Jared Polis (the governor of Colorado) announced that the state government would allow residents to pay their taxes in cryptocurrency as soon as 2022. Experts believe the move is legitimizing the crypto asset class and will be implemented in due course.
Polis stated that crypto owners in Colorado may be able to send tax payments in digital currency. The state will convert the funds back into fiat once the payments are received by an unnamed intermediary.
Colorado is already a leader on Crypto, with the first Chief Blockchain Architect in the country. Colorado also hosts ETHDenver as well as other blockchain hackathons. CNBC was a great host and it was great to talk with them about the Colorado initiatives in cryptocurrencies. pic.twitter.com/p5WtlF2E0r
— Governor Jared Polis (@GovoofCO) February 17, 2022
Polis said that the state could accept cryptocurrency payments within a few months after this summer’s rollout. This would be for things such as driver’s licences or hunting licenses. At the time, the governor stated that he was not concerned about volatility in cryptocurrencies such as Bitcoin (BTC) because the state doesn’t plan to keep the coins for very long.
Soon after taking office in 2019, Polis signed into law the Colorado Digital Token Act. This bill aims to exempt tokens that have a “primarily consumptive use” from securities regulations. He also stated that Chris Hansen, a State Senator, was currently working on a bill to allow state-created tokens to be used for state reserve purposes.
Hansen spoke to Cointelegraph and stated that the bill “introduces additional security, saves costs, diversifies investors, and the potential for lower interest rates paid state,”
We must ensure that every Coloradan has equal access to investment in our state. We invite millions of Coloradans, beyond commercial banks and institutional investors, to participate in the financing for new capital assets.
Senator Xavier said that he was looking forward to how the state would help “communities recover from the pandemic”, improve their quality-of-life, and address inequities which have prevented everyday people from fully benefiting from our economy.
As a representation of debt, money is represented by money
According to anthropologists like the late David Graeber, money was originally created as a physical representation for debt. Graeber noted that governments used money to facilitate their workers’ maintenance and standardize the payment for tributary obligations.
Brian Pasfield, chief tech officer at Fringe Finance, a decentralized lending platform, spoke to Cointelegraph. He cited Graeber’s work to suggest that cryptocurrency is being legitimized through moves like Colorado’s. Pasfield stated:
“Seeing governments recognize cryptocurrencies as a viable means of paying taxes speaks volumes about a mindset shift in how we view these currencies.”
Pasfield stated that accepting crypto as a tax payment will “inevitably result in governments having to manage these currencies within their Treasuries.” This can help to reduce volatility, which is what crypto assets are well-known for.
He said that if the United States had a large federal government, such as the one in the United States, that would regulate cryptocurrency, it would be a natural step to accept cryptocurrencies as legal forms of money.
Russel Starr is the CEO of DeFi Technologies, a technology company that offers products for investing in decentralized financial markets. He told Cointelegraph that he believes a government should have its treasury denominated using the currency it uses for paying for services. This means that it should convert crypto income to dollars if it intends to pay its employees in dollars.
Starr stated that an entity must have “diversified investment holdings,” and should include cryptocurrency and other decentralized products.
According to the CEO, cryptocurrency’s “growth potential would make it attractive in any carefully balanced portfolio, particularly in that of Mile High State.” It could also be that governments accept cryptocurrency as a tax payment.
Adoption by the government is “only a matter time”
California State Senator Sydney Kamlager introduced in February a bill to amend the state code so that cryptocurrencies could be accepted for certain civic payments.
The bill would have authorized a state agency “to accept cryptocurrency as a means of payment for government services.” Ohio was the first state in the United States to accept Bitcoin for tax in 2018. However, the program for crypto tax payments was dropped in 2019 due to legal issues.
The Colorado State Capitol Building and its surroundings.
FlyFin’s CEO and co-founder Jaideep Singh told Cointelegraph that cryptocurrencies are gradually becoming regulated. Singh explained that crypto regulations began with reporting on crypto transactions for U.S tax filers, before the government agencies moved to tracking cryptocurrency transactions.
The tracking of cryptocurrency transactions reduces anonymity. This “furthed a trend we will see over several years”, which involves more transparency, tracking technology, and higher regulatory requirements for crypto.
It is the responsibility for governments to ensure that citizens aren’t defrauded, that criminal activity is stopped and that taxes are paid correctly. This new development in Colorado was just a matter time.”
Singh believes the U.S. is the leader in cryptocurrency acceptance and that other countries will follow suit. “We will almost certainly see blockchain adoption by central banks,” he said.
CoinFlip’s chief operating officer Ben Weiss told Cointelegraph that he believes Colorado will create a chain reaction and other states will follow suit, especially if the rollout goes according to plan. This could be a significant step towards crypto being recognized by consumers as legitimate currency.
Weiss said that this move could increase cryptocurrency use among government services.
“This advancement could also encourage crypto transactions in other places statewide such as at a local department of motor vehicles [DMV]]. This is an excellent opportunity for Colorado to establish itself as a tech center and be at the forefront of a digital revolution.
Weiss stated that crypto assets could be held by U.S. States because they have the potential to appreciate and can be used to “improve roads, clean parks, or finance other underfunded areas in the local government.”
Cointelegraph spoke with Patrick White, CEO and co-founder of Bitwave, a crypto asset tax and accounting software provider Bitwave. He said that he enjoys seeing states like California and Colorado accept crypto as a form of taxes, but not for the reasons one might believe.
White said that crypto assets require “muscle memory” and requires “understanding how to on-ramp or off-ramp, learning the tax and accounting, and figuring out custodianship.
“It’s a big step for the industry that multiple countries are required to fully understand crypto and make rules about pricing digital assets for tax purposes.
Weiss hopes that the U.S. Federal Government will be next in line, and that government agencies end up keeping some of the assets on their balance sheets instead of selling them off.
Even if governments don’t keep crypto assets on balance sheets, there could be a surge in demand for cryptocurrencies they accept as payments. Fiat currencies are used in tax payments to maintain demand. People must have fiat currency so that they can pay their taxes at the end each month or year.
To pay taxes with cryptocurrencies, you will need fiat currencies. This is even more true because it is now easier to use crypto debit cards to pay for goods and services.