The Brazilian government, led by President Luiz Inácio Lula da Silva and Economy Minister Fernando Haddad, has signaled measures to increase control and taxation over cryptocurrencies. The intention to monitor digital transactions and bring the sector under the purview of the Federal Revenue Service may seem like a logical step to increase revenue and prevent financial crimes. However, this move may be based on a strategic error that ignores the essence of cryptocurrencies and their potential side effects.
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1. The decentralized nature of cryptocurrencies
Cryptocurrencies were created to offer an alternative to government control over money. Blockchain, the underlying technology, is by design transparent, decentralized, and censorship-resistant. Any attempt at excessive control could simply push users to decentralized exchanges (DEXs) or peer-to-peer (P2P) methods, where the government has no reach.
Error: By trying to control a market that cannot be fully monitored, the government wastes resources and pushes the sector into informality, making oversight even more difficult.
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2. Encouragement of currency evasion
By increasing taxation and control, cryptocurrency holders may choose to move their wealth out of Brazil, converting digital assets into fiat currencies in countries with more friendly rules. In addition, spending crypto directly abroad becomes an attractive alternative, reducing the circulation of cash in the Brazilian economy.
Error: Instead of strengthening the domestic market, rigid policies can accelerate capital flight, harming the national economy and tax collection.
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3. Inhibition of innovation and investment
The blockchain and cryptocurrency industry is one of the fastest growing industries globally, attracting investment and creating jobs. Overly strict regulations could scare away startups, developers and investors, who will seek friendlier jurisdictions such as Portugal, Switzerland or the United Arab Emirates.
Mistake: By trying to over-regulate, Brazil could miss an opportunity to lead an emerging market, sacrificing innovation in exchange for control.
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4. Difficulty in implementing effective policies
Brazil’s tax system is already widely considered complex and inefficient. Adding layers of bureaucracy to monitor and tax cryptocurrencies could create more operational difficulties than benefits, especially considering that many users already use privacy-focused technologies such as decentralized wallets and anonymous coins.
Error: Investing in oversight that will inevitably be circumvented may be an ineffective use of public resources.
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5. Smarter alternatives to government
Instead of increasing control and taxation, the government could adopt strategies that promote the responsible use and growth of the cryptocurrency market in Brazil:
Incentives for internal use: Encourage the use of cryptocurrencies in local commerce, with clear and fair rules, to strengthen the internal economy and prevent capital flight.
Education and digital inclusion: Invest in programs that teach the population about blockchain, cryptocurrencies and their possibilities, promoting financial inclusion.
Balanced regulation: Create a market-friendly environment, attracting companies and talent while maintaining the legal certainty necessary to prevent fraud and financial crimes.
Public-private partnerships: Working with companies in the sector to create blockchain solutions that improve transparency and efficiency in government, such as in controlling public expenditure.
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Conclusion
Lula and Haddad may be underestimating the complexity and resilience of the cryptocurrency market. Excessive control and taxation may have the opposite effect to that desired, driving away investment, promoting currency evasion and reducing Brazil’s competitiveness in this sector. A more open approach, focused on inclusion and innovation, could position Brazil as a global leader in the blockchain market, rather than creating a
hostile environment that pushes the sector underground.
