The function of bitcoin has evolved over the years. It started as a swift and cheap technique of online payment. It subsequently became known as a store of value. It became clear that this cryptocurrency can be an excellent tool for any censorship-resistant payment. However, most investors in this brand new currency track its price over all other functions. Bitcoin is now one of the most traded items on exchanges. Among all these, bitcoin's basic function as a mode of payment is rarely used.
There are a number of good reasons as to why a normal consumer rarely uses bitcoin. The first reason is that this cryptocurrency is hard to actually use to buy or sell something. One needs an excellent technical knowledge to do this. There is also the matter of super high fees imposed on such transactions. The volatility of price is yet another inhibitor. Another huge negative is the capital gains taxes.
The United States and many other developed countries impose capital gains taxes each time any person uses a few units of their bitcoin stash to do a purchase. This is a must if the price of the bitcoin went north from the time of buying the cryptocurrency. It means that even if both the buyer and the seller prefers bitcoin over any other currency, the plethora of taxes makes it a pain to hold it. This is the reason a significant number of bitcoin owners are simply converting their bitcoin assets into local currencies if they want to purchase something. By doing this, many people unknowingly become tax evaders.
Cryptocurrency Tax Fairness Act
The United States Government knows this. This is why Cryptocurrency Tax Fairness Act was introduced in Congress in 2017. This will exclude any bitcoin transactions below $600 from any capital gains taxation. The users of bitcoin will only calculate tax implications of bitcoin payments if the amount of money paid is more than $600. It is to be noted that the same regulation is applicable for foreign currencies.
Hedging options are another useful method to avoid tax-linked usability problems when it comes to bitcoin wallets. The fundamental idea behind this transaction is that the bitcoin is held in the smart contract already hedged to the US dollars to sidestep the volatility of the cryptocurrency. This setup is useful to anyone who will want to use bitcoin to make payments but also be immune to the cryptocurrency's wild swings.