Bitcoin Association

The Bitcoin Association works to improve understanding of Bitcoin and related technologies with regulators, charities, businesses, media and citizens globally.

Best Bitcoin Wallet vs Banks

Right now, technology that is based on peer to peer level is placing power in the hands of all individuals as far as bitcