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Everyone
who encounters bitcoin for the first time grapples with how it works,
and what it means. The former is relatively easy enough to learn, the
latter however is something that everyone seems to have a different
opinion on. ‘Is bitcoin the next Internet?’ seems to be the question
behind many news articles and passionate debates alike.
Entrepreneur and bitcoin advocate Marc Andreessen has most visibly made comparisons between the two, while CNBC reported that many more venture capitalists thought bitcoin could be ‘as big as the Internet’.
Despite
the comparisons’ obvious buzz appeal, it’s a serious question with
profound implications. How alike are bitcoin and the Internet, and what
conclusions can we draw from the comparison?
A natural metaphor
Within
the world of monetary theory and finance, bitcoin is unprecedented. It
is such a radical concept that most in the field are sceptical that the
kind of decentralized technology bitcoin represents is even compatible
with the modern economy.
The Internet thus provides an
obvious reference point for a technology that seems utterly similar in
its decentralization, open-source code, state of development, and most
importantly its potential to disrupt on a global scale.
Indeed, if nothing else, the comparison can help effectively communicate the magnitude of bitcoin’s technological achievement.
Chris Ellis, the co-founder of feathercoin, captures this sentiment eloquently:
“The
first thing that humanity has built that humanity doesn’t understand,
the largest experiment in anarchy that we have ever had.”
That’s
actually a quote from Eric Schmidt, and he’s talking about the Internet
or the ‘network of networks’. Every network it touches it liberates.
Already we’ve seen publishing, education, retail, and most famously
music and film be disrupted in ways we could not have imagined. Does
bitcoin represent just such a moment for banking and finance?
Given
the fact that bitcoin cannot be centrally regulated, ‘an experiment in
anarchy’ seems like an apt description. However for any bitcoin/Internet
comparison to be truly useful and tell us where bitcoin can go from
here, we need to compare their characteristics in much closer detail.
Core difference
Bitcoin and the Internet are indeed both decentralized, but both serve rather distinct purposes.
The
Internet evolved as the general purpose infrastructure for a limitless
amount of applications and traffic, such as email. Bitcoin on the other
hand has a very specific core purpose, a ‘peer-to-peer electronic cash
system’ as described in the very title of Satoshi’s original white paper.
Ultimately
most services built on top of bitcoin are meant to help it to more
effectively achieve its primary goal as a medium of exchange in one way
or another. It exceeds this function by leaps and bounds, accomplishing
what the current financial infrastructure can never do.
However
as a general platform for new applications to run on, bitcoin currently
has severe limitations. Mastercoin, Counterparty, and others have
attempted to build additional functionality on top of the Bitcoin
protocol with limited success.
While the bitcoin block
chain does contain properties that allow it to be used for third-party
purposes, the resources are limited and have led to conflict
in the past. Bitcoin simply isn’t designed to function as the flexible
infrastructure for a wide range of applications like the Internet is.
Block chain potential
However,
the potential exists to use the fundamental technology underlying
bitcoin, the decentralised block chain, to build numerous decentralized
applications.
Decentralized applications have been getting much media attention
as of late as the true revolution behind bitcoin, and where we’ll see
the most groundbreaking innovation. It opens the doors to decentralized
email, domain names, smart contracts, and even Decentralized Autonomous
Corporations. As David Jonston, Executive Director of BitAngels, put it:
“[Decentralized
applications or DAs] have the potential to become self-sustaining
because they empower their stakeholders to invest in the development of
the DA. Because of that, it is conceivable that DAs for payments, social
networking, and cloud computing may one day surpass the valuation of
multinational corporations like Western Union, Visa, Facebook, Google,
and Amazon that are are currently active in the space.”
Even Goldman Sachs remarked
that the underlying technology behind bitcoin holds promise. Systems
designed with the bitcoin blueprint can be extremely specific in nature,
or instead provide a backbone that can support as many programs and
applications as human creativity can generate – much like the Internet
and web. Ethereum is currently being built on that very premise.
Bitcoin
itself however remains first and foremost a means of exchanging value.
While its block chain technology holds the potential to create a new
platform of permissionless innovation, this platform has until recently
seemed destined to be divorced from the main bitcoin chain and
functionality.
Enter side chains
In the context of the Internet comparison debate, new side chain proposals have great significance.
If
implemented into the bitcoin core code by the open-source community, it
would enable anyone to create a side chain that can interact with the
bitcoin block chain via two-way pegging. Coins can be moved from one
chain to the other, allowing decentralized systems to be built that are
interoperable with bitcoin.
“Rather than the next Internet, bitcoin can become the next killer app for the Internet, much like the web before it”
This
means that new decentralized applications won’t require their own
native unit of exchange and thus can avoid a new ‘race for scarcity’, as
well as the extreme volatility that comes with a new, small market cap
currency.
Instead such systems can utilize the rapidly
maturing and more widely accepted bitcoin as their native means of
exchange and operation. In turn, the utility of such systems will
directly add to the value and staying power of the bitcoin network.
The
implications of this are huge, as side chains will allow the general
purpose infrastructure needed to allow the permissionless innovation the
Internet and web are famous for. All tied in the end, to bitcoin.
Side
chains could be the last piece of the puzzle that links together the
bitcoin currency, to the limitless possibilities its block chain
technology holds.
Brave new world
This would make bitcoin
not ‘merely’ a new e-cash system that far outperforms the capabilities
of modern financial infrastructure. It would make bitcoin the de-facto
currency in a new decentralized online economy of unbound utility and
possibility.
An economy of decentralized applications that can’t
be shut down, regulated, or censored by governments or even traditional
corporations. All exchanging a similarly decentralized transnational
digital currency.
Thanks to side chains, bitcoin could become a
frictionless global payment system, and a platform for decentralized
innovation all in one.
‘Bitcoin is the next Internet’ has been a
useful slogan to gain mainstream attention, and underscore bitcoin’s
potential impact on the world. However when we take a more systematic
view of bitcoin’s growing evolution as a whole, a more appropriate
comparison becomes readily apparent.
Rather than the next
Internet, bitcoin can become the next killer app for the Internet, much
like the web before it. A massive network of decentralized applications
run by instant microtransactions rather than the exploitation of users’
personal information and more. A new web with new rules, and new
possibilities. Bitcoin image via Shutterstock
It's
OK to admit that you still don't know what bitcoin is — but you may now
officially be behind the curve. Because all of Africa could soon be
getting onboard.
The virtual currency — straight up: computer
money — created by an anonymous hacker in 2009 has captured hard-core
geeks' hearts. Its appeal? It enables bank-free (aka middleman-free)
anonymous purchasing and, crucially, it's a global currency that's not
tied to any central bank and not much different than a dollar or a euro.
