How do you pay crypto taxes?

I would be prepared to wager that many people who bought cryptocurrencies, never thought about any tax considerations. It is unsurprising that the tax authorities are ahead of the crypto owners, because they see plenty of new income for their coffers. The IRS in particular has started on a crackdown, because when it sees that only a few hndred people report their crypto trades, but Coinbase has 35 million accounts, they know something is going on.

It used to be that you might have got away with saying that the law isn’t clear, but there is no denying it now that the IRS has decreed that cryptocurrency is property. Not an asset or a security — it’s a property. Therefore, as capital assets, they give rise to capital gains and losses when disposed of.

As William Baldwin writes at Forbes: “A profit is taxable as a short-term gain if a position has been held for a year or less, as long-term if held for more than a year. If a coin is held for profit rather than amusement, which is presumably almost always the cases, then a loss on it is a deductible capital loss.” Also, you need to note this: you can go out at a loss and then right back in without losing the right to immediately claim the loss.

Don’t trust your exchange

For some reason, many people are convinced that the exchange they use won’t reveal their name to the tax authorities. Wrong! Especially if you are a prolific trader. For example, in the US, the 1099-K is mandatory for a customer who in one calendar year does at least 200 transactions with proceeds totalling at least $20,000.

Watch out for the forks

The IRS also has a view about what happens when there’s a fork in a blockchain. It believes that a fork gives crypto owners a windfall that should be taxed at high ordinary-income rates.

Also, if you have benefitted from an airdrop, that’s income, and obviously, so is mining. if you join a mining pool, spend $8,000 on electricity and get rewarded with a bitcoin worth $9,800, then Eeen if you don’t sell the coin, you have to report a $1,800 profit, and that profit is ordinary income.

Gifts and donations?

On the other hand, if you donate crypto to a charity, or gift it to your kids, then it is treated like ‘gifts of stock’. Baldwin gives this example: “Say you bought a bitcoin at $12,000 and give it to your niece when it’s worth $11,000. If she sells at more than $12,000, then she uses $12,000 as her basis. If she sells at less than $11,000, she has to use $11,000 as her basis, reducing the capital loss that she can claim. Any sale between $11,000 and $12,000 is in a dead zone that creates neither a gain nor a loss.”

If you’re confused about tax rules around your crypto holdings, I would suggest you find a tax adviser who knows crypto — there must be several trying to occupy this niche now. If they don’t know crypto — you could find yourself in some trouble later on. It really is worth getting expert advice about your crypto holdings.

What Might The Bitcoin Halving Do For You?

It’s a question that I’m sure many Bitocin owners are asking. In around 90 days from now on 8th May, Bitcoin’s mining reward will be cut in half (that’s what a ‘halving’ means) and crypto commentators believe that it could trigger some significant price activity, and boost the BTC price skywards.

Currently there are approximately 18 million Bitcoin in circulation out of a total of 21 million. But, thanks to the halving protocol, this limit won’t be reached in the near future. Satoshi Nakamoto programmed the Bitcoin network protocol so that a halving would take place every four years, or every 210,000 blocks, and cut miners rewards in half. The idea being that this makes producing more coins more difficult.

This may seem counterintuitive, as miners are incentivised by the rewards. As Edith Muthoni, chief editor at Learnbonds.com told Coinrivet: “This brings us into a seeming conundrum: if miners will no longer receive block rewards (or too little), will they continue mining? What will be their motivation to stay on? What does this mean for the network and Bitcoin?”

The impact on Bitcoin mining

Once upon a time people at home could make some money from Bitcoin mining, but that ended some time ago. However, as we approach this halving, there is a serious question to be answered about how the medium and large-sized mining operations will fare.

There are fewer than three million Bitcoin left to mine, and the hash rate is hitting all-time highs. Given the cutting of rewards, it would seem that the effect on mining at least would be negative. Steve Tsou, CEO of RRMine, a Bitcoin cloud mining operation has gloomy view: “The halving in 2020 will have great impacts on Bitcoin miners: 1) Miners with low mining efficiency will be forced to pause and re-evaluate their business operations. 2) Digital mining is becoming the racetrack for giant international companies because they have more advanced machines and cheaper sources of electricity.”

Tsou’s sentiments are echoed by a number of others in the sector, including Alex Lam, one of China’s most prolific miners and CEO of RockX digital assets. He said “The next Bitcoin halving is likely to result in mining profitability decreasing significantly in the short term.”

However, depending on the price of Bitcoin on 8th May, miners’ profitability may not be so dramatically affected, at least in the short term. If the Bitcoin price rises substantially afterwards, then miners may be able to sustain their profits. A price fall, on the other hand, could see some go out of business.

The impact on Bitcoin’s price

Unless you are a miner, how many Bitcoin owners can honestly say that they are concerned about the impact on mining. What they want to know is the halving’s impact on price.

This is not the first time that a halving has occurred. The BTC price stood at $12 when the mining reward was first cut in November 2012, and stood at $652 at the time of the second halving in July 2016. Of course, as you remember, the following year brought us that sensational bull run, driving Bitcoin to $20,000. Weiss Ratings, which analyses the impact of halving’s on price, said: “So, does the Bitcoin halving help drive prices higher? Absolutely. The only question now is how high will #BTC go this time around?”

Jimmy Nguyen, president of the Bitcoin Association commented: “Some people expect the coin price to magically increase before the halving and help cover the 50% fewer coins. Even if there is some price increase, it is doubtful coin prices will double from now through April or May 2020. So mining will most likely be less profitable after the halving than it currently is.”

