The IRS Decision: What Does It Mean?

On March 25th, the United States’ Internal Revenue Service (IRS), issued a statement saying that bitcoins (and presumably other cryptocurrencies) are to be treated as property for tax purposes. Basically, this means that all capital gains and losses made from holding or using bitcoins must be reported for tax purposes. While many see this as an encroachment of the government into a decentralized system, others think that the ruling shows that bitcoin is becoming more mainstream.
Ideally, the ruling will affect all transactions made in bitcoin. Among other things, workers paid in bitcoin must report it as income on a Form W-2, any payment for goods must be reported, and any capital gain or loss from buying or selling bitcoin must also be reported. In order to pay the required taxes, everyone who gets (whether mining, buying, or earning) bitcoins must record the price of the bitcoins when they were acquired and the price when they are sold, in order to record a capital gain or loss. In theory, almost every transaction may involve a gain or loss that must be reported, even buying a cup of coffee, because of the volatility of bitcoin’s price. Jeffrey Hochberg, a tax attorney in New York, said that the ruling “would obviously create an accounting nightmare for taxpayers and may cause taxpayers to avoid using virtual currency.” Essentially, bitcoins will be treated like stocks and bonds. Taxes can be applied for gains made with bitcoin and up to $3000 can be deducted for losses. The ruling also affects miners, technically any income from mining should now be reported as income for tax purposes. They would also have to declare capital gains like everyone else should they sell the coins.
Many think this ruling represents too much government intrusion and the death of bitcoin as a currency, but others believe that this ruling will improve bitcoin’s standing in the mainstream view. While the ruling says bitcoin is property not a currency, the ruling may actually help investors, allowing a sense of certainty and security. The property ruling was also the lesser of two evils. Had bitcoin been ruled as a currency, the taxes for investors would’ve been much greater. Some also believe that because the IRS has recognized bitcoin, its credibility will be increased in the public eye, and it will see wider adoption.
While the announcement was certainly big news to the bitcoin community, some were quick to point out that such a ruling would be nearly impossible to enforce. Steven Rosenthal, senior fellow with the Tax Policy Center said on the IRS ruling that “Nobody in their right mind would ever comply with that,” and that “The IRS can’t even get the information they need from normal consumer purchases.” The pseudo-anonymous nature of bitcoin would make it extremely difficult for the IRS to track all purchases and catch tax evaders. Essentially, small time bitcoin users likely have little to worry about. The IRS is simply trying to catch big time tax evaders. Alex Daley, a technology investment analyst for Casey Research, said that “This ruling is a warning shot across the bow, mostly to business and large traders, that you’ll have to deal with the income tax evasion consequences.” He doesn’t think that the ruling is “a signal to consumers that we’ll take away the anonymous nature of Bitcoin.”
Regardless of whether the IRS’s ruling will be beneficial in the long run or not, the announcement in conjunction with rumors about a ban in China have driven prices down to about $450, from the $500-600 prices found just a week before.

Tip The Author
Did you like this article? Why not send a tip to the author as a thank you?

BTC: 1PdbxKWYNop3nPYZ2EB4Vg1K7uhBttReWT
LTC: LVpE9TT348Z5QMxgQSiVDUfb71p25p3fXB
DGC: DTjBhiv16zvvwzKmcuJTvAywJY756UgHsq

Auroracoin: Iceland Gets Its Own Cryptocurrency

Recently, nations have been getting their own cryptocurrencies. Auroracoin, the cryptocurrency created by the pseudonymous Icelander Baldur Friggjar Óðinsson (who may be a group or an individual), was created as a national alternative currency for Iceland. The creator or creators intended the alternative currency to give a boost to Iceland’s economy and allow for a way around tight capital controls. Unlike many cryptocurrencies, Auroracoin was pre-mined before it went public, then on March 31st, the “airdrop” commenced and each citizen of Iceland became eligible to claim 31.8 Auroracoins free of charge.
Auroracoin was launched in February, and ten million Auroracoins were pre-mined before March 31st.  The airdrop began on Monday the 31st when all 330,000 people listed in Iceland’s national ID database became eligible for claiming 31.8 Auroracoin. The creator(s) intend to give half of all Auroracoins to be created to all the citizens of Iceland free of charge, and Iceland’s national ID database makes that task rather easy.  The airdrop is expected to take around one year to be complete.
Auroracoin was created to allow the citizens of Iceland to get around tight capital controls set in 2008 by Iceland’s Central Bank in response to the global economic crisis. The controls prevent the króna (Iceland’s currency) from being used outside the country, and require foreign currencies to be handed over to the central bank. This prevents Icelanders from freely engaging in international trade. The creator(s) stated on Auroracoin’s website that “The people of Iceland are being sacrificed at the altar of a flawed financial system,” and that “The power must be taken away from the politicians and given back to the people. Cryptocurrencies are a very important milestone in this fight for liberty.” However, Auroracoin may still have some legal hurdles. Iceland’s central bank has taken notice of cryptocurrencies, especially Bitcoin and Auroracoin, and has already declared that buying bitcoins from foreign entities and using bitcoins (and presumably other cryptocurrencies) to bypass capital controls would be illegal.
Regardless, Auroracoin started out strong but its value remains highly volatile because of the ongoing airdrop. Its peak price was $5.40 USD, but it fell to around $3 on April 1st. Many predict the price will continue to fall as more Icelanders claim their free coins, but the future price of Auroracoin is truly uncertain.
While it is uncertain whether Auroracoin will be a success or not, it is not the first cryptocurrency of its kind, and many other cryptocurrencies are being created for other nations as well. The same concept is behind Mazacoin, which was launched in early 2014 and is intended to be the official currency for the traditional Lakota Nation. Like Auroracoin, it is intended to help the tribe’s economy, but is also intended to increase the tribe’s sovereignty. Mazacoin is still awaiting confirmation on whether it is truly the tribe’s official currency.
Other national-based cryptocurrencies have also sprung up in the wake of Auroracoin, also with similar goals. Scotcoin and Spaincoin, currencies for Scotland and Spain respectively, were created in the wake of Auroracoin with the intent to help the nations’ respective economies and also have a distribution system similar to Auroracoin. Only time will tell if nation-based coins are the future for cryptocurrencies.

Tip The Author
Did you like this article? Why not send a tip to the author as a thank you?

BTC: 1PdbxKWYNop3nPYZ2EB4Vg1K7uhBttReWT
LTC: LVpE9TT348Z5QMxgQSiVDUfb71p25p3fXB
DGC: DTjBhiv16zvvwzKmcuJTvAywJY756UgHsq