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Cryptocurrencies have appeared on the scene in the last few years, and how they differ to conventional currencies is mainly related to the fact that they do not bear interest. That means that if you invest your money in, say, Bitcoin, or Ethereum, you can't really profit unless the price of that currency goes up in value. Whether investing in cryptocurrencies is a form of gambling or a form of investing is a big question these days.
Yes, Bitcoin has been remarkably successful in terms of delivering profits for a lot of people, but there's been a huge proliferation of currencies across the board. And in that sector, for every winner, there's been an equal and opposite loser. That kind of zero-sum activity defines what gambling is really all about. Unlike investing, which is supposed to be a positive-sum game. It means that overall, nobody really wins.
There's a big debate in the regulatory space as to how to treat cryptocurrencies. Many jurisdictions have decided to treat them as commodities. Others still perceive them to be currencies. And there's a third class which sees them as assets. When they are treated as assets, if they go up in value, then any capital gains are likely to be taxed.
The interesting thing about cryptocurrencies is how they're being used as a loophole to escape gambling regulations in jurisdictions like America, which banned gambling outright. The UK has been the most Laissez-faire out of most jurisdictions. We notoriously do not tax any gains or proceeds from gambling.
This is because in 2005, we decided to deregulate the gambling sector. Gambling is seen as something that is always going to happen in society. Better just to deregulate and control it through a licencing system than it is to constrain it entirely.
At the moment, regulators have been slow to recognise this as a mechanism to create gambling opportunities. To the contrary, they decided to tax the winnings from cryptocurrency games to discourage rampant speculation. Whether that will be enough to stop rampant gambling or the use of these currencies in a gambling mechanism is yet to be seen.
Other jurisdictions are certainly looking to how the market evolves. And whether or not overall, there will be net gains produced or net losses.