The key characteristics of this digital cash also happen to make it a
great fit for people who aren't so down with advanced digital
technology: the 326 million Africans who lack access to basic banking
services.
This isn't such a crazy idea. Mobile payments that work
on standard-feature phones have already made strong inroads in Africa,
with 16 percent of Africans using the services. The largest provider of
such payments, M-Pesa, already operates in Kenya, Tanzania and South
Africa, as well as India and Afghanistan.
But if you were a member
of the large and expanding African diaspora, and you wanted to send
money home to grandma or the hubby left behind, you couldn't count on
mobile payments. M-Pesa, for instance, lets foreign-dwelling folk send
money through a partnership with Western Union — but the latter tends to
charge onerous fees. Which makes bitcoin super-appealing, if you can
get past the expensive exchange rate — as of publication, one bitcoin was worth nearly US$500. More from OZY.com: Africa's new expat hub: Kigali Brazil's big bet on foreign entrepreneurs Dressing to impress in the Congo
It'd
be a huge loss for Western Union if bitcoin cut into its business:
Africans throughout the diaspora send home $32 billion a year, according
to the World Bank.
Right now, they pay dearly for the privilege: 12 percent of each
transaction, on average. Mobile money also doesn't much address larger
economic woes back home, such as inflation and scarcity.
According to bitcoin advocates, the cryptocurrency could help solve both problems.
Companies
like Kipochi and BitPesa have already begun to use bitcoin for those
home-to-grandma payments, known as remittances. For now, bitcoin users
need an Internet connection, but these companies are developing
platforms for the standard-feature phones commonly used in Africa
(rather than building apps for smartphones, which are more rare).
So
far, bitcoin activity in Africa has picked up most among young
tech-savvy men in urban centers such as Nairobi, says Pelle Braendgaard,
the CEO of Kipochi. But it could be spreading. Lately, Braendgaard has
seen an increase in exchanges among friends and family members.
His
goal: to expand access to women managing household expenses. They're
the most common recipients of remittances. "My goal is to make bitcoin
usable by ordinary people all over the world, so that even my grandma
can use it," he says.
Still, the challenge remains: There's no
system to cash out bitcoins for government-issued currency. Unlike a
euro or a dollar, you can't hold a bitcoin in your hand or pop it into
your wallet to use at the local merchants. There's also still an
unsettled debate about whether bitcoin is a currency or payment protocol
— a crucial legal distinction that has made regulators especially wary,
says Bill Maurer, director of the Institute for Money, Technology and
Financial Inclusion at the University of California-Irvine. China, for
instance, has barred its financial institutions from carrying out
bitcoin transactions. African countries have also been hesitant, due to
concerns about money laundering.
African banks have started
warming up to Bitcoin — but they've stopped short of a full embrace. In
February, South Africa's Standard Bank tested a bitcoin trading system,
but hasn't yet offered the service to customers. Braendgaard, however,
remains hopeful. He says he's in talks with several banks in African
countries — including Kenya, Nigeria and Zimbabwe — to enable the
conversion of bitcoin into local currencies using Kipochi's service. He
expects to launch the first such partnership within six months.
One
of bitcoin's strangest facets may be one of its biggest challenges on
the continent: the way it's produced through a process called mining.
Developers use computer clusters to solve complex mathematical equations
and verify transactions, thereby earning, or "mining," bitcoin. But
given the computer processing requirements, most people in Africa can't
easily mine bitcoin — instead, they receive bitcoin from someone else,
often from outside the continent. Receiving the currency from outside
"creates dependency," says Will Ruddick, the co-founder of Koru, a
nonprofit based in Mombasa, Kenya.
Yet it's tempting to think
about the inflationary troubles bitcoin could solve. Specifically, a
broader application of bitcoin — as a complementary currency — could
appeal to African consumers who are leery of their country's
inflationary troubles, which are a constant threat to economic
stability. Hyperinflation in Zimbabwe once rendered the country's
currency nearly worthless, halting commercial activity. By contrast,
because the circulation of bitcoins is capped at 21 million, the
cryptocurrency is — at least theoretically — inflation-proof. As a
result, proponents argue, it could serve as a trustworthy store of value in periods of economic distress.
It's
not the first time Africa's seen an alternate currency, and in the
past, new currencies have managed to open up informal economies to
broader markets. Take Koru, Ruddick's nonprofit, which developed
Bangla-Pesa for a slum in Mombasa called Bangladesh. Small-scale
business operators, such as fruit sellers and tailors, join the
currency's network upon receiving endorsements from four current
members, and then receive 200 Bangla-Pesa (equivalent to 200 Kenyan
shillings). The members then use the currency to purchase goods from one
another, while reserving shillings for commerce outside the community,
such as paying school fees. It's an indirect barter system, says
Ruddick. Bangla-Pesa allows economic activity to continue even in
periods of scarcity. Using bitcoin could help by providing an easier way
to execute and monitor transactions.
But getting to that sort of system would still be a challenge.
Convincing
people to put their trust in new money systems takes significant
effort. And bitcoin's emphasis on anonymity runs counter to traditional
means of doing business in Africa, in which relationship-building is
critical. "Bitcoin comes with this notion of pseudo-anonymity, but do
people want that?" Maurer asks.
Still, if Africans can get past
bitcoin's cloak-and-dagger, mask-and-cape front, the cryptocurrency
could get its shot at making good on its promise. Ozy.com
is a USA TODAY content partner providing general news, commentary and
coverage from around the Web. Its content is produced independently of
USA TODAY.
California-based
bitcoin wallet provider Xapo has announced the launch of a bitcoin
debit card – a new product it is lauding as the first to allow bitcoin
users similar spending freedoms to traditional debit cards.
The
Xapo Debit Card debits BTC directly from users’ hot wallets, and can be
used anywhere MasterCard is accepted, both online and at physical
locations, though it does not represent a partnership between the
companies. Xapo founder Wences Casares
explained that the card is designed to appeal to Xapo users frustrated
by the inability to spend their bitcoins at most locations, telling
CoinDesk:
“You can use it anywhere you would pay with
MasterCard, you can use it online, you can use physically at any place
you can pay with MasterCard. It makes it very, very easy for you to
access your coins.”
The offering is immediately
available in both a digital and physical version to existing Xapo
customers. The digital version of the card is free, while the physical
version comes with a $15 one-time fee that the company indicates covers
shipping and handling.
New Xapo customers can also sign up to take
advantage of the release. Shipping for all physical cards is expected
to begin in two months, the company said.
Customer demand
As of its launch, the Xapo Debit Card is limited to one card per wallet account.