Ultimately, what we are likely to see when the Bitcoin halving happens is this: it will have a major impact on mining in the short and long term. Furthermore, we’ll see smaller, less sustainable operations give way to larger mining farms with access to low-cost energy.

Miners, like Bitcoin owners, will be hoping for a hike in the Bitcoin price, because that is the key to ensuring profitable mining, as well as profits for investors.

Google’s bitcoin war is dumbing down

As you are probably aware, Google has a fraught relationship with Bitcoin (BTC) in particular, and cryptocurrencies in general. It’s a problem, because YouTube, which Google owns, is awash with videos about digital assets. What we have seen is that whenever possible, Google has tried to raise barricades against the oncoming tide of crypto information, in all its forms, including apps and websites, which has caused crypto fans to accuse the media giant of censorship.

We have only just begun 2020, and already Google has lashed out by removing Bitcoin Blast, a BTC rewards game from the Google Play store, on the gorunds that it uses “deceptive practices.” According to Billy Bambrough at Forbes, Bitcoin Blast was available on the Apple app store on 24th January, but was removed a week later. Apple said that it violated certain of its app policies, but said it could come back if it “can be brought up to code.”

Daniel Rice, cofounder and chief technology officer at Bling, the make of Bitcoin Blast, said in a post, “We were not removed for being involved with cryptocurrency,” but added, “it’s also possible that Bitcoin Blast will never return to an Apple platform.”

The irony is that Bitcoin Blast’s users rather liked the puzzle game that rewards users with bitcoin-redeemable loyalty points and boasts a 4.5 rating from some 20,000 ratings and 13,000 reviews. They complained to Google about the sudden removal of their entertainment. And this had a positive effect. Although, Bling, did have to make a public plea for support, and it was only after this happened that Google reversed its decision.

It isn’t the first time that Google has waded reversed a decision regarding a crypto-related app or site. It tried to ban most of the bitcoin-related content creators from YouTube, only to face a backlash from users that forced a change of heart.

Not long after this, Google suspended the popular MetaMask crypto wallet and mobile browser app backed by Ethereum incubator ConsenSys from the Play Store, only to eventually reinstate it.

This behaviour is rather odd, and it is no wonder that companies such as Bling are questioning what their future relationship they might have with Google, if any at all. Bling’s CEO, Amy Wan wrote, “Google’s suspension cited their ‘deceptive behavior’ policy … but did not state exactly what behavior Google thought was deceptive,” and she advices other businesses to avoid putting all their products on a Google platform. Furthermore, she said that Google couldn’t answer the question regarding what was “deceptive” about the Bitcoin Blast app.

As Billy Bambrough says, Google’s “twitchy trigger finger and the speed at which the ban hammer falls is, understandably, making people nervous.”

Certainly, it needs to rethink its battle strategy, because at the moment, it looks like every action is a simplistic knee-jerk reaction, rather than a well-considered approach based on evidence.

Is Jack Dorsey a Bitcoin hero?

Jack Dorsey is a curious character. The combination of his business success with a somewhat eccentric lifestyle pretty much guarantees media and public interest in him. He may not be as well known as Mark Zuckerberg, but he’s probably more easily identifiable by the public than the Google guys for example. Plus, he does often look as if he might have had a lead role in Pirates of the Caribbean, or some other Hollywood production. However, what in my opinion is most interesting about him is the role he has played in promoting cryptocurrency, particularly Bitcoin.

Dorsey is not only a co-founder of Twitter, he also launched Square, a mobile payments company that is hot on crypto. Dorsey is known to be a massive Bitcoin supporter, and has vowed to help Bitcoin develop as a global currency though Square. However, he is not a Bitcoin bull — he has a diverse crypto portfolio and is always upfront about that. Square’s spokesperson told Forbes, “it’s “only a matter of time until instant, low-fee bitcoin payments are as common as cash used to be.”

And to speed this along, Dorsey’s Square Crypto division is working on a kit that should help to integrate the Lightning Network with Bitcoin wallets. Lightning is a layer-two solution built on top of the Bitcoin network that makes payments faster and cheaper, and speed and cost are key elements of taking Bitcoin mainstream.

Until now there has been a problem with scaling Bitcoin for everyday payments, and this has slowed down adoption. Dorsey wants to supercharge the leading crypto’s throughput, which is why Square announced its Lightning Development Kit (LDK) to coincide with the World Economic Forum in Davos, although it was definitely no coincidence.

As Gerelyn Terzo writes at CCN, “What Dorsey’s crypto division plans to do is give developers greater flexibility with Bitcoin and Lightning technology that in a nutshell comes down to streamlining bitcoin wallets.”

Essentially, the Lightning Network can potentially process millions of transactions per second, which is massive compared with Visa’s 45,000 transactions per second.

Dorsey deal with the volatility issue

Improving the speed and cost of Bitcoin transactions is one thing, but merchants are reluctant to accept the cryptocurrency because of its volatility. Dorsey and Square have a solution for that as well.

Square has been granted a patent that enables users to conduct fiat-to-crypto transactions. The customer can pay in bitcoin and the merchant can instantly convert it to U.S. dollar or any currency.

Basically, Dorsey is laying the foundations of an infrastructure for widespread Bitcoin use, because with instantaneous payments that can be converted into any currency, both customers and merchants have no reason to deny Bitcoin as a payment option.

If Dorsey and Square achieve this, they will surely be hailed as Bitcoin heroes. Unless you’re a Bitcoin hater!