Category Archives: Cryptocurrency

About 10 to 15 years ago, the IRS began serving "John Doe" warrants to foreign banks to compel those banks to release the names of account holders on certain bank accounts. This was followed by a tough crackdown by the Service on taxpayers who failed to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), which certain foreign bank account holders are required to file (and face stiff penalties for not filing, including jail time).

On Nov. 30, 2016, a federal judge in the Northern District of California granted an IRS application to serve a John Doe summons on Coinbase Inc., which operates a virtual currency wallet and exchange business (In re the Tax Liabilities of John Does, No. 3:16-cv-06658-JSC (N.D. Cal. 11/30/16) (order granting ex parte petition)). This was done under the authority of Sec. 7609(f):

(f) Additional requirement in the case of a John Doe summons: Any summons . . . which does not identify the person with respect to whose liability the summons is issued, may be served only after a court proceeding in which the Secretary establishes that

(1) the summons relates to the investigation of a particular person or ascertainable group or class of persons,

(2) there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law, and

(3) the information sought to be obtained from the examination of the records or testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources.

Coinbase, a digital asset exchange company headquartered in San Francisco, operates exchanges of bitcoin, Ethereum, and other digital assets with currencies in 32 countries and bitcoin transactions and storage in 190 countries worldwide. The summonses asked Coinbase to identify all United States customers who transferred convertible virtual currency from 2013 to 2015. At that point, Coinbase dealt only with bitcoin.

Coinbase is not the only medium for trading cryptocurrencies. Largely, cryptocurrency has gone unregulated, so these warrants are issued to level the playing field for the government. The author believes that Coinbase is just the first of many IRS targets.

Cryptocurrency transactions

Why would the IRS care about cryptocurrency? For two reasons:

I was the tax consultant for the largest fund of cryptocurrency a few years ago before it disbanded. The way this fund made money was by converting U.S. dollars or euros into bitcoin. Then the bitcoin was converted to another cryptocurrency, and then another, and so it went. All of these transactions were tracked and made public using blockchain, which is a digital ledger in which transactions made in bitcoin or other cryptocurrencies are recorded chronologically and publicly. Each conversion is a taxable transaction.

It is easiest to think of cryptocurrency as a commodity, such as gold and platinum. Let's say an investor buys an ounce of gold and then converts the gold to platinum. That would be a taxable event. Gold has a dollar value and platinum has a dollar value, with the difference being taxable. Just like any currency or commodity, the cost of one unit of any cryptocurrency changes by the second.

For example, let's say a person bought $200,000 worth of bitcoin. His or her basis in the bitcoin would be $200,000. That number of bitcoin can either be converted into other cryptocurrencies or be used to pay for goods and services. In 2013, only a few large retailers would take bitcoin for payment. That number has since exploded to several thousand.

Miners, traders, or investors access their virtual currencies through a wallet, which is the bitcoin equivalent of a bank account. The wallet enables virtual currency owners to receive the virtual currency, provides storage for them, and enables the owner to send them to other wallets. There are two main types of wallet. The first is a software wallet, which virtual currency owners install on their computer or electronic device. This type of wallet gives the owner total control, yet it can be challenging to download and maintain. The second type, the web wallet (or hosted wallet), is hosted by a third party, and while it is easier to use, a certain trust must be placed in the provider to ensure the coins are protected.

Once a wallet is set up, the virtual currency owner then has an address that looks something like this: 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2.

After the wallet's owner chooses a password, by the way, there is no way to change it, which makes it imperative that the owner write down the password and secure it in a safe location. A client of the author lost $250,000 because the safe where he kept his wallet address and password was sent to an incinerator. A wallet's owner has no way to access the wallet without the string of letters and numbers and the password.

IRS takes notice

In response to concern over virtual currencies and their perceived potential for evading taxes, the IRS issued Notice 2014-21 in March 2014. This notice gave guidance on everything from paying employees with cryptocurrency to how the various trades between different currencies are treated.

But in a 31-page report from the Treasury Inspector General for Tax Administration, released Sept. 21, 2016, the IRS basically admitted that though a Virtual Currency Issue Team had been created, guidelines for compliance had not been developed. The recommendations from this report included developing a coordinated virtual currency strategy, providing updated guidance for requirements and tax treatments, and revising third-party reporting requirements and documents.