Casares
explained that Xapo added the product due to demand from current
customers who have wanted a way to spend the roughly 10% of their funds
(on average) they keep in the company’s hot wallets. The remainder is
stored securely in cold storage.
Said Casares:
“I
think that this product is for existing customers who are asking for
it. I expect a lot of the current customers to be using it.”
Casares
indicated that the ability for users to connect multiple cards to
accounts may be added in the future, should customers request the
feature.
How it works
Casares said that Xapo receives all transactions when they are initiated by card users at the point of sale.
From
there, the company analyzes the account to determine whether there are
enough funds to support the transaction. If so, the company authorizes
the purchase immediately and sells the requisite amount of BTC via
bitcoin exchange Bitstamp.
Merchants
receive their payment in local currency and, to MasterCard, Casares
said, the transaction appears just like any other local transaction.
Casares went on to explain that the offering is different than the available prepaid options from Coincard and Cryptex,
which need to be preloaded with bitcoins and that, he said, require
users to manually convert bitcoins to local currency before purchase.
Explained Casares:
“This
one is just like a debit card, because it debits from the wallet
directly. You don’t have to be thinking about funding it and how much
and when the conversion happens.”
Xapo users, by
comparison, only need to move bitcoin from their cold storage vaults to
their company-issued hot wallets when more funds are required.
Consumer focus
Though
best known for its secure bitcoin vault storage product, Casares told
CoinDesk that the Xapo Debit Card is consistent with his company’s
mission of becoming a viable, consumer-focused bitcoin bank.
Said Casares:
“We’re
not a wallet company or a payment company. We are a bitcoin wallet, we
are a bitcoin bank. Consumers need convenience and that’s why we provide
our MasterCard debit card and why we will keep adding products based on
our customers want.”
Casares went on to stress
Xapo’s commitment to consumers, stating that the company will never have
merchant customers or offer merchant services.
The launch follows Xapo’s 13th March announcement that it raised $20m in funding from Benchmark, Fortress Investment Group and Ribbit Capital. Images via Joshua Alvarez of The Hatch Agency
Nick
Chowdrey is a business and technology writer and proud digital native.
Currently based in Brighton, UK, he is a technical writer at Crunch
Accounting and co-founder of Brighton-based bitcoin community Bitcoin
Brighton. Here, he explores how bitcoin can play a part in the business
of online content.
Making
money from online content is hard work. A variety of different models
and tactics have been tried down the years, but a solid solution is yet
to be found. Could bitcoin be the answer everyone is looking for?
Before
the internet age it cost a lot of money and resources to publish
content. Newspaper publishers, for example, have to pay for the paper,
the printing press and the distribution. In contrast, the web provides
publishers with a relatively inexpensive – if not free – platform, with
very low production costs.
The result is lots and lots of free
content, which is great for consumers but bad news for content
professionals because it makes it difficult to make any money.
Monetising online content
Advertising
is one of the ways that digital publishers have tried to make money
from their product, but it requires the site to get a viral amount of
hits before the option becomes a viable one. Not only does this stifle
competition, it clutters up sites with unwanted and often intrusive
commercials.
Another option is the content wall. This allows users
to access free content for a limited amount of time before requiring a
paid subscription. Sites that do this currently are the Daily Telegraph,
the New York Times and the Sun – each with varying success. The Sun lost 62% of its traffic after adopting its paywall. On the other hand, the New York Times reports that its own rakes in $150 million a year.
The
paywall model is increasingly popular, but there are still serious
limitations. It clearly doesn’t work for every audience, which limits
the amount of content publishers that can use it. The main issue with
this model is that web users consume content in a very disjointed way –
more likely to flit between all kinds of sites than loyally stick to
just one or two. To many web users, a blanket subscription to a whole
site may seem like a waste of money, especially when so much content is
available for free elsewhere.
Bitcoin vs fiat paywalls
This
is where bitcoin comes in. Micropayments offer an option much better
suited to the way content is consumed in the online world, giving users
the option to pay a very small amount for individual items, rather than a
large amount for a whole box of content.
Micropayments have
previously not been an option for online publishers for many reasons.
Paying by debit or credit card requires the user to enter all their
payment information to verify their identity, creating a barrier to
entry that easily dissuades the fickle internet user. Payment networks
dealing in traditional currency also charge substantial transaction
fees, making multiple, small payments an impractical option.
Conversely,
bitcoin allows users to make instant, virtually fee-less, international
micropayments with a single click of the mouse. Some companies are
already coming up with solutions for online publishers. Using BitWall, for example, you can implement a bitcoin paywall on your site with just a few simple lines of code. This option was recently trialled by the Chicago Sun-Times, proving that big media companies are already showing interest, if not thinking about it.
Tipping and the bitcoin community
The
question is: will users change their behaviour to engage with this
idea? If you think of the process more like tipping, there’s no reason
why not. People are happy to tip in person using actual cash, so why
would they not do the same online using bitcoin, which is comparable to
digital cash – especially when the process is as easy as clicking a
‘like’ button?
Indeed, there’s already evidence of the
cryptocurrency community being very generous with micropayments and
donations. The culture of tipping on the bitcoin subreddit has led to
startup ChangeTip‘s developing platform for bitcoin tipping on Twitter, Github and soon, even Facebook – lest we forget the infamous Jamaican bobsleigh team fundraiser by the dogecoin community.
If
publishers can find a source of revenue better than advertising, there
could be a shift away from producing content solely for hits and shares,
and back towards a focus on quality. It would perhaps reduce the amount
of intrusive banner ads as well.
Whether or not the idea catches
on relies on a number of factors, including how much more widely adopted
bitcoin becomes, how bitcoin paywalls affect site traffic and how much
investment goes into startups like BitWall. The foundations, at least,
are laid – and as an online content professional myself, I’m certainly
counting on a shakeup. Payments image via Shutterstock
Marijuana
vending machines have long been rumored to debut en masse in certain US
states, but on 12th April the first machine that can be accessed
directly by consumers was finally unveiled at an invite-only event in Colorado.
Billed
as the first marijuana vending machine in America, ZaZZZ units are
perhaps more accurately the first ones that will not be placed behind
sales counters. The machines offer a number of novel compliance
features, including a driver’s license reader and a camera that captures
video of users.
ZaZZZ machines also have another notable feature:
They accept only a limited number of payment options including the
ZaZZZ Card, cash, and perhaps most notably, bitcoin.
Stephen
Shearin, COO of American Green – the makers of ZaZZZ – spoke to
CoinDesk about why bitcoin is the right fit for his brand. He said:
“It’s quick, it’s efficient, it’s trackable.”
