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One of the world’s largest cryptocurrency exchanges Coinbase is handing over its customer data to Her Majesty’s Revenue and Customs (HMRC) for all who received more than £5,000 (€5,510) worth of cryptocurrency payments during the last tax calendar. Now Coinbase had sent a notice to its UK-based users via Twitter that their information will be shared with the tax department in the United Kingdom on October 2 last week.
Initially, the exchange was liable to send all previous transactions starting from 2017 but now it is only giving the data from the last tax calendar only, in a sign of compromise. The €5,510 cut-off amount was also deliberated and eventually agreed upon with the government demanding an even lower scrutiny amount while the exchange itself was looking for a smaller one. The demand is similar from tax authorities of governments around the world with many of them looking to get even greater access into user information of crypto users. New Zealand’s government for instance has gone one step even further than the UK and demanded even more specific information from local crypto exchanges.
The Centralized Exchanges
Centralized exchanges like Coinbase, Binance, Bitstamp, Bitfinex, Huobi and others do make things easy for users around the world. They allow instant purchases with our bank cards, instant trading capability, etc. However, despite their increasing utility, we are also seeing how they can be used by government agencies to track citizens even though many of them look to cryptocurrencies as a means to avoid government censorship. According to a spokesperson from the Coinbase UK said:
“These requests are commonplace for financial services companies. Through a series of constructive conversations, we agreed upon a more limited and focused disclosure…”
While the exchange itself may be sincere in doing so, the truth is that these centralized exchanges have their hands tied in a constant barrage of governmental regulation which often forces them to reveal sensitive customer data to the authorities. They need to comply with these demands or else they are banned from operating in these respective countries. It is a classical centralized trap for centralized ventures. The government can easily shut them down according to will. Some cryptocurrency promoters believe that this centralized model of exchange is the single biggest threat faced by the crypto community because even if there is no government regulation, these organizations have direct control over other peoples’ funds worth hundreds of billions of dollars which is antithesis to the crypto industry that despises this over centralization. This setup allows many exchanges to misreport their data.
Decentralized exchanges that are autonomously operated and don’t have a central authority in complete control over the proceedings are probably the holy grail of the cryptocurrency sector. They envisage an exchange platform that is not controlled by a centralized model and thus it is not answerable to government regulation and censorship. However, despite fast-track development on this front, many of the concepts coming from the crypto sector couldn’t fulfill their promise of a fully functioning decentralized exchange for some time. Either there was some hidden centralized feature or the functionality just wasn’t there. However, now it seems like the next crop of these exchanges will fulfill many of the user requirements and challenge the centralized exchanges as a means of exchange in the crypto world. Exchanges like Uniswap and others may solve the issue of over centralization in the sector but they also have a long way to go if they wish to become the industry standard. The centralized exchanges will therefore need to adapt quickly or risk becoming obsolete in the end.