Selva Ozelli is an international tax lawyer and CPA. She writes monthly Expert Take columns about the intersection of emerging technologies and sustainability.
Turkey, the cradle for civilization, is slowly digitizing despite high inflation. The volatility of the lira might be correlated to the Ether (ETH) and Bitcoin (BTC). The TRY/USD exchange rate plunged from 9 to 18.5 Liras per Dollar in the first six weeks of December to then rebound to 10 Liras before falling to 13.87 Liras at the time. This made the currency an extremely volatile asset.
The volatility of the lira was caused by a controversial interest rate cut by Turkish President Recep Tyyip Erdogan, despite high inflation and against central bankers’ advice. Inflation can devalue cash, leading investors to look at cryptocurrencies as a way to invest their money. This includes major institutional and professional investors and top hedge fund managers such as George Soros. Erhan Kahraman (news editor at Cointelegraph), told me that inflation has risen above 20% and that he expects there to be a rise in 2021.
“The usage of bitcoin and other cryptocurrency in Turkey has increased elevenfold.”
The cryptocurrency market crashed unexpectedly during the first week of trading in 2022. Ether and Bitcoin, which rose 100% and 30% respectively during 2021, entered bear market territory. Three events were responsible for the crash.
The release of minutes from the December meeting of the United States Federal Reserve was the first event. They suggested that the U.S. central banks would begin to raise interest rates sooner than anticipated and reduce its pandemic-era stimulative measures. The news caused a sell-off on the global stock market that spilled into the cryptocurrency markets. Bitcoin’s value crashed over 40% from its November 2021 all-time high. Ether also fell by more than 13% to $3,300 after the news.
The second was the antigovernment riots in Kazakhstan. This country is the second largest Bitcoin mining center. It saw the government of Kazakhstan sack and the internet shut down. An estimated 13% were left offline.
Related: Bitcoin miners’ resilience in geopolitics — A positive sign for the network
The Omicron variant COVID-19 spread quickly worldwide, causing havoc on long-term economic and social development. It also left millions of people ill and overwhelmed healthcare systems already struggling to cope with the cumulative effects of each previous surge. Ugur Sahin (German-Turkish cofounder of COVID-19 vaccine manufacturer BioNTech) emphasized that the virus is not here to stay and that the variants of COVID-19 are becoming more manageable. BioNTech will continue to monitor new strains and variants.
However, the sudden market crash did not shake Turkish investors’ faith that cryptocurrencies were a hedge against a weakening currency and double-digit inflation.
First ever secure, eco-friendly cryptocurrency
Although Satoshi Nakamoto is often credited with creating the first cryptocurrency, Emin Gun Sier, a Turkish-American CEO of Ava Labs and professor at Cornell University, was responsible for the design of the first one in 2003, six months before the launch. It was named “Karma” and was built on a proof of work protocol.
Sirer has been working hard to build Avalanche, an ecofriendly blockchain that utilizes a unique consensus mechanism for high transaction throughput. Sirer explained to my that Avalanche is an eco-friendly, high-performance blockchain that scales hard science and math, instead of expensive, energy-intensive hardware. The innovation of Avalanche’s consensus reduces communication between validating nodes. This also lowers hardware and power needed to protect the network’s many billions in value. Avalanche, which is a “quiescent” protocol, means that nodes won’t have to expend as much energy if there’s less activity on the network, unlike what we see on most other platforms. “Nodes will wait until they hear another transaction to broadcast before moving swiftly towards the next decision,” he said.
“Sustainability is crucial to the blockchain industry’s ability to surpass traditional infrastructures. It also forms the core ethic of the entire ecosystem that uses innovation to improve the lives of people.
Sirer said, “Much of climate activists’ inertia is due to incumbents who have far too much power. It is a huge step forward to decentralize their power and give more economic control to individuals than institutions. The momentum toward mass adoption of decentralized services is growing. Users are also seeing that the high performance and eco-friendliness offered by a blockchain platform are not mutually exclusive. They are essential companions in mass adoption and doing the right thing for both peoples and the planet.
Sierra Nevada Corporation (SNC) is a cybersecurity and aerospace firm founded by Eren Ozmen and Fatih Ozmen. Ultra helped modernize SNC’s cryptographic infrastructure using the legacy AN/PYQ-10 Simple Key Loaders devices. This will protect against electronic warfare threats, as well as protect, store, and distribute sensitive information. SNC has joint ventures in place with Aselsan (state-owned electronics, defense and software companies) and Havelsan (electronics and software companies).
Erdogan stated that Turkey’s primary objective is to produce all of its high-tech and aerospace equipment, which includes cyberdefense systems.
Digital currency central bank
According to the Atlantic Council there are 87 countries, including Turkey, that are exploring central bank digital currencies (CBDC).
The Central Bank of the Republic of Turkey created the Digital Turkish Lira Collaboration Platform as part of the Central Bank Digital Turkish Lira Research and Development Project in close collaboration to Aselsan and Tubitak Bilgem. This project examines the benefits of introducing a digital currency to supplement the country’s existing payment infrastructure. After the tests are complete, the results of the first phase will be announced in 2022.
