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When the Taxman Comes Knocking, Will Americans Report Crypto Gains?

When the Taxman Comes Knocking, Will Americans Report Crypto Gains?

Cryptocurrency investors appear to be skirting their taxes. Whether keeping with crypto’s anti-establishment roots or for lack of ability, American cryptocurrency practitioners are testing the IRS’s tolerance for crypto tax evasion.

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Tax day in the United States is tomorrow, April 17, 2018, but according to the popular tax filing service Credit Karma, few cryptocurrency holders have reported earnings or losses on their 2017 tax documents. Out of the company’s 250,000 new filings, under 100 have disclosed capital gains from cryptocurrency investments, figures that are in line with the company’s former reports on cryptocurrency tax documentation.

Certainly, Credit Karma’s user base does not constitute the whole of America’s crypto investor populace. But it could reflect the demographic’s general resistance to paying taxes on their investments, and this could have something to do with the IRS’s policy.

In 2014, the IRS released an official notice regarding its cryptocurrency tax policy. First and foremost, the IRS treats virtual currencies as property, subjecting them to the same capital gains taxes that affect traditional investments like stocks, bonds and real estate. These taxes are applicable to anyone who has received payment for goods and/or services in crypto (as part of a salary, for instance), as well as miners, who must account for gains as part of their income.

The tax code appears straightforward enough, but uncertainty remains. Given that the IRS treats any trade as a taxable event and the onus of reporting rests on the investor, reporting on cryptocurrency investments can seem confusing and convoluted to those untrained in accounting and finance.

“Even with the tax deadline rapidly approaching in the U.S., we’re still seeing lots of people unsure about the proper way to prepare cryptocurrency taxes. Properly accounting for crypto-to-crypto trades, trading on multiple exchanges, and purchases made with cryptocurrency can be an overwhelming task,” Chris Kovalik, founder of Cointaxes, told Bitcoin Magazine.

Kovalik finds that the IRS’s policy places “the burden … on the taxpayer to follow and account for the government’s guidance when filing taxes.” Unlike other tax codes that offer standards and historical precedent, crypto investors have no touchstone for guidance.

According to the Los Angeles Times, the IRS has suggested that taxpayers review “factual scenarios that most closely resemble their circumstances” to seek such guidance, something David Klasing, a tax and accountant lawyer, told the Times amounts to “basically just telling practitioners to take a wild-ass guess.”

And this guess could look to answer questions that stem from a variety of scenarios. Along with crypto-to-crypto trades, “[many] people may simply not know that the IRS has stated that spending crypto is a taxable event, akin to a barter transaction,” Jon Brose, an attorney for Seward & Kissel’s Blockchain and Cryptocurrency Group, told Bitcoin Magazine. This means that day-to-day purchases with bitcoin and other currencies are subject to capital gains taxes.

As the market matures, there are gray areas still. For example, the advent of airdrops and hard forks for cryptocurrency dispersal means investors will likely have to wrestle with reporting these earnings in their income, as well.

As we look down the barrel of America’s first cryptocurrency tax season, early adopters and veteran enthusiasts will likely bear the taxman’s heaviest brunt, as they likely have years of previously unreported gains to follow up on. Depending on the size of their stash, these individuals could be some of the 13,000 users Coinbase was legally obligated to report to the IRS back in February.

These account records are likely to belong to those who have realized great profits from their original investments, not your run-of-the-mill investor. Brose believes that the average investor probably doesn’t think to report gains since “the practical problem of tracking which cryptos you have spent or sold” becomes too much of a hassle for reporting a modest portfolio. He also finds that “individuals that are spending crypto frequently on relatively small items may think that it doesn’t make a lot of sense to declare a taxable event every time they buy a cup of coffee.”

Given that formal guidance is nebulous and the IRS’s ability to enforce their policy is yet to be seen, cryptocurrency investors may be inclined to take calculated risks that have become commonplace in such a volatile market.

But if the IRS wants investors to work with them in the future, things will have to change, Brose argues.

“To ensure greater compliance, the IRS ought to make rules for cryptocurrencies that conform to the way crypto actually works and is used, so that taxpayers can accurately compute their tax liabilities arising from crypto transactions.”

Until that time, investors must either navigate their filing themselves, seek help from an accountant or taxation service, or hope their portfolios will fly under the IRS’s radar.

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This article originally appeared on Bitcoin Magazine.

What Is Ether?

What Is Ether?

Ether is the underlying token powering the Ethereum blockchain, but it serves a slightly different purpose than bitcoin does to the Bitcoin blockchain. Although ether is traded on public markets and has displayed price appreciation similar to bitcoin, they are quite different by design. Ether is not intended to be a unit of currency on a peer-to-peer payment network; rather, it acts as the “fuel” or “gas” that powers the Ethereum network.