How the machines work
ZaZZZ
indicates that its machines will serve as an ancillary service for
dispensaries, appealing to those who want to make purchases quickly or
who otherwise might be shy about buying marijuana.
Shearin
explained that customers paying with bitcoins will find a transaction
system nearly identical to the ones they would use at a merchant that
accepts bitcoin:
“It’s exactly like [using your] bitcoin wallet to pay anywhere else.”
When
the customers have selected their product and move to the payment
stage, they can then opt to pay in bitcoins. The vending machine
produces a QR code which the customer can then scan with their
smartphone.
Once the machine accepts the bitcoins, the customer takes their product and the transaction is completed.
Two growing markets meet
Medical
marijuana has been legal in Colorado since Amendment 20 passed in 2000.
The policy was followed in 2012 by Amendment 64, which allows for the
personal use of marijuana by all adults at least 21 years old in the
state.
However, while the policy is not new, the retail
infrastructure to support the change has been slow to roll out. For
instance, the first marijuana stores opened
on 1st January of this year. The relationship between bitcoin and
marijuana in Colorado began with the use of the digital currency by dispensaries who, at the time, were unable to find financial partners.
Some observers see the legal obstacles facing marijuana as similar to those experienced by bitcoin.
According
to Shearin, the use of bitcoins allows businesses in the cannabis
industry a way to improve margins that are already tight after taxes and
the cost of regulatory compliance. He explained:
“Providing
a payment facility that has a super-low cost to it, like bitcoin, is an
effective way to provide these guys – dispensaries and dispensary
owners – with a means of doing their business that is more efficient
than other facilities that charge a higher fee.”
Shearin
went on to say that the grassroots nature of the digital currency
movement, as well as its value-oriented benefits for customers like low
transaction fees, made implementing bitcoin a clear choice. Image via Zazz
It’s
a special edition of the bitcoin ATM roundup this week as Robocoin went
to Washington, DC, a couple of new players entered the European market
via Finland and Slovenia and Quebec City received two bitcoin ‘guichets
automatique.’
Washington, DC USA
Surrounded by reporters
and camera crews from some of the world’s largest news organisations,
more than 50 members of the US Congress lined up in Rayburn House on Capitol Hill in Washington, DC to test a Robocoin ATM.
Presented by Robocoin’s management team at the invitation of Representative Jared Polis (D-CO), the Robocoin machine received an enthusiastic response from other members.
Polis said:
“The
innovation of online currency will be an important economic driver for
the future that allows people and companies to reduce transaction costs
and facilitate international transactions.”
He added that it is physical cash, not bitcoin, that presents the easiest opportunity to hide illicit activity.
Charleston, SC, USA
Another US Robocoin appeared in Charleston, South Carolina, at the Dig South Interactive Technology Festival. This machine comes courtesy of company Southeast Bitcoin, “the South’s only Bitcoin ATM operator.”
Helsinki, Finland
Newcomer Cointter has launched two very utilitarian bitcoin machines in Helsinki, Finland.
Looking
a little like a cross between a payphone and a hotel safe, the machines
are northern Europe’s first two-way bitcoin ATMs, buying and selling
bitcoins for cash.
One is in Helsinki’s Delish store and the other in the Kynsilaukka restaurant. Both were developed in cooperation with LocalBitcoins.com.
Cointter
promises future models with a more refined design, which it plans to
ship to other European locations including France and the UK.
Quebec City, Canada
Two Genesis1 two-way ATMs opened in the historic heart of Quebec City this week.
The machines exchange Canadian dollars for both bitcoin and litecoin, and are located in the Auberge Amerik Hotel and the nearby Baguette et Cie coffee shop.
Genesis Coin CEO Evan Rose said:
“Canada
has proven itself to be a leader in bringing tangibility to the
otherwise digital world of bitcoin … We want individuals to experience
bitcoin in its most elegant form: swift, simple, secure.”
Slovenia
Slovenia, famous for giving the world it’s currently most popular bitcoin exchange Bitstamp, is now also home to one-way bitcoin kiosks of a previously unknown variety. The operator’s company website is short on detail, but it seems the machines are called ‘BTC-O-Matic’ and that there are at least two operating.
Leading Brazil-based digital currency exchange BitInvest has launched the Coincard, a bitcoin-friendly prepaid MasterCard.
The concept is simple. The card can be topped up with bitcoins, but you can use it pretty much like any other MasterCard.
Similar concepts have been employed by Cryptex and BitPlastic. BitPlastic has been around for a while, though it has attracted plenty of criticism over its pricing scheme, among other issues.
Cryptex, on the other hand, is new to the game: it announced its AML/KYC compliant Cryptex Card earlier this week, which can be used in 80 countries.
Coincard available globally
Since it uses MasterCard’s vast network, BitInvest is planning to make Coincard available globally.
However
it should be noted that when you send your bitcoins to the charging
address, your balance will increase, but it will do so in Brazilian
Reals (BRL). BitInvest points out that before the transaction you will
know what exchange rate you are about to get and what sort of fees to
expect.
The cards can be ordered, registered and funded using the
Coincard website. BitInvest will ship the card just about anywhere,
though there is still no exact shipping date and do details about its
fees have been released.
The future for crypto cards
The
concept of a bitcoin card that can be accepted worldwide seems promising
indeed, but like most enticing ideas, it also has a number of potential
problems.
Regulation might be an issue in some parts of the world, but fees and exchange rates are a bigger concern at this point.
BitInvest
and Cryptex have not said much about fees, meaning it might be too
early to evaluate either service, though the companies are expected to
reveal more pricing info soon.
Whether or not we will get to see
more crypto cards will likely depend on how these early entrants to the
market perform in the long run. If Cryptex and Coincard gain traction in
parts of the bitcoin community, we might see similar cards appear in
different markets.
If on the other hand you fancy yourself as an
early adopter, the 2014 FIFA World Cup in Brazil sounds like a good
place to burn some bitcoins and reals, as long as you don’t root for
Messi’s Argentina, of course. Disclaimer: This article should
not be viewed as an endorsement of any of the companies mentioned.
Please do your own extensive research before considering investing any
funds in these products.
Excerpt from Official Website ... Once upon a time, about 10
years ago, some software developers who have started an underground
forum to share ideas, solve problems together, and regularly showcase
their skills to their peers. They established a meeting
place where members could come and go as they please, participate openly
without judgment or criticism, and even stay completely anonymous if
you wish. Admission to this secret society is by invitation only,
subject to a successful demonstration of intelligence and skill.
Over time, trust and respect have
evolved between peers. Groups of people joined around ideas. Projects
have emerged to provide solutions to different problems. Software
packages integers and operational frameworks have grown from nothing.
