Independent cryptocurrency trading – is it possible?

For some time, cryptocurrencies have been considered anonymous means of payment. However, times have changed and new legal restrictions ending the independence of using e-coins is being discussed more and more openly. So are there any anonymous cryptocurrencies and ways to buy them left? Or maybe you have to accept the fact that nothing can be hidden on the Internet? If you consider coin trading, take a closer look at this issue.

Full anonymity of cryptocurrencies?

The first functioning cryptocurrencies were anonymous mainly in legal terms, as a few years ago there was no obligation to register their trading. However, this did not mean they were invisible in the use, as from the very beginning the e-coin technology did not allow for full anonymity. It turns out, therefore, that the mystery of the Bitcoin and Etherum giants was only legendary from the very beginning. So the question arises, why most of the largest cryptocurrencies are pseudo-anonymous?

One of the answers is that the public keys of e-coin transactions are visible to anyone who is interested in them. The provided code contains data about the sender’s and recipient’s wallet address and the amount of the transaction. Although the names of the owners of the individual wallets are nowhere to be found, it is possible to trace exactly to which investor each individual account belongs.

In addition to the ability to analyse data shared in public keys, there is another issue that makes cryptocurrencies less anonymous. It is the requirement to settle investments with the tax office and user registration on the crypto-exchange. In this case, any illusion of making investments anonymously has been dispelled, as cryptocurrency transactions appear not only in the account assigned to the name, but also in the tax office. Such a situation limits the independent cryptocurrency trading very much.

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Cryptocurrencies and legal regulations

Legal regulations regarding cryptocurrencies fully depend on the decisions of individual countries as well as political and economic associations, such as the European Union. Some countries such as Algeria, Bolivia, Morocco, Nepal, Pakistan or Vietnam have imposed restrictions on cryptocurrency investments, banning all activities related to them. Qatar and Bahrain present a more liberal approach as although they forbid their citizens to engage in any activities related to the creation of their own cryptocurrencies, they allow them to invest in the existing ones. Other countries restrict investing by their citizens and impose indirect restrictions on financial institutions regarding e-coin transactions. Such places include Bangladesh, Iran, Thailand, Lithuania, Lesotho and Colombia.

A number of countries regulate Introductory Coin Offerings (ICOs) that use cryptocurrencies as a fund raising mechanism. Some countries, such as Macao and Pakistan, ban ICOs completely, while most of them focus on providing regulations in this field. For the most part of the latter cases, the regulations of the ICO and the relevant regulatory institutions differ depending on how the ICO is classified. In New Zealand, for instance, specific obligations may apply depending on whether the token being offered is classified as a debt, equity, managed investment product, or derivative. Similarly, in the Netherlands, the provisions applicable to a specific ICO depend on whether the offered token is considered collateral or a collective investment unit, which is evaluated on a case-by-case basis.

Not all countries consider cryptocurrencies a threat. Some of them see e-coins as legal means of payment, recognize the potential of their technology, and develop a cryptocurrency-friendly regulatory system. This group includes Spain, Belarus, the Cayman Islands and Luxembourg.

Furthermore, some jurisdictions try to develop their own cryptocurrency system. This category covers a diverse list of countries such as the Marshall Islands, Venezuela, Central Bank of the Eastern Caribbean, and Lithuania. In addition, some countries such as Belgium, South Africa, and the United Kingdom, also found the size of the cryptocurrency market too small to be sufficient reason to justify regulation or a ban.

One of the many questions that arise from allowing and using cryptocurrency investments is the issue of trading cryptocurrencies and tax. The main challenge is to categorise cryptocurrencies and specific activities related to them. Whether profits from mining or selling e-coins are classified as income or capital gains determines the appropriate tax bracket.

