Can Crypto Kick-Start a Slowing Economy?
Tags: webdev, blockchain, web3
Published: 2024-02-16 18:07:41

As crypto is infusing into the global economy, governments are heeding the decentralized finances on the basis. But is this a paradox, or a grounded solution?

### Context:

While cryptocurrency adoption fluctuates, its factual evidence is pictured in the diversity of services, technological solutions, and number of operators. But it is government-based integration that matters. This becomes more visible as authorities around the world are processing the regulation basis for crypto as it’s being tackled by law enforcement. Not mentioning the SEC taking over the status of decentralized currencies and approving Bitcoin exchange-traded funds.  

But while some governments seem to comply with the tendency, others utilise it to become a driver force for the macroeconomy. The states that were set for this path are labelled as cryptohubs – the powerhouses of Web3 development and integration, met with taxation incentives, legislation interest, and banking access.

The list of crypto hubs mainly covers the states with highly-developed economies, including Switzerland, South Korea, UAE and other prominent countries. Still, the instances of El Salvador, Ukraine, and Thailand demonstrate that cryptocurrency state adoption may serve as a kick-start to a sluggish economy. 

But what secret powers does crypto obtain for it? In today’s article, we’ll unveil them.


## Banking, or de-banking? 

The first and foremost effect, and at the same time another paradox – cryptocurrency boosts banking. Far better – this sector is among many macroeconomic branches that are dominantly influenced by cryptocurrency. The distributed money unlocked new solutions for optimising financial processes, facilitating the cross-border transactions, and advancing security. 

All the factors combined played a pivotal role in levelling one of the foremost today challenges – debanking. While over 1.4 billion adults still have no access to banking services both in low-income and high-income countries, cryptocurrency transactions with less paperwork and thriving fintech may manage to cover the unbanked population, given the integrations with licensed services.

Still, in terms of risk-management, crypto has been being “de-banked”. De-banking stands for the phenomenon involving traditional banks and financial institutions severing ties, or limiting relationships, with new or existing cryptoasset businesses and, in some cases, preventing individuals from being able to transact in cryptoassets.

Banks distancing from crypto mainly takes place owing to global regulatory crackdown, bringing into action the state-integrated crypto paradox. 

Whilst crypto de-banking and de-risking has its utilities and, in particular, can be a useful and effective method in addressing, for example, money laundering concerns, the benefits need to be carefully considered against the potential drawbacks of stifling the cryptoasset industry’s development. 
Nevertheless, many cryptohubs’ governments across the globe seem to level these very issues by killing two birds with one stone – tax policy. 

## Why Taxes Is The Most Realistic Solution 

Seeing crypto’s community and its vital role in sustaining this technology, fostering the Web3 business sector seems to be the most effective way to utilise blockchain contribution to the economy. What is more, owing to circumventing regulation obstacles that the strategy includes, it remains the most popular. 

The latest instance is reported to take place in Thailand. In order for it to become a digital asset hub, the country's Finance Ministry has announced the exemption of value-added tax (VAT) on digital asset trading. A 7% VAT was previously levied on earnings from cryptocurrency and digital token trading. The new waived VAT rules came into effect on 1 January 2024. Transferring digital investment tokens to a third party was already VAT-exempt but this has now been extended to brokers and dealers supervised by the Securities and Exchange Commission (SEC).

As Thailand has emerged as a leading jurisdiction for offshore digital asset investors, these new tax measures could potentially stimulate further growth in the country's digital asset market. However, Mr. Paopoom emphasized the government's responsibility to ensure the stability of the financial system while harnessing its developmental potential.

In Asia, Thailand is not the only candidate for consolidating crypto facilities through reforming tax policy. South Korea is also considering similar initiatives. 

Jeong Jung-hoon, deputy minister of the tax and customs office for South Korea’s Ministry of Economy and Finance, said that the National Assembly is weighing up abolishing crypto asset gains from income tax for financial investments.

President Yoon Suk-yeol's administration intends to eliminate taxes on financial investments like stocks and funds to bolster the wealth-building and financial planning efforts of its citizens.

The new tax regime will start on 1 January 2025. Citizens with more than 2.5 million Korean won ($1,865) in crypto asset gains will be subject to a 22% tax. The government plans to submit an amendment later this month.

Similar solution is being processed in Ukraine as well. The Ministry of Digital Transformation in collaboration with law enforcement and financial bodies are on their way to introduce the tax and legal framework in answer to the fast-growing local Web3-sector and crypto usage. 

Being rated globally fifth among the top crypto adopting countries, Ukraine is also a home to a great number of top-notch Web3 projects, including Hacken, Whitechain (WB Network before the rebranding), KUNA etc. 


## Presumptions, Not Factual Impact

As of the time of the report, the expediency of crypto integration into the global economy is the matter of heated debates, moderately transformed into action. Still, despite the struggles and regulation complicities, a vast majority of macroeconomic actors converge into one point: crypto sees potential.

Thus, the 2022 World Economic Forum highlighted that cryptocurrency may serve as a boost for financial security. According to CipherTrace analysis, less than 1% of transactions with crypto are nefarious – regardless of the fact that 98% of ransomware uses crypto. 

This statistics bring us back to the regulative issues, as security risks serve as the core basis for them. Despite this fact, the potential of crypto is certainly on the face. What’s remaining to do is the introduction of a proper government-based legal framework. _But is this a paradox, or a grounded solution?_