Some of these solutions have had so much to offer, they have gained the
attention of the entire club.
Eventually, the chaos and random
chit-chat have become uniform efficiency and focused discussion. What
was a friendly experiment was becoming a well-oiled machine. And, as
expected, the members realized that they had the potential to create
something bigger.
Most of the developers GBBG Society (creator of
BitBillions
) are normal people like us, who work for large companies. By day,
increase the Intellectual Property and Net Wort slaves of their
respective owners. At night, they contribute to their personal projects
in exchange for mutual praise and admiration. Just like you, none of
them want to be just another cog in the wheel.
At this time, there is a strong
possibility that you're inches away from a product created with the
talent of a developer GBBG. Many
engineers were GBBG developers of high-quality projects or important
team members for goods and services launched by hundreds of companies
around the world. If there is a computer, a cell phone, an
electronic device, a car, or even a nearby restaurant, there is a
product influenced by the intelligence and capabilities of a technical
GBBG.
Over the years, many members
of our organization have developed some of their own personal projects
into successful business ventures. With all this talent in one place, it
was natural for members to start producing profitable software and
technology together. Big ideas emerge within GBBG all the time. Many of
these ideas could be tremendously profitable enterprise. The problem is
that most of our members are ordinary people who work for "The Man", and
the dream of a better future. I
do not have a lot of money to invest, or groups of lawyers, accountants
and marketing professionals to help them build a business.
Over time, a vision of opportunity emerged. GBBG whether to become an organization to promote and develop these products? products could be developed and marketed through the organization. profits could be made and shared collectively.
How do you convert an underground club
into a profitable, growing business? We needed capital and a marketing
plan with no upfront costs, with a capacity exponentially, and
sustainability. As
a group of regular guys with meetings to help each other on personal
projects, GBBG was not designed to have the money for product
development , marketing, advertising, or business plans. After a bit of research and discussion, we decided to implement MATRIX MARKETING
GBBG built the concept of Matrix Marketing from a cooperative or collective advantage. We
are a group of people helping people. Why not create a marketing plan
in the same way? There are millions of people around the world who use
the products we develop. So, why not collectively share the revenue with
the participants in the Matrix Marketing?
GBBG is transforming itself from a club
into a profitable business. We need people to spread the word. So, in
exchange for testing products, visit web sites, use our free services,
and tell others, we will share the money! The entire compensation plan
is built around a rewarding investment. Members can earn money by simply
being active, with software testing, and use of FREE services. They are
not required to buy stuff or sell stuff.
To share gains GBBG decided to pay the members of Matrix Marketing in Bitcoin
, the new currency that is revolutionizing the world. To learn more
about what is Bitcoin please read the page, and also to insert the word
Bitcoin in Google and realize for yourself what it is.
We're really, really accingiendoci to give bitcoin FREE. You are able to click on a mouse? Are Able to watch videos or play? You can try new technologies and software, and do you know what works or does not work?
Germany-based startup BitXatm
has announced the arrival of its Sumo Pro – a cryptocurrency ATM with a
POS (point of sale) function that will appeal to merchants seeking to easily accept payments from customers in digital currencies.
Costing €2,900
(around $3,993), the stand-alone machine offers a generous 17-inch
touchscreen and has the ability to accept any fiat currency.
Additionally, it can accept or dispense any digital currency, according
to the company’s website.
Operators of the Sumo Pro are able to link up with any exchange partner’s API to facilitate the supply of digital currencies, improve liquidity and enhance security.
The
machine offers a web-based back-end, so owners can keep an eye on cash
flow, profits, or change settings such as the fiat-to-bitcoin exchange
rate from their web browser. Furthermore, proprietors can opt to receive
SMS notifications for things like transactions or fund balance.
For
businesses that need to comply with anti-money laundering (AML) and
know your customer (KYC) laws, the machine provides an identification
check on customers using the device’s ATM function, which can be further
enhanced with an optional fingerprint scanner.
How it works
As illustrated in the video below, the Sumo Pro offers a quick and easy method for customers to pay for products or services using their mobile devices.
In
the restaurant example shown, the waitress sets up a transaction at
payment time by logging into her staff account and entering the bill
total, then prints out a paper receipt for the customer.
The customer then scans the QR code on the receipt into his or her digital wallet,
checks the amount, then clicks ‘send’. The transaction indicates it’s
complete soon after on the Sumo Pro screen, and the customer is free to
go – or do the washing up if they don’t have sufficient funds.
The
process looks very simple – certainly as easy as paying with a credit
card – and the Sumo Pro also provides a reassuringly professional
looking front end that should help to inspire confidence in new bitcoin
customers possibly made wary by recent media gloom surrounding cryptocurrencies.
The
BitXatm machine also offers merchants the chance to bring in some extra
income via interest on transactions when the Sumo Pro is used in its
ATM mode.
Competitive market
The
Sumo Pro is manufactured in Romania, according to BitXatm. It will
start shipping machines in May. If they sell out, there will be a 30-day
pre-order window for new purchases.
The company faces increasing competition from other startups in the bitcoin ATM arena: Robocoin has seen great success and sends machines all over the globe, as does Lamassu, who also plans to enhance its machines for other bitcoin services, such as remittances. Other companies are also gearing up for the fray.
However,
the unique selling proposition of the Sumo Pro is its user-friendly POS
feature. If it really is as simple as the video would have us believe,
it may be a product that will start finding its way into the mainstream.
BitXatm
also aims to carve itself a decent slice of the market with the very
competitive €2,900 price tag. Robocoin (at $20,000) and Lamassu (at
$5,000) are both pricer and offer fewer functions – for now. Yesterday’s
announcement of a €1,000 ATM from PayMaQ may worry the company, but their machine lacks the attractive POS function of the Sumo Pro.
This is the kind of technology that many have been pushing for:
easy-to-use, with elegant systems to ease the on-ramp for consumers and
businesses alike entering the world of digital currencies. Let’s hope
the Sumo Pro lives up to its potential. Why not check out Money-Spinners, our regular roundup of the latest cryptocurrency ATMs?
More
than 2,000 digital currency enthusiasts gathered at the Javits Center
in New York City on 7th April for the city’s second Inside Bitcoins
conference and expo, organised by Mediabistro.
Attendees traveled
to New York from more than 30 countries and 38 US states to hear
speeches from industry leaders about the usual topics, such as the
future potential and big-picture implications of bitcoin for consumers
and the financial markets.
As the day progressed, though,
panelists began to emphasize the opportunities of Bitcoin 2.0 and
applications of the Bitcoin protocol beyond currency, and notably turned
attention to the topic of governmental regulation of digital
currencies.
