Bitcoin trading is not without downside risks. The value of the world’s oldest cryptocurrency can change at a fast pace. Last year, carmaker Tesla’s decision to accept Bitcoin as a form of payment immediately sent the Bitcoin price soaring. It, however, fell sharply when Tesla’s CEO Elon Musk announced a sudden reversal of this policy due to concerns about Bitcoin mining’s adverse effects on the environment.
Mining has always enticed both individuals and businesses. One of the reasons is that crypto mining is usually considered a safer bet compared to trading. The miner gets a BTC token(s) after partaking in the process of the recording of transactions on Bitcoin’s blockchain. This means it is a reward or payment for the work done, not any profit that arises from a buy-and-sell activity. Let us explore Bitcoin mining in more detail and learn whether it is legal in Australia.
What is Bitcoin mining?
As we know, Bitcoin and its alternatives like Ether (also dubbed altcoins) are blockchain-based assets, which are also viewed as digital currencies. Blockchain, a distributed ledger, is at the heart of the entire arrangement, and there must be regular work done to keep it updated. A miner of Bitcoin or any other cryptocurrency does this work, often called “validation”. The process adds new records to Bitcoin’s ledger and new BTC tokens are also created to be handed over to the miner as a reward for the time and labour expended.
The entire process is about adding a new block to the blockchain, which is what validators/ miners do. However, since a BTC token is very costly – it reached US$68,000 in November 2021 – many miners compete and make the mining process more complex. Today, this involves the use of overly sophisticated computers that are said to consume a very large amount of electricity to carry out complex Bitcoin mining. The cost of the hardware used is estimated to be very high.
Data provided by CoinMarketCap.com
Is mining legal in Australia?
The answer to this is in the affirmative, and the Australian Taxation Office (ATO) has expressly used this term in its explanation of the treatment of cryptocurrencies for taxation purposes. The ATO has stated that when a cryptocurrency is held, including in the mining business, it is treated as a “trading stock”. Notably, costs involved in the acquisition process are deductible expenses, and when the acquired Bitcoin is sold, the proceeds are treated as ordinary income.
Bitcoin mining is not viewed favourably in many countries, such as China and Turkey. One of the reasons is that the process is very energy-intensive. The other is that Bitcoin is often considered a threat to the traditional financial world, and its price volatility can lead to heavy losses to the investor. Most countries, including Australia, are yet to regulate Bitcoin and altcoins in a well-defined manner. For now, Australia has not objected to Bitcoin mining, and there are businesses that undertake institutional mining of cryptocurrencies in the country.
Risk Disclosure: Trading in cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory, or political events. The laws that apply to crypto products (and how a particular crypto product is regulated) may change. Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading in the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed. Kalkine Media cannot and does not represent or guarantee that any of the information/data available here is accurate, reliable, current, complete or appropriate for your needs. Kalkine Media will not accept liability for any loss or damage as a result of your trading or your reliance on the information shared on this website.
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