Another problem that the IRS has had with virtual currencies is that the transactions by miners, traders, or other investors are not currently reported on any tax forms. For instance, investors who trade foreign currency on the Forex (a foreign exchange site) are sent tax forms for all of the trades made on the platform. However, cryptocurrency exchanges do not currently issue Forms 1099 for transactions within the platforms.

As touched on earlier, cryptocurrency could conceivably be used for money-laundering activities. Unlike money issued by governments, cryptocurrency has no Federal Reserve, no gold backing, no banks, and no physical notes. Thus, it has the potential for being used in illegal activities. A criminal could simply convert "dirty money" gained through an illegal activity to something like bitcoin and use it to trade for goods and services.

Coinbase summonses

In response to the possibility that cryptocurrency users could be using their accounts for illicit activities or to evade tax, the IRS issued a John Doe summons to Coinbase asking for information about all of its customers from Jan. 1, 2013, to Dec. 31, 2015. According to the IRS, in a filing in support of the summons request, an IRS agent attested to the fact that he had uncovered two taxpayers who admitted that they disguised the amounts they spent purchasing bitcoins as deductible technology expenses (Erb, "IRS Wants Court Authority to Identify Bitcoin Users & Transactions at Coinbase," Forbes (Nov. 21, 2106)). The estimated number of Coinbase's customers during the period the summons covers could be "massive," according to Forbes.

As cryptocurrency has evolved, the IRS has had to play catch-up with the miners and others trading on this platform. The John Doe warrants are just the beginning of this enforcement process for the IRS.

Craig W. Smalley, MST, is an enrolled agent and the founder and CEO of CWSEAPA PLLC, which provides accounting and financial services.

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Cryptocurrency and taxes - thetaxadviser.com

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The University of Cambridge Centre for Alternative Finance has partnered with Visa to publish the first Global Cryptocurrency Benchmarking Study.

The study collected data from companies and individuals to provide detailed information regarding cryptocurrency usage.

All cryptocurrencies were included in the study, including Ethereum, Dash, Monero, Ripple, and LiteCoin.

The study examined a number of factors, including cryptocurrency payments, wallets, security, and mining distribution.

Luno, one of the biggest Bitcoin exchanges for South Africa, contributed to the global study.

While many South Africans use Bitcoin exchanges and own cryptocurrency, the majority of cryptocurrency companies are distributed throughout North America, Europe, and China.

The study found that the Asia-Pacific region and North America contain 80% of the worldwide cryptocurrency market.

South Africas contribution to the global cryptocurrency market is negligible.

A map detailing the distribution of study participants across global regions is shown below (click to enlarge).

They study showed that only 4% of overall cryptocurrency users were based in the Middle East and Africa region.

A significant portion of cryptocurrency users are from North America, whilethe majority are based in either Europe or the Asia-Pacific region as shown in the graphic below.

The study also found that a large portion of cryptocurrency miners were based in the Asia-Pacific region.

According to the data, only 6% of global transactions are cryptocurrency-to-cryptocurrency exchanges, with the majority (67%) of transactions consisted of national currency to cryptocurrency transactions.

Cryptocurrency payment companies said the biggest obstacle they faced was the difficulty of obtaining banking and money transfer operator (MTO) relationships, along with the high cost of regulatory compliance.

The study looked at which national currencies were supported throughout the world, providingan idea of local demand for services provided by cryptocurrency payment companies.

The South African rand falls below the Kenyan shilling and the Nigerian naira in terms of payment service support for African countries.

The full list of national currencies supported by the surveyed payment companies is below (Click to enlarge).

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Bitcoin and cryptocurrency - South Africa vs the World - MyBroadband

Investopedia

Cryptocurrency Market Cap Reaches Record High of $30 Billion ... Investopedia This week, for the first time, the market capitalization of cryptocurrencies reached about the $30 billion point. While the cryptocurrency industry has been ... Cryptocurrency Market Cap > $30 Billion, an All-Time HighCryptoCoinsNews Cryptocurrency Inflation vs DeflationThe Merkle Cryptocurrency Market Cap Hits an All-Time High $30 BillionInside Bitcoins Hacked -Investing.com -CoinDesk all 14 news articles »

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Cryptocurrency Market Cap Reaches Record High of $30 Billion ... - Investopedia

Ground floor Bitcoin Coffee is Paraleln Poliss attempt to embody the open exchange of ideas in the digital age

Prague has long been home to opulent coffeehouses, where everyone from Kafka to Einstein gathered to debate the burning issues of the day. Fast forward to the 21st century and the tradition of the coffeehouse as radical hub continues in the form of Paraleln Poliss Bitcoin Coffee in the suburb of Holeovice.

