Pirate Congress 2015/Motions/Policy and Platform/Distributed Digital Currencies and Economies Policy

Draft Policy This is a draft policy which may still be under development and is not approved or endorsed by the party. Until such time as it is endorsed by the party, it does not represent the views or intentions of the party.

Preamble

Distributed digital currencies such as Bitcoin (also referred to as cryptocurrencies) are an emerging and potentially highly disruptive technology, and are the subject of numerous official inquiries around the world . Existing payment methods carry significant risks - such as the need for consumers to share credit card details - and also impose dead-weight middle-men costs. Digital currencies offer a solution to these issues and a potential diversity of new financial services.

Digital currencies allow the population of a country to avoid potential currency devaluation as a result of fiscal and monetary policy. Consumers will also benefit through a reduction of risk in their online purchases and lower transaction fees as middle-men are removed. Digital currencies also offer much to retail businesses. Existing payment systems are structurally unsuited to online transactions: paying online with a credit/debit card involves divulging card details to a slew of interested parties, with all costs associated with poor practices or fraud falling on the retailers, and ultimately on consumers. Organisations which directly wear the costs of poor security (the vendors) are also not the organisations with the power to increase the security of the system (the banks and payment services). Distributed digital currencies correct this issue inherently and are structurally more secure . They eliminate the need to divulge account details and ensure vendors have access to incoming funds immediately with no risk of fraud.

Pirate Party Australia anticipates a large future for the general distributed currency concept, but to be successful Australia needs to actively engage in its development. Pressure from incumbent financial organisations seeking to restrict competition must be resisted, as self-exclusion will deny Australia potentially enormous benefits.

Policy Text

• Support the development of new technology businesses.
  • Ensure clear guidelines and a suitable regulatory environment are available for businesses.
  • Treat restriction of basic banking services to crypto-currencies businesses as an illegal restriction on trade, excepting where trade poses direct financial risks to the bank.
  • Ensure crypto-currency businesses with control over customer funds are subject to equivalent regulation to banks.
  • Ensure crypto-currency businesses without control over customer funds are not subject to traditional banking regulations, but are encouraged to self regulate.
• Change tax regulation to support distributed currencies in the broader community.
  • Re-define digital currencies from a commodity to a currency for tax purposes.
  • Count digital currency gains through 'mining' or speculation efforts as capital gains.

ADDITIONAL EXPLANATORY INFORMATION

New Business Development

Entrepreneurial startup businesses are innovating rapidly to explore and establish this new way to conduct financial transactions.There are already Digital Currency exchanges, ATMs, mobile phone smart wallets and retail payment services. Pirate Party Australia forsees great potential for:

• Flexible escrow services, for instance to support delivery of goods purchased online in a manner that is trustworthy and reliable for both consumer and vendor.
• Micro-payment services, supporting ideas like paying a few cents for a good news article or risk management services to help you avoid purchasing from unscrupulous online businesses.
• Smart contracts implemented as executable programs on the crypto-currency distributed ledger, that are self-enforcing . More generally, it needs to be understood that "currencies" are just one application of the underlying technology . The essential core of this new technology enables distributed networks of trust through shared cryptographically secured digital ledgers. They eliminate the need to trust corruptible central authorities, or to rely on system-wide secret keys or methods that may be leaked.

This leads to other target purposes, that are critical to the long term health of the digital economy:

• Distributed Voting, so we can self-organise without fear of corruption,
• Distributed Conveyancing, so we can all agree on ownership,
• Distributed Reputation systems, so we can know who to trust and for what purposes,
• Distributed Insurance systems - so we can spread our risks, without giving too much away.

Pirate Party Australia supports the development of new technology businesses. Australia must create a suitable regulatory environment or else these business developments will go overseas. In 2014/5, it is already happening . Australia must provide clear guidelines that allow legitimate Digital Currency businesses to proceed with certainty .

Pirate Party Australia understands that the existing strong regulatory environment for banks is largely determined by the need for public trust in central financial institutions. Many new crypto-currency businesses will want to have control of their customers' funds, because it allows them to profit by investing those transient funds as part of their cash flow management. Such businesses must continue to be regulated like banks. They must have currency reserves and must be publicly audited to ensure trust. Other crypto-currency businesses will want to operate on a pure service-for-fee basis, without control over customer funds. The only public concern is that they provide the value for service that they promise, just like any other business. In the world of digital currencies, almost any currency service could be implemented in either manner, purely as a matter of business strategy. On this basis, the regulatory regime must be determined on the basis of "control over customer funds" rather than any high level description of the service provided.

Pirate Party Australia takes the paired general positions that business activities involving a 'controlling interest' over customer funds, must be regulated like traditional banking services. Conversely, business activities that operate without a 'controlling interest' in customer funds, should be self regulated .

Financial Institutions

Many existing financial institutions view these technology trends as a potential future threat . Commonwealth Bank and National Australia Bank have policies to blanket deny banking services to Bitcoin businesses, regardless of the legitimacy of their business, or any specific risk to the bank. Smaller financial institutions watch this trend with interest, as a potential future means for them to leapfrog the big players. Many banks have projects to develop crypto-currency based solutions for their internal and inter-bank payment systems. So, on the one hand, banks raise the spectre of risks and threats, while on the other hand they investigate its potential for greater internal efficiency in their own businesses.

Pirate Party Australia appreciates that banking is inherently a service industry and further, that it is almost entirely an information service industry, and therefore at risk of future dis-intermediation. We consider that bank policies that seek to restrict basic banking services to crypto-currency businesses where there is no risk to the bank, should be considered to be an illegal restriction on trade. This is an anti-trust issue. Established monopolies should not be allowed to use their control to prevent new business developments .

Taxation

The Australian Tax Office does not want Digital Currencies to become a widespread means for laundering currency or avoiding taxation. Their current rulings on Digital Currencies are based on their reading of the current Australian laws relating to currency and the GST laws in particular

The current ATO ruling (as of early 2015) is that Digital Currencies are a commodity and as such, transactions in those currenciers are barter so:

• GST currently applies to their purchase. GST also then applies to goods or services purchased with Bitcoin, essentially double taxing the consumer.
• "Remuneration paid in bitcoin will be subject to FBT where the employee has a valid salary sacrifice arrangement, otherwise the usual salary and wage PAYG rules will apply."
• Any employee paid in bitcoin would be liable for Fringe Benefits Tax at the maximum rate (46.5, shortly to be 47%), instead of PAYE tax rates, except where an explicit Salary Sacrifice arrangement is in place.

Pirate Party Australia advocates that Digital Currencies should be defined for taxation purposes, to be distributed currencies rather than commodities . There should be no taxation penalty for being paid in digital currencies. Digital currency gains through "mining" or speculation efforts should count as capital gains.

Concern has been expressed about the potential misuse of crypto-currencies for tax avoidance or money laundering. This concern can be considered in contrast to the use of cash transactions for similar purposes. The ATO already has considerable powers to investigate anybody that is apparently living above and beyond their means, precisely because people could be transacting anonymously using cash. The introduction of digital currencies allows a degree of freedom to transact autonomously and remotely (that is hard with cash), but digital currencies also have the benefit to tax departments, of having a distributed public ledger, meaning that they are usually more traceable than cash. In both cases however, someone may accumulate a store of value, but to use that value means exposing themselves through interactions with legitimate businesses.