The event kicked off with Alan Meckler, the CEO and
Chairman of Mediabistro, who welcomed the crowd and noted the dramatic
increase in attendance from last year’s Inside Bitcoins NYC event, which
he said had just over 150 attendees.
A ‘buzzing’ crowd
Even before Circle’s Founder and CEO Jeremy Allaire kicked off his opening keynote address
– which centred on bringing bitcoin to mainstream audiences, Inside
Bitcoins NYC conference programmer Stewart Quealy commented on the
energy in the room, saying:
“It’s great to be in this
room and feel the energy of the crowd. There’s a certain buzz in the air
of everyone who is excited about the potential in this industry.”
This
was evidenced by the number of startup companies who signed up as
exhibitors and showcased their work in a variety of fields, including
mining, cloud storage and regulatory compliance consulting.
Conference
attendees lined the exhibition hall during the lunch break to learn
more about the diverse offerings of exhibitors, and even participated in
a live bitcoin trading session hosted by the Bitcoin Center NYC.
Diverse topics and opinions
Day
one of the conference played host to a diversity of topics discussed by
a wide range of industry professionals. Panels focused on issues such
as regulation, mainstream adoption, the startup ecosystem and security,
among others.
Unsurprisingly, the variety of topics brought with them a variety of opinions and viewpoints.
More
than once when questions were fielded from the audience, members of the
panel made a point to speak up in opposition of their fellow panelists’
perspectives.
In a panel titled ‘Moving Bitcoin Forward: Bringing
Trust, Legitimacy and Transparency to the Market’, moderator Michael
Terpin, co-founder of BitAngels, asked for a show of hands as to which
area holds the most importance for increasing the number of bitcoin
users: ease of use, security, regulation, public perception, economics,
or liquidity?
While there were votes for each of the five areas of
concern, there was a clear majority consensus that bitcoin’s ease of
use is the most important factor in growing the industry; members of the
panel agreed.
A maturing industry
One recurring theme
across the board from Monday’s panels and keynote speeches was the
notion that the digital currency industry is rapidly evolving, and that
it has already come a long way since its humble beginnings in 2009.
During
a panel discussion titled ‘New Ideas in Bitcoin’, speakers highlighted
the emerging ideas in digital currencies that expand beyond bitcoin’s
use solely as a currency.
Ryan Charleston, founder and CEO of Bitcorati, used the Internet as a metaphor for bitcoin’s potential:
‘Bitcoin represents Internet 2.0. I’m happy [we're] shifting away from talking about bitcoin only as a currency,’ R. Charleston @bitcorati
— CoinDesk (@coindesk) April 7, 2014
Regulation and education
The
topic of regulation was a primary focus in many of Monday’s panel
discussions. A number of different viewpoints on regulation were
presented from panelists, but the popular stance seemed to be that some
level of regulation will be necessary in order for bitcoin to achieve
mainstream adoption.
Jacob Farber, senior counsel at Perkins Coie
LLP, noted the contrasting attitudes that the bitcoin community holds
about regulation, stating:
“I’m struck by the
seemingly mass acceptance of regulation in this room. There are
contrasting interests between the original crowd who are averse to
regulation and the new innovators working on Bitcoin 2.0.”
Other panelists, like Izzy Klein of Podesta Group, believe that regulation is inevitable.
As
such, Klein argued that there needs to be more consensus among
regulators in their approach to dealing with digital currencies:
Educating
regulators about bitcoin’s underlying technology and its value for the
global economy is paramount for productive and meaningful regulation,
Klein said.
Closing remarks
The first day of Inside
Bitcoins NYC drew a large crowd with diverse interests and opinions, and
the variety of panelists and discussions ensured that the conference
offered something to appeal to everybody’s interests. Topics
like regulation and entrepreneurial opportunity held a particular focus
throughout the day, and though not everybody shared the same opinions,
it was clear that attendees felt that they were part of a rapidly
evolving and disruptive industry. Images by Tom Sharkey and Pete Rizzo
A recent e-mail conversation between Google executives and a curious
columnist had indicated the internet giant’s intention to include
Bitcoin as a medium of payment for transactions. However, the truth
might be far from this and Google may be already on the road to stand up
against Bitcoin with its own Google Coin.
The news of Google-Bitcoin integration had created a lot of flutter
in the tech circuit since Bitcoin getting attention from a prestigious
company like Google would give it the required reputation boost.
Google’s Senior VP of Ads and Commerce, Sridhar Ramaswamy, had
apparently confirmed through the e-mail that the company was in midst of
a working strategy to integrate alternate payment solutions like
Bitcoin.
Bitcoin’s disadvantages in its current form, however, makes it very
difficult for Google to quickly align its service with the digital
currency. Moreover, Google itself dealing with the currency transaction
through its platform could result in multiple issues and even a possible
litigation for the company through the still unreliable Bitcoin
universe.
Customers and users of Bitcoin have been cribbing about the various
usage issues involving Bitcoin including security and ease in interface
for the transactions. Yet, there seems to be no let up in the
ever-increasing popularity of the digital currency. It is clearly
visible that Bitcoin has captured the imagination of many and can become
a powerful element in the future.
Thus, Google is most likely to introduce a rival to Bitcoin with the
introduction of a robust coin system capable of standing up against it.
This will ensure that the company is able to serve the ever-increasing
customer demand for an independent and universal digital currency
transactions.
With Google’s extensive experience and research capabilities it can
quickly encompass the issues that currently haunt the Bitcoin service
and ensure availability of a seamless system for users across
geographical locations:
Google Drive for Google Coin Wallet
The biggest concern of every Bitcoin user is the loss of Bitcoins to
wallet file corruption from hard disk crashes or virus attacks. Any loss
of Bitcoins from such data corruption is forever lost in the system and
there are no available measures to claim the orphaned coins back.
Google Drive and the Google Wallet can essentially resolve this issue
within no time as both services can hold data away from such mundane
issues and keep Google Coins safe for its users. Google Coin
millionaires and billionaires will feel far more secure with their
hard-earned money.
Traceable Transactions
The serious adoption of digital currency has been plagued by bans in
some countries like Thailand for its already reported use in buying
drugs and in other illegal transactions. The lack of traceability of
transactions by the authorities is a worrying concern which could find
more countries pursuing a total ban in the future.
Google with its “One account, All of Google” service can effectively
keep every transaction completely traceable. Illegal transactions once
discovered can be mapped back to the suspects involved.
Irreversible Payments
Lack of a central payment authority certainly undermines the
possibility of resolution of any payment related errors that can occur
for Bitcoin users. Non-reversible payments has continues to be an issue
but Google with its Wallet service can quickly look into a possible
solution of the same, possibly by setting up a central authority for
regulation and addressing grievances.
Escrow Services for Buyer Protection
Google Wallet can effectively be an escrow account service as well
for all transactions that has a waiting period attached to it. Buyers
can make the payment into the Google Wallet which can be later released
once the seller delivers its promised service effectively.
Ease of Use of Interface
Bitcoin interface remains confusing for almost all current users and
new users are finding it extremely difficult to navigate through the
services. This deficiency in ease of usage has been the reason behind
the lack of wide-scale adoption of the digital currency.
Known for its dumbed down user-interface for all its platforms and
services, Google is already a master of simplicity. Google Coin, thus,
can be launched with an easy to use platform for better adopt-ability by
all users concerned.
Bitcoin is at its very nascent stage of evolution and as more and
more people discover its benefits, more chinks will definitely emerge.
Google’s vast team present in the payments and Wallet section would
definitely watching over and would be able to resolve these issues
faster with its Google Coin services as against Bitcoin. Google for sure
has the ability to stand up strong to rival Bitcoin and may even
surpass its popularity with its own Google Coin service.
By Daris Abraham
Sources: Wallstcheatsheet Blackbambu Stanford.edu Yahoo Telegraph
The price of bitcoin on the CoinDesk Bitcoin Price Index (BPI) has declined in recent weeks on the news that the Internal Revenue Service (IRS) had released complex guidance for digital currency users amid growing uncertainty regarding exchange regulation in China.
In the mining
world, these price fluctuations can cause ongoing profitability issues,
as miners, hardware manufacturers and price are key factors that impact
the difficulty.
The incentive for people to mine varies with the
bitcoin price. A high price makes mining attractive and people invest in
costly ASIC rigs. The mining manufacturers then ship newer, more
powerful units which raise the difficulty and mean more capital
expenditure for miners if they want to keep up with the mining Joneses.
Then
the price plummets, leaving everyone mining at high difficulty without
the ability to cash in their coins at a significant profit.
The
mining industry is pretty much held hostage to these realities. Call
them bitcoin economic factors, if you will. Now, with that unfortunate
news out of the way, let’s see what’s been happening since our last roundup.
The worst bitcoin miner ever
Records television shows well. Mines bitcoin not so well. Source: EngadgetBitcoin
mining in the form of SHA-256 hashing requires serious processing
power, and the higher the difficulty, the more power needed. That’s why
it seems counterintuitive to create ARM-based bitcoin mining malware.
Sure, recently discovered Linux-based bitcoin mining malware already seems like a bad enough idea, but the concept of ARM processor mining malware that can infect digital video recorders (DVRs) is just downright inefficient.
There
is potential for lower-powered chips to mine bitcoin in the future, but
that’s only going to happen on smaller nodes of silicon that are using
ASICs designed for that specific purpose. Anything else is just going to
be a complete nuisance.
Also to be filed under pointless mining malware is the one announced on 25th March, that gets your Android device mining for dogecoins – veeery slooowly.
City-sized electricity bill for miners
Freakonomics recently released a bitcoin podcast that featured venture capitalist Marc Andreessen and Stanford professor Susan Athey.
If anyone ever thought that bitcoin was a resource hog, take this comment from Athey as an idea of how much energy mining might use:
“So
it’s just burning a lot of electricity, enough to power many, many
homes. I’ve heard estimates as high as 3 million homes could be powered
with the electricity that goes to bitcoin mining.”
Athey’s number
for bitcoin mining’s electrical consumption is just an estimate, but
given ever-increasing network power, it’s likely to end up being far
higher than that.
As a result, technologies that can improve the efficiency of miners are going to become highly important, which brings us onto …
Spondoolies Tech now shipping power efficient miners
Spondooliestech Sp10 Dawson, still in the box. Source: MineforemanIsrael-based manufacturer Spondoolies-Tech has begun shipping units of its new power-efficient miner.
Called the Sp10 Dawson, this rig should produce 2.1 TH/s per kilowatt of energy, claims the company – a figure that Spondoolies-Tech reached by reducing the toggle rate of its 40nm ASICs.
However, Neil Fincham from Mineforman reviewed one
of these units and found that the miner hashes at 1.49 TH/s. The SP10
Dawson does draw at less than 1 Watt per gigahash, though – adds up to
1388W while running.
The unit weighs in at 14kg, which gives it the heft of a regular server and means it needs to be housed in a proper rack.
Solar-powered bitcoin mining
The unit has a battery for cloudy days. And those pesky nighttime hours. Source: Solarminer.Some
people try to locate miners in places where there they can find
cheap prices for all that power their miners will eat up, but if you
don’t want to move to Iceland or the US’s Pacific Northwest, you could
opt to go green. Solarminer is now selling a USB hardware product that the company says uses nothing more than sunlight in order to operate.
The device uses three 150W solar panels and 288Wh LFP batteries to harvest and store energy, and costs $889.
Solarminer
customers do have to buy USB miners for the unit’s 16 slots. However,
there are a lot of different USB mining options available, and using
something like, for example, the BitFury RedFury USB miner you could hash at 40 GH/s from one of these, just with sweet sunlight.
The ‘Bitcoin Baron’
Selling at every single peak. Source: WiredWiredrecently ran a story on a couple of data geeks, Kai Chang and Mary Becica, that took the leaked Mt. Gox data
and made a bunch of visualizations from that information. One user that
stood out was referred to as the ‘Bitcoin Baron’ – a Mt. Gox exchange
trader that mostly sold BTC at the top of every market peak.
The speculation is that the Bitcoin Baron might be a big-time miner, or perhaps a pool operator. Many (but not all)
of those who operate large bitcoin mines or pools are hesitant to
divulge any information regarding operations. But if this chart is true,
it shows that big-time miners are always closely looking to make the
best fiat profit that they can.
2.5 TH/s Bitfury Razz
BitFury’s slogan is “Extreme Performance. Source: BitfurystrikesbackBitFury, a chip manufacturer that claims it powers 20-30% of the bitcoin network, is now selling mining units.
The ecommerce site Bitfurystrikesback is offing the 2.5 TH/s ‘Razz’ unit, which sucks up 3kW of power for its hashing ability.
The
Razz costs €7,250, or about $9,947. Interestingly, it is marked as a
‘used’ model, which would logically lead one to assume that BitFury has
used these Razz units to mine prior to putting them up for sale.
When CoinDesk asked Bitfurystrikesback’s CEO Niko Punin about the used status of the machines, he offered no comment.
However, Punin did say that there would be another version of the Razz for sale soon with even better specs.