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At the highest level, Ethereum is an open-source platform that runs smart contracts. When smart contracts are run on a blockchain, they become self-executing when certain conditions are met. The execution of smart contracts requires computational resources that must be paid for in some way: this is where ether comes in.

Ether is the crypto-fuel allowing smart contracts to run. It provides the incentive for nodes to validate blocks on the Ethereum blockchain, which contains the smart contract code. Every time a block is validated, 5 ethers are created and awarded to the successful node. A new block is propagated roughly every 15–17 seconds. Some nodes may find the correct solution to a block without having it included in the network. The Ethereum network rewards these nodes with 2–3 ethers.

Individuals interacting with decentralized applications on the Ethereum platform will have to pay the network in ether for the use. Developers are incentivized to create these decentralized applications because they will be paid in ether for their work. Developers are also incentivized to write quality applications because wasteful applications will be more expensive and likely will not be used as frequently as better alternatives.

Using this information, the narrative around ether becomes more clear. Its final use will most likely be abstracted by basic button clicking, but assuming Ethereum becomes widely used, ether will be rapidly moving between users and miners. Its value is directly tied to the use of the Ethereum blockchain.

Is Ether Inflationary?

The total supply of ether is not capped like the total supply of bitcoin. 60 million ether were created during the initial crowdsale, 12 million of which went to early backers and the Ethereum Foundation. Most of the money raised will be used to fund future development initiatives.

Ether’s issuance model is unique in that it does not emphasize deflation like most other popular cryptographic assets. Initially, issuance of ether was capped at 18 million per year, which is 25 percent of the initial supply raised in the crowdsale. But more recently, Vitalik Buterin said that issuance levels will be contingent on security rather than a predetermined schedule. Although this rate is fixed each year, the monetary inflation rate actually decreases every year, making ether a disinflationary currency. Disinflation occurs when the rate of inflation shrinks over time.

Ether is expected to be lost each year because some users may forget their private keys, some may pass away without transmitting their private keys, and some may send ether to an address without a corresponding private key. As the network grows, it is expected that the annual rate of ether lost will equal the annual issuance rate. The hope is that ether will be deflationary in 2140, around the same time that Bitcoin ceases issuing new coins. For an in-depth analysis of Ethereum’s issuance model, read Joseph Lubin’s piece.

These calculations are not set in stone. Ethereum is expected to switch its consensus algorithm from proof of work to proof of stake, which in theory is supposed to be more efficient and require a smaller mining reward. This change has produced some uncertainty within the ecosystem. The Ethereum Foundation is currently researching potential monetary effects and claims that all changes to the network will be handled by smart contracts, as opposed to individuals who may have ulterior motives.

This article originally appeared on Bitcoin Magazine.

New York Attorney General Launches Inquiry Into Cryptocurrency Exchanges

New York Attorney General Launches Inquiry Into Cryptocurrency Exchanges

As part of an effort to protect cryptocurrency investors and bring greater transparency into how cryptocurrency exchanges operate, New York Attorney General Eric Schneiderman has sent letters to 13 virtual currency exchanges requesting they disclose key information about their operations.

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“With cryptocurrency on the rise, consumers in New York and across the country have a right to transparency and accountability when they invest their money,” the attorney general said in a statement today, April 16, 2018. “Yet too often, consumers don’t have the basic facts they need to assess the fairness, integrity and security of these trading platforms.”

The letter was part of a “Virtual Markets Integrity Initiative” launched by Schneiderman to shine a light on the policies and practices of platforms used by consumers to trade virtual currencies and initial coin offering (ICO) tokens.

A Slew of Questions

In addition to the letter, the attorney general sent a three-page questionnaire to Coinbase, Gemini, Bitfinex, Poloniex and nine other exchanges asking them to disclose, among other things, information such as what banks they use, how they hold customer funds, what fees they charge, how they come up with those fees, how they move funds around, who has access to the order books, and the scope of third-party audits.

Gemini, an exchange operated by the Winklevoss twins, told Bitcoin Magazine, it “applauds” the attorney general’s initiative and looks forward to submitting its responses to the questionnaire.

As the price of bitcoin crossed $10,000 for the first time in November 2017, reaching a peak of over $19,700 a few weeks later, a rush of new traders began entering the market. But, as many have learned the hard way, putting funds on exchanges comes with its own set of risks. Outside of the U.S., this year alone, Coincheck in Japan lost $530 million worth of NEM (XEM) in a hack; BitGrail, an Italian exchange, lost $170 million worth of Nano (XRB); and Coinsecure, an exchange in India lost $3.5 million in bitcoin (BTC).

