MBOMBELA – With a steady increase in the amount of people using bitcoin and other cryptocurrencies to pay for goods and services in South Africa, SARS recently announced that it will provide clarity on the tax implications of using cryptocurrencies to make daily payments.
According to the tax regulator, cryptocurrencies are currently being considered under capital-gains tax.
A local tax practitioner who requested not to be named as he is not an expert on cryptocurrencies, stated that there is little clarity on how SARS plans to implement tax regulations.
“Things are moving very fast at the moment, so it’s unsurprising that SARS has not been able to make concrete policy public as yet,” he said.
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Currently rising in value after peaking at close to R240 000 per coin in December 2017, bitcoin and a collection of other cryptocurrencies such as Ethereum, have been showing a global decline in value since just before Christmas last year. This week the price of bitcoin fell below $6 000 for the first time this year.
These cryptocurrencies, which rely on a decentralised digital payment system with no single administrator, have been lauded by some as heralding a fundamental shift in local and global markets.
Economist Mike Schussler is of the opinion that the currency and the value thereof is much less noteworthy than the technology which it uses.
“Parts of the technology being used are exciting and I’m interested in seeing what it might be used for in the future, but as for the continued rise of bitcoin and other cryptocurrency prices, I am not convinced,” he said.
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Bitcoin, released in 2009, was the first cryptocurrency on the market. It was invented by an unknown individual or group of people using the name Satoshi Nakamoto.
To obtain the currency, it has either to be mined digitally by using specialised cryptocurrency mining rigs which cost anything from R30 000 to R100 000, or bought and traded much like traditional currencies.
The difference is that with cryptocurrencies, the technology used to mine and verify transactions is highly sophisticated.
Using rigs which consume immense amounts of electricity to run algorithms which are geared to solve a variety of equations, miners are rewarded for the effort expended by their rigs by laying claim to the percentage of the reward for mining a coin.
“The results of the mining are logged on a ledger of all the machines in the network that work to solve the equation, depending on the availability of coins, each miner is awarded a share as determined by the algorithm and verified by block chain technology,” explained Johan Bezuidenhout, a local cryptocurrency miner.
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Currently the energy consumption used to power the network amounts to approximately 42 terawatt hours of electricity per year, equal to the carbon dioxide emissions of about 1 million transatlantic flights.
With these overhead costs added to the looming prospect of formal regulation of the market and a sharp decline in the value of most cryptocurrencies globally, Schussler is of the opinion that much of the current hype around cryptocurrency mining remains a fad.
“Due to a lack of regulation there are a lot of shenanigans going on. With regulators stepping in it is unsurprising to see a variation in value of these currencies.
“The technology might be unique, but with anything new on the market it seems that for all the people making money there will always be people losing money. In my opinion it is just too a volatile currency to trade with,” said Schussler.
Added to the seemingly meteoric rise of cryptocurrencies and the potential financial gains that those mining and trading it stand to make, remains the question of cost.
To own and operate mining rigs profitably require huge amounts of electricity and input costs.
“People don’t realise what the costs involved are, in my opinion it is not cheap or easy and those that advertise it as such are guilty of false advertising,” Schussler said.