1.2MW, liquid-cooled, bitcoin mining container
Industrial mining evolved. Source: Allied ControlFor
those inclined to study data centre architecture and design, the
concept of the modular container has been considered one of the best
ways to pack servers into a small area. Google did it in secret for a while, and then Facebook open-sourced it.
Allied Control, which is a startup partnering with 3M on a special type of cooling fluid, has written a paper on modular bitcoin mining design.
It
involves immersion cooling using six 200-240kW flat-rack tanks and is
designed so that ASIC boards can be easily swapped when they become
obsolete.
Each of these modular units can support a whopping 1.2MW
of power. That is a figure that even Allied Control admits would not
have seemed fathomable in bitcoin mining a year ago, but has become a
harsh reality. Got a cryptocurrency mining tip for future roundups? Contact us. Disclaimer:
This article should not be viewed as an endorsement of any of the
companies mentioned. Please do your own extensive research before
considering investing any funds in these products. Electrical lines image via Shutterstock
Brian Klein is partner at the litigation boutique Baker Marquart LLP and chair of the Bitcoin Foundation’s legal advocacy committee. Klein has co-authored this piece with Jay Weill, a partner at Sideman & Bancroft
in San Francisco representing people and entities in both civil and
criminal matters involving the IRS. Weill was the former Chief of the
Tax Division at the US Attorney’s Office in San Francisco.
Death
and taxes are the two certainties of life, so the old saying goes. On
25th March, three weeks before the US 15th April tax filing deadline,
the US Internal Revenue Service (IRS) finally issued guidance regarding the taxation of bitcoins and other digital currencies in what the IRS, in typical IRS-speak, calls Notice 2014-21.
One
could almost have believed that the IRS had forgotten about bitcoins
and other digital currencies. But really, everyone should have seen this
day was coming. Indeed, it was long overdue.
The IRS could have
treated digital currency as either currency or property. It chose to
treat it as property, imposing the general tax principles relevant to
property transactions on those of digital currency. This means that
digital currencies will be taxed as ordinary income or as assets subject
to capital gains taxes, depending on the circumstances. The choice has
far-reaching tax implications that will affect anyone who uses digital
currency.
In the notice, the IRS co-opted FinCEN’s definition of digital currency:
“Virtual
currency is a digital representation of value that functions as a
medium of exchange, a unit of account, and/or a store of value.”
It goes on:
“The
sale or exchange of convertible digital currency, or the use of
convertible digital currency to pay for goods or services in a
real-world economy transaction, has tax consequences that may result in a
tax liability.”
This is very understated. The tax
consequences are far-reaching and depend on how one uses digital
currencies. The following provides a thumbnail sketch of certain tax
consequences for US taxpayers.
Employers and employees
Employee
wages in digital currency are subject to federal and state income tax
withholding, and by law should be reflected on both employers’ and
employees’ tax returns. Such payments are required to be reported to the
IRS on your business and payroll tax returns and must further be
reflected on IRS Forms W-2 issued to each employee and filed with the
IRS. In turn, the employee must report to the IRS and state tax
authorities the wages he or she receives in digital currency on his or
her personal tax returns.
For each, the reported amounts – the
wages reported paid or received and the payroll taxes withheld – will be
calculated using the fair market value of the digital currency in US
dollars on the date paid or received.
Independent contractors
Businesses
paying independent contractors with digital currency must report
amounts on Form 1099 – the document used to report other forms of income
than wages or salaries – and supply the forms to tax authorities and
their independent contractors.
Like employees, independent
contractors are taxed in the same manner as if the amounts were received
in US dollars. They must report amounts received as income on their tax
returns and pay self-employment tax.
Investors
The
IRS’ treatment of digital currency as property is a boon to taxpayers
holding it as a long-term investment – that is, holding it for more than
a year. This is so because when investing in or undergoing transactions
in foreign currency, the gains are taxed at the ordinary income tax
rate; whereas with digital currency treated as property, the taxpayer
can benefit from the lower capital gains tax rate.
Moreover, like
any other commodity, if the digital currency loses value instead of
making gains then the taxpayer can claim a capital loss, which would
help lessen the tax bill. The character of gain or loss generally
depends on whether the digital currency is a capital asset in the hands
of the taxpayer.
According to the IRS, if the taxpayer holds
digital currency as capital – such as stocks or bonds or other
investment property – gains or losses are realized as capital gains or
losses. But where such currency is held as inventory or other property
mainly for sale in a trade or business, then ordinary gains or losses
are generally incurred.
Miners
Taxpayers who obtain
digital currency through mining must include the fair market value of
the digital currency, as of the date of receipt, when reporting their
gross income on tax returns.
This creates an enormous task for
frequent miners who have to go back and see what the values of the
bitcoins were on the dates they were mined. If the mining activities
make up a trade or business, and the miner is not an employee, then the
net earnings resulting from the activities constitute self-employment
income that’s subject to self-employment tax.
Exchanges
When
an exchange sells digital currency to a customer as a part of a trade
or business, its gross income will equal the value for which the digital
currency was sold.
Catch-all for payors
Any
disposition of digital currency is a taxable event, including the use of
digital currency to acquire another asset, to pay for services, in
retail transactions and investments where the merchandise received or
investment has a higher value than the payor’s basis in the digital
currency.
And, payments made using digital currency are subject to
the same tax reporting and backup withholding as other payments made in
property.
The character nature of the tax
The IRS notice left many unanswered questions as well.
For
example, any person or business that receives more than $10,000 in one
transaction or a series of transactions must identify the person
involved to the IRS via Form 8300. Since digital currencies, like
bitcoin, are not recognized as currencies by the IRS, does a car dealer
have to report an automobile purchased with bitcoins?
US
individual and business taxpayers alike should consult with their tax
advisors about the implications of their particular digital currency
transactions. They will now have to track their digital currency
purchases in order to correctly prepare and file their 2013 tax returns
due on 15th April, as well as potentially amend 2012 and earlier tax
returns.
The IRS notice also invites comment from the public.
Undoubtedly, the IRS will receive an extensive amount of feedback. In
light of the path the IRS chose, one that requires extensive tax
compliance efforts, the IRS should expect much of it to be extremely
negative – and rightfully so.
IRS
CIRCULAR 230 DISCLOSURE: To ensure compliance with Treasury Department
and IRS regulations, we inform you that any federal tax advice contained
in this communication is not intended or written by the parties to be
used, and cannot be used for the purposes of (i) avoiding penalties that
may be imposed on the taxpayer under the Internal Revenue Code or (ii)
promoting, marketing or recommending to another party any transaction or
matter addressed herein.