Many countries have classified cryptocurrencies for tax purposes:

  • Israel –– taxed as assets,
  • Bulgaria –– taxed as a financial asset,
  • Switzerland –– taxed as a foreign currency,
  • Argentina and Spain –– the cryptocurrency is subject to income tax,
  • Denmark –– the cryptocurrency is subject to income tax and losses are deductible,
  • United Kingdom –– corporations pay corporate income tax, unincorporated companies pay income tax, individuals pay capital gains tax.

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Mainly due to the decision of the European Court of Justice (ECJ) in 2015, profits from investments in cryptocurrencies are not subject to value added tax in the Member States of the European Union.

In most countries that have or are in the process of developing e-coin tax laws, mining of cryptocurrencies is also exempt from taxation. However, it is worth remembering that in Russia mining that exceeds a certain threshold of energy consumption is already subject to tax.

In a small number of jurisdictions, cryptocurrencies are accepted as means of payment. In the Swiss cantons of Zug and the municipality of Ticino, cryptocurrencies are accepted as currency even by government agencies. The Isle of Man and Mexico also permit the use of cryptocurrencies as means of payment along with their national currency. Like governments around the world that finance various projects by selling government bonds, the government of Antigua and Barbuda allows funding for projects and charities through government-backed ICOs.

Legal regulations also apply to the purchase of e-coins, because according to European Union law, each cryptocurrency exchange registered in the EU must require account holders to be verified with identity documents. This is to tighten the tax system. Most of the large, proven exchanges operating outside the EU (e.g. American ones) also require identity verification. Therefore anonymous use of e-coins on exchanges is impossible.

As can be deduced from the large number of solutions related to the taxation of cryptocurrencies, governments strive for the greatest possible transparency of operations performed on cryptocurrencies. Does this mean that cryptocurrencies have lost all their anonymity?

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How to stay anonymous when using cryptocurrencies?

As it became clear that cryptocurrency transactions were not fully anonymous, there was a need to create new e-coins with a much higher level of invisibility. Currencies that allow for classified blockchain transactions. These include Lisk, TRON or Monero, which provide the user with the certainty of hiding their own identity. This is achieved by masking their public keys which contain the sender and recipient details. Without this information, it is difficult to find out who paid and what they paid for with cryptocurrencies. But that’s not all. There are some basic rules that can provide more privacy for the user both when buying and trading cryptocurrency.

One of the most important ones is the tumbler –– a service offered to mix potentially identifiable cryptocurrency funds with others. The account owner transfers the funds to the tumbler service, which mixes them with other users’ money and transfers the currency to the desired address. Transaction amounts can be selected randomly, so the transfer consists of many small partial payments spread over a longer period. This increases the anonymity of the transaction as it makes it difficult to track e-coins. The service is not free, though, as administrators charge a fee of 0.25% to 3% of the amount to be mixed.

Cryptocurrency tumblers are usually recommended when an investor trades a very large amount of cryptocurrency and does not want it to be detected. If you want to stay anonymous when buying cryptocurrency, just use the cryptocurrency exchange office without registration.

Where to buy cryptocurrencies without registration?

One way to buy currency anonymously and without registration is to use a Bitcoin machine. This is similar to a regular ATM, but instead of providing local currency, they deliver bitcoins to your wallet in exchange for cash.

Bitcoin machines are fully anonymous, but their big disadvantage is a large 5–10% margin. Additionally, machines that support currencies other than Bitcoin are not available in all countries. Another way to buy cryptocurrency without registration is anon-line cryptocurrency exchange office, where margins charged are not as high as in the case of Bitcoin machines.

 Offices such as Crypto-ATM offer a choice of up to a dozen different cryptocurrencies without the need to register, therefore you stay completely anonymous. The great advantage of cryptocurrency exchange offices is their availability from anywhere in the world as it allows for immediate payment by bank transfer for the purchased cryptocurrency, which is then sent to the address of the investment wallet.

Everything suggests that, despite the legal restrictions, there are still ways to independently trade cryptocurrency with a certain degree of anonymity. It is worth taking advantage of such a possibility as long as it exists, because you never know whether the legislators will try to take away the remaining freedom from investors.

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