Tough Times Ahead

In the U.S., cryptocurrency regulation is becoming a tough web to untangle for companies trying to do business in the space. Not only do cryptocurrency businesses and virtual exchanges have to deal with federal regulators like the Securities and Exchange Commission, Financial Crimes Enforcement Network and the Commodity Futures Trading Commission, but they also have to contend with regulators in each of the 50 states.

Stephen Palley, a lawyer in Washington D.C., known for his work in the crypto space, says he is not surprised to learn of the New York attorney general’s initiative. At the same time, he views it as a grim sign of what is to come. “This is just the start. There will be a major onslaught. It will shut down or shut out a bunch of exchanges from the U.S.,” he told Bitcoin Magazine.

In a tweet, Palley referred to Schneiderman as an “activist” and noted,“Being in his crosshairs isn’t a great thing.”

This article originally appeared on Bitcoin Magazine.

Marsh and IBM Collaborate to Put Proof of Insurance on the Blockchain

Marsh and IBM Collaborate to Put Proof of Insurance on the Blockchain

International insurance broker Marsh is working with IBM to develop a commercial blockchain solution that will allow businesses to certify that the contractor they are about to hire has the proper, up-to-date insurance coverage necessary to begin work.

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The solution will be built on Hyperledger Fabric, an open-source permissioned blockchain framework, using IBM Blockchain Platform, a cloud-based blockchain application development solution, Marsh said in a statement yesterday, April 16, 2018.

Insurance standards organization ACORD will provide input on the project, and Dallas-based ISN Software Corporation, which supplies contractor and supplier management services, will be the first client to use the new solution.

Marsh is aiming to solve an important problem. Businesses often hire contractors, vendors and other third parties to work for them or provide services, but before doing so, they need to know that the vendor has proper liability insurance, so the business is covered in the event something goes wrong or a vendor performs substandard work.

Typically, a client will request a certificate of insurance (COI), also known as an ACORD certificate, which is a document that has all the information on it to show a client has up-to-date insurance coverage. The problem with PDFs or paper documents is they can be faked. Documents can can also get misplaced, lost or damaged.

Blockchains, on the other hand, are nearly impossible to tamper with. By putting proof of insurance on the blockchain, parties that need evidence of insurance can ideally trust the coverage is up to date and historically correct. Marsh said it expects its blockchain solution to allow clients to speed up necessary business functions such as hiring contractors and transferring risk, while increasing coverage certainty.

“Marsh sees great opportunity in leveraging blockchain technology to better serve our clients by maximizing efficiency and creating new opportunities in the insurance value chain,” said Sastry Durvasula, chief digital officer at Marsh.

Sandip Patel, general manager, insurance industry, at IBM, believes that simplifying the insurance verification process is a key business enabler. “This is an ideal example of how blockchain can be used on a much broader scale to drive real business results,” he said.

Currently in the pilot stage, Marsh’s new blockchain network is expected to go into production later this year. ISN will be the first Marsh client to try out the solution, putting its contactors’ policies on the ledger for hiring businesses to check.

“The insurance industry has been dependent on paper certificates of insurance, manually populated by an insurance agent,” said Brett Parker, technical insurance lead, at ISN. “By digitizing the policy information, we can streamline the process saving our customers time to focus on their core competencies.”

This article originally appeared on Bitcoin Magazine.

IMF’s Lagarde: Bitcoin ‘Could Have a Significant Impact on How We Save’

In an official International Monetary Fund Blog post yesterday, IMF Managing Director Christine Lagarde showered positive sentiment on the cryptocurrency market, though also cautioned against both &#8220;crypto-condemnation&#8221; and &#8220;crypto-euphoria.&#8221; Instead, the French lawyer suggests taking a rational, clear-minded approach towards the regulation of digital assets. &#8216;A Significant Impact&#8217; The cryptocurrency market is absolutely brimming with fraudulent projects, which will never actually see the light of day. But there are still players that will have an<br />Read More<br />The post IMF&#8217;s Lagarde: Bitcoin &#8216;Could Have a Significant Impact on How We Save&#8217; appeared first on Bitcoinist.com.

Tokens Are the Ticket for Easier Global Access to Education

Education is the foundation on which society is built. As philosopher John Dewey once said, “Education is not preparation for life; education is life itself.” Learning doesn’t stop after school, but the adult education industry is a very scattered landscape. Due to its current state, guidance for professional and personal development is difficult to access and verify as legitimate. Professional and personal development is also becoming increasingly necessary. College graduates in 2016 had an average<br />Read More<br />The post Tokens Are the Ticket for Easier Global Access to Education appeared first on Bitcoinist.com.

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