unclear whether the tax would be a percentage or a flat fee, nor does it stipulate the size of the fee.
Bad for Business, Bad for Consumers
However, a special cryptocurrency tax could prove to be disastrous for any attempts Connecticut might make to attempt to attract cryptoasset-focused firms to the state.
It’s easy to imagine a cryptocurrency transaction fee making it prohibitive to run a cryptocurrency exchange, which needs to offer low-cost trades to attract customers and ensure liquidity.
In 2015, for example, European cryptocurrency users narrowly-avoided having to pay a value-added tax (VAT) on cryptocurrency transactions, which European blockchain firms said would have made the region less-hospitable to crypto-focused businesses.
But Rep. Dillon’s proposed cryptocurrency tax would not only create a restrictive business environment — it would also likely harm individuals.
The bill would make it more expensive for them to trade cryptocurrencies as part of their investment portfolios, and it would also reduce the technology’s utility as a medium of exchange — especially for micro-transactions, one of its key uses cases.
The tax would likely drive investors to unregulated trading platforms located offshore, exchanges which may not have the security measures in place to adequately protect customer funds.
One needs only to have observed the recent hack of Japanese cryptocurrency exchange Coincheck to observe the ramifications of transacting on an exchange with poor security.
Indeed, while many cryptocurrency enthusiasts believe reasonable regulations are necessary to protect investors and help the industry to thrive over the long-term, this bill does not seem structured to accomplish either of those goals.
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Featured Image from Jessica Hill/AP