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Things to Consider when Being Offered a Cryptocurrency Deal


Georgiy Dzhaniashvili, lawyer

Source: Business

Currently such words as cryptocurrency, token and ICO are nothing new. Cryptocurrency is a kind of digital currency, the creation and control of which are based on cryptographic methods. As a rule, cryptocurrencies are decentralized. Cryptocurrency units can be emitted through mining, forging or ICO. However, there is no common understanding or law governing the cryptocurrency-related processes, except for certain references thereto. For instance, the Estonian Money Laundering and Terrorist Financing Prevention Act, as well as tax law, provide for the term “virtual currency”. It should be noted that in Estonia a license is required for such types of activity as virtual currency exchange and provision of virtual currency wallet services.

In 2015 the European Court ruled that bitcoins exchange for fiat currencies shall be exempt from VAT. In its decision the court specifies that the VAT Law applies to the supply of goods and provision of services only. The transactions in bitcoins were classified as payment transactions with currencies, coins and bank notes, and, therefore, shall not be subject to VAT. The court recommended that all EU Member States exclude cryptocurrencies from the number of assets subject to taxation.

Today no one knows for sure how many deals in cryptocurrency are taking place today, but it may safely be said that quite a few. What you should pay attention to if your partner offers to make a deal in cryptocurrency?

Choice of cryptocurrency

Currently there are over 1.3 thousand cryptocurrencies in the world. Many of them are present in the market for a quite long time already and have a certain degree of trust, in particular such as Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), etc. When making cryptocurrency transactions you need to clearly understand what this currency/token may give you, as well as for what and how it can be exchanged. Some tokens can be bought for bitcoin, but not vice versa, or you can buy a token for national currency but it is impossible to exchange it backwards. Some cryptocurrencies mask a direct pyramid, when trading occurs within one system only and with its participants only, where you receive a bonus for getting your ‘friend’ to sign-up. Therefore, it is worthwhile to get acquainted with description of token specifics in a public prospectus or White paper.

Choice of cryptocurrency exchange service or cryptocurrency exchange

There are online and offline cryptocurrency exchange platforms. An integral part of their work is the commission fee. It may significantly differ on different exchange services, but on average amounts to 4-5% of the transaction amount. This indicator depends on which exchange is taken as a basis by the exchange platform to determine the rate – since the quotes do differ – and which currency you are using.

When choosing the exchange service or exchange, pay attention to the conditions of exchange rate and commission fee formation. The number of transactions and/or reviews is of paramount importance as well. If the exchange service or exchange has been registered for a long time, but in fact there have been few transactions, it is worth considering whether it is worth dealing with.

AML (anti money laundering) rules

You should also be careful if the exchange service or exchange does not request data from you for your identification, as required by the rules on combating money laundering and terrorist financing. It is likely that such an exchange service or exchange is temporary and you will hardly get the desired result.

Choice of partner

Do not forget that cryptocurrency is decentralized, which means that there is no responsible element between the seller and the buyer. The transaction is risky. For example, if you buy a vacuum cleaner online for Euros or dollars, then, in the event of fraud, it is possible to return the transaction through the bank. However, it will be impossible in case of cryptocurrency transaction. Even contacting the police you will have difficulties identifying the transaction. And finally: when making transactions in cryptocurrency, familiarize yourself with the effective practice in your jurisdiction in order to avoid unpleasant surprises.

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