Kahraman, Cointelegraph Turkey, explained to me that Turkey’s digital banking industry, or “fintech”, is miles ahead of other regions in the world in terms both of technology adoption and technology use. Customers can avail a wide range of digital services from local banks. According to PwC’s 2020 payment research, cashless payments account for more than 50% of all transactions.” He said:
“So, while the Turkish government and financial institutions have clear benefits in issuing a digital currency central bank central bank, I don’t see any significant benefit for the citizens.”
“Machine Hallucinations – Coral Dreams” was a work of RefikAnadol, an award-winning Turkish American new media artist. It was the talk of town at 2021 Art Basel Miami Beach.
Anadol was the first artist to use artificial Intelligence in an immersive public artwork. He partnered with teams from Microsoft, Google, Nvidia and Intel, IBM and Panasonic. His work is based on data-driven machine-learning algorithms that create abstract, dreamlike spaces.
Related: 2021 ends in a question: Are NFTs here for the long-term?
Kahraman told me that there are many platforms that Turkish artists use to sell and create their NFTs. OpenSea is the first and most widely used NFT marketplace worldwide. Refik Anadol and Cem Yilmaz, two of the most prominent Turkish NFT sellers, have already sold their NFTs through the Ethereum-based platform. The Ethereum network’s high gas costs (multiplied with the Turkish exchange rate) make it difficult for lesser-known artists to sell their NFTs on the platform. Due to the popularity of Avalanche, many artists are publishing their NFTs via eco-friendly Avalanche-based platforms and then selling their collections on Kalao. To be fair, most Turkish users also use global apps such as Binance, Huobi, and others. Paribu and BtcTurk are the two biggest players in the local NFT community. With new partnerships and global projects, Bitci and Icrypex are also gaining popularity.”
Avenue 10 Gallery was founded by Luc Navarro. It has branches in Paris, Bangkok, and sells high-end NFTs on Ethereum-based OpenSea. Turkish-American artist Navarro invited me to create NFTs from my “Art in the Time of Corona” series of oil paintings. This includes a portrait of Erdal Arikan, the inventor of the first global channel coding scheme (polar code) for 5G technology.
Regulation of cryptocurrencies
As Kahraman explained it to me:
“Currently, there is no clear regulator to oversee all crypto-related developments within Turkey. President Erdogan stated that the legislation regarding crypto assets was ready for the parliament (TBMM), however, there is no set date.
He said that cryptocurrencies are also known as “crypto assets” in government documents. There are several bodies that work on different aspects of crypto assets. The Financial Crimes Investigation Board is active in monitoring crypto exchanges (crypto service providers) for AML and compliance. The central bank regulates the payment aspects of crypto assets. It banned crypto assets being used for payment in April 2021. Capital Markets Board (SPK), which governs the crypto market including ICOs, token offerings and token sales, is responsible for each case.
Two Turkish cryptocurrency exchanges, Thodex and Vebitcoin, were shut down in spring 2021. Thousands of investors fell prey to a $2 Billion fraud.
Erdogan’s presidential decree on May 1, 2021 added cryptocurrency exchanges as an institution that must comply with Anti-Money Laundering & Counter-Terrorist Financing regulations. MASAK also published a guide to crypto asset service providers in May. This guide aims to prevent money laundering, the financing of terrorism via crypto asset transactions and requires cryptocurrency exchanges to identify customers, report suspicious transactions, provide information and documents, and 4) continue to provide information. 5) Keep documents. MASAK also ramped up its investigations of cryptocurrency-related operations in Turkey.
MASAK found flaws in the Anti-Money Laundering controls at BN Teknoloji (the Turkish branch of Binance), and ordered it pay a fine amounting to 8 million lira ($approximately $750,000) at the time of the announcement.
Separately, Turkey’s Ihlas News Agency reported on Turkish police conducting simultaneous raids at 11 locations, arresting 40 out of 44 suspects who used Twitch’s Bits virtual currency for laundering around $10 million.
Taxation of cryptocurrency
Turkey’s citizens are using cryptocurrency more frequently. However, the current taxation of cryptocurrency and NFT transactions is not regulated. Ezgi Kartin, Kilinc Law & Consulting and Eren Can Ersoy explained that cryptocurrencies could be classified as “securities”, or “commodities” for tax purposes.
Securities: Cryptocurrencies must be considered securities. For instance, initial coin offerings. Gains from the sale and purchase of cryptocurrency and commissions earned by cryptocurrency exchanges for 2021 exceeding 19,000 lireas are generally subject to income tax but not value added tax (VAT).
Commodities: Cryptocurrencies are generally considered commodities. If the taxpayer isn’t engaged in any trade or business, any 2021 gains above 43,000 lires will be subject to income taxes. Profits from trades or businesses will be treated as commercial gains and cryptocurrencies will also be subject to income tax.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Selva Ozelli, Esq. CPA is an international tax lawyer and certified public accountant. She frequently writes about tax, legal, and accounting issues for Tax Notes and Bloomberg BNA as well as other publications such the OECD.