Founded by anarchic ethical hacker collective Ztohoven, the cavernous ground floor space is fitted with the industrial light fittings and paper honeycomb furniture found in hip cafes, but theres a difference the only form of payment accepted is the cryptocurrency Bitcoin. Barista Albta Svobodov even has a chip implanted in her wrist so shes never without her virtual wallet. We want to introduce Bitcoin to people from the street, she explains. The cafe is a tool to do that.

Not ready for a subcutaneous chip? Cash can be exchanged in the Bitcoin converter machine at the entrance; or load your Bitcoin on to an app such as Mycelium or a special plastic card. Rate fluctuations can be monitored in real time via the flat screen on the wall.

Nordbeans, a speciality roastery based in Liberec, north-east of Prague, sources the sustainable coffee. Expect to find all the usual espresso-based brews, as well as cutting-edge filter preparation methods, such as V60 and Aeropress on offer at the free-standing bar intended to embody the open exchange of ideas in the digital age that Paraleln Polis espouses.

paralelnipolis.cz

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Prague's cryptocurrency cafe: a perfect brew of beans and bitcoins - The Guardian

This is a stellar week for cryptocurrency traders with both bitcoin and many altcoins reaching record highs based on some very strong trading volumes. The first and leading blockchain is now worth in total more than $21 billion, with the BTC/USD exchange rate above the $1300 price level.

The London Summit 2017 is coming, get involved!

Despite this amazing feat by bitcoin (priced higher than an ounce of gold while the threat of a hard fork is still looming over it) its dominance in the overall crypto market is in fact diminishing. This is due to the rapid rise of competing cryptocurrencies, which some bitcoin purists are calling the altcoins bubble.

While BTC increased by about 7% over the last week, sometop ten blockchain tokens by market value grew in a much greater rate. Ethereum grew over 11%,Ripples XRP over 8%,Litecoin about 50%,NEM (XEM) over 67% and Ethereum Classic (ETC) jumped over 57%.

For the first time ever the market cap of all cryptocurrencies is now worth $32 billion and there are now sevencryptocurrencies with a market cap of near or over half a billion USD each. Besides Bitcoins previously mentioned$21 billion market cap,Ethereums market cap is now $5 billion, Ripples market cap is $1.2 billion, Litecoins market cap is $750 million, NEMs market cap is $470million and Ethereum Classics market cap is over $450 million.

Due to this, Bitcoins market value dominance now stands at just 65%. And even more so, its trading volume dominance is at just about 47% with a daily trading volume of $355 million out of over $755 combined daily trading volume for allcryptocurrencies in circulation.

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Cryptocurrency Ecosystem Now Worth $32 Billion as Top Altcoins Jump Over 50% - Finance Magnates

It is not entirely surprising to learn Bram Cohen the inventor of BitTorrent wants to create his own cryptocurrency. Even though there are already several thousand currencies in existence, Cohen feels his creation will bring something new to the table. In fact, he will devote all of his time to developing and maintaining this new currency, which has not received an official name just yet.

There are quite a few reasons as to why people are attracted to the concept of creating a cryptocurrency. This is especially true for people who are actively involved in distributed and peer-to-peer technology as well. Bram Cohen, the creator of the BitTorrent protocol, has shown a keen interest in cryptocurrency for several years now. That is not surprising, considering both types of technology focus on the same aspects.

Cohen feels now is the timeto create a completely new cryptocurrency, although not too many details are known about it yet. He told Torrent Freak:

My proposal isnt really to do something to BitCoin. It really has to be a new currency. Im going to make a cryptocurrency company. Thats my plan.

Given his focus on peer-to-peer connectivity and decentralized technology, Cohen is in a prime position to experiment with developing a new cryptocurrency. Moreover, it is doubtful he would be in it for the money, as he simply wants to bring amazing new technologies and concepts to the masses.

Over the past few years, Cohen has taken the time to share his opinions regarding the state of cryptocurrency. In fact, he recently presented a new paper on proofs of space and proofs of time, which was well received by the attendees of the Stanford blockchain conference. This goes to show Cohen knows what he is talking about and how he feels cryptocurrency can be further improved moving forward.

It is worth mentioning Cohen will not be looking to make any contributions to bitcoin or any of the existing cryptocurrencies whatsoever. Instead, he will create a cryptocurrency company, which could indicate he is not necessarily looking to cater towards most cryptocurrency enthusiasts. It appears this new currency will try to focus on storage-based solution and solving the 51% attack vector that looms overhead for bitcoin and other currencies.

It has to be said, cryptocurrencies focusing on storage are nothing new under the sun right now. Various similar projects exist already, although Cohen will certainly look to do much better compared to the other developers. It remains unclear how he aims to do so, though, as most of these other projects have a large team of developers and contributors helping out. Cohen will need to establish a team of developers to contribute to his upcoming project.

Further information regarding this project is expected to be revealed in the coming months. Cohen will first focus on wrapping up some other work related to the BitTorrent protocol before dedicating himself full-time to this new cryptocurrency venture. It will be interesting to see what we can expect in the future, that much is certain.

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BitTorrent Creator Will Switch to Full-time Cryptocurrency Development Soon - The Merkle

South Koreas central bank has published a new working paper analyzing a dual-currency regime by pitting cryptocurrencies against traditional fiat currencies.

Penned by economists and academics from the Bank of Korea and Seouls Hongik University, the working paper, titled Crowding out in a Dual Currency Regime? Digital versus Fiat Currency, [PDF] was published earlier this week.

[W]e examine the impact of a privately issued digital currency and fiat currency using the simplest framework, with which we may derive the most straightforward implications, reads the introduction of the paper. More specifically, we attempt to answer the question of whether digital currency will crowd out fiat currency.

The authors claim their research employs the simplest model of monetary economics to drive these straightforward implications with the minimum number of assumptions. The research considers dual currency regime, one which sees the coexistence of privately-issued digital currencies and fiat currencies issued by the government. Bitcoin is underlined is a notable example of a private digital currency.

Making note of a number of efforts with central banks exploring the possibility of issuing their own digital currencies, the researchers point to the example of the Bank of England which has publicly revealed its effort to do so. Such an attempt could drastically change our monetary system the authors write.

According to the researchers, the costs associated with both fiat and digital currencies will see both of them function together with each others drawbacks. High costs in using one could inturn spur demand for the other, and vice-versa, allowing both fiat and digital currencies to co-exist. They state:

High costs of using fiat currency increase the demand for digital currency. Similarly, high costs of using digital currency relative to fiat currency raise the demand for fiat currency. In a world of imperfect currencies with uncertain costs associated with the use of a currency, it is unlikely that the relative costs of using digital currency will be low enough to drive out and accordingly crowd out fiat currency entirely. Our results rather suggest that the threshold of equating the demand for fiat currency with that for digital currency will allow the co-existence of both currencies.

Fiat currencies have been historically known to decrease continuously, the authors confirm, due to inflation and the factor of new money pumped in to the supply by the central bank, also known as quantitative easing.

Bitcoin, in stark contrast, has a fixed supply which would imply a deflationary bias, the authors note.

This could lead to a situation in which Bitcoin drives out fiat currency as a store of value, the authors speculate, before quickly adding:

However, security or trust issues the decentralization of digital currency and the absence of insurance provided by governmental authorities may prevent digital currency from being used as a store of value. Instead, digital currency may be used as a medium of exchange dominantly.

The authors also point to future research possibilities, such as covering the topic of digital money appreciating due to ever-increasing demand and the possibility of a triple currency regime, one which would see private digital currencies like bitcoin, central bank digital currencies and fiat currencies operate together.

Bank of Korea image from Shutterstock.

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Bank of Korea: Cryptocurrency Costs Unlikely to Crowd Out Fiat Currencies - CryptoCoinsNews

BitTorrent inventor Bram Cohen has already earned a spot in the Internet hall of fame, but he's not done yet. In recent years he's taken a strong interest in cryptocurrencies, something he will devote himself full-time to in the near future. This includes launching a new cryptocurrency which addresses some of the challenges facing Bitcoin.

BitTorrents inventor is known for his passion for puzzles, and more generally speaking, offering elegant solutions to complex problems through lines of code.

When Bram Cohen first launched BitTorrent he offered a solution to the bandwidth scarcity problem, by allowing anyone to distribute large files without having to invest in expensive infrastructure.

In recent years Cohen has closely followed the cryptocurrency boom. Not as a money hungry investor with dollar signs in his eyes, but as a programmer who sees problems that need solving.

In doing so, Cohen hasnt shied away from offering his opinions and suggestions. Most recently, he presented a paper and a talk at the Stanford blockchain conference, discussing proofs of space and proofs of time.

Without going into technical details, Cohen believes that Bitcoin is wasteful. He suggests that a cryptocurrency that pins the mining value on storage space rather than processor time will be superior.

In an interview with TorrentFreaks Steal This Show, Cohen revealed that his interest in cryptocurrencies is not merely abstract. It will be his core focus in the near future.

My proposal isnt really to do something to BitCoin. It really has to be a new currency, Cohen says. Im going to make a cryptocurrency company. Thats my plan.

By focusing on a storage based solution, BitTorrents inventor also hopes to address other Bitcoin flaws, such as the 51% attack.

Another benefit of storage based things is actually that theres a lot less centralization in mining. So theres a lot less concern about having a 51% attack, Cohen says.

Sometimes people have this misapprehension that Bitcoin is a democracy. No Bitcoin is not a democracy; its called a 51% attack for a reason. Thats not a majority of the vote, thats not how Bitcoin works.

While the idea of a storage based cryptocurrency isnt new, Burstcoin uses a similar concept, there is little doubt that Cohen believes he can do better. And with his status and contacts in the Bitcoin developer community, his project is likely to gain some eyeballs.

Before diving into it completely, Cohen will first finish up some other work at BitTorrent Inc. But after that, his full dedication will go into creating a superior cryptocurrency.

In the next few months Im going to devote myself full-time to the cryptocurrency stuff, Cohen concludes.

The full interview with Bran Cohen is available here, or on the Steal This Show website.

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BitTorrent Inventor Bram Cohen Will Start His Own Cryptocurrency - TorrentFreak

The cryptocurrency world has seen its fair share of nefarious mining hardware manufacturers. A lot of companies claim they are building new hardware and accept pre-orders. However, very few of these products ever come to the market. Foxminers, a new company claiming to offer dual-mining hardware for bitcoin and litecoin, seem to fall into the potential scam category as well.

Everyone who has kept tabs on bitcoin and altcoin mining is well aware of the dangers associated with pre-ordering mining equipment from unknown companies. So far, no one has even heard of the Foxminers company, as their website doesnt even show up in the first 10 Google results. However, that is not preventing them from announcing their new spectacular mining hardware, known as the F24 and F48 models.

According to the press releases sent out by the company, their miners are building on a proprietary mining chip called the FM9800-XD1112. Once again, no one we hear about this chip so far, and it seems highly unlikely such an unknown company has the money and resources to develop a cryptocurrency mining chip. To be more specific, Foxminers claims their chip can mine both bitcoin and litecoin at the same time, which is very dubious at best.

Foxminers claims their unknown and untested chips can mine both SHA-256 and Scrypt, making it the worlds first dual mining hardware. Quite a bold statement, although the company fails to provide any evidence to back up these claims whatsoever. Not entirely surprising, of course, as they hope to steal money from unsuspecting cryptocurrency enthusiasts.Then again, no one with more than two peas for a brain will fall for these cheap scamming tactics by any means.

As one would expect, Foxminers is hoping to steal money from users by offering attractive pre-order discounts. In fact, customers can save $500 on the $2,500 device if they pre-order before May 14th. Rest assured no one who preorders will ever see this mining hardware we make it to their home, though. Foxminers has no mining hardware to speak of, and they will not be shipping units to customers anytime soon.

To make this offer even more ludicrous, Foxminers claims to pay for all shipping and customs fees. That is quite spectacular, as shipping a dual-mining unit is quite expensive. Moreover, a lot of countries charge high customs fees for these types of items, either based on their normal value or depending on the weight of the package. No mining hardware manufacturer can afford to pay such vast amounts of money out of their own pocket unless they are selling nothing more than vaporware.

Foxminers also claims the company was founded in 2016, yet the website was not registered until a few months ago. That seems rather strange, to say the least. Additionally, the company claims to have headquarters in California, yet the domain registrant information is hidden from the public. Nothing about Foxminers is adding up, other than the fact they wills teal your money and never produce a working cryptocurrency dual-mining unit.

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Cryptocurrency Mining Hardware Scam Education Foxminers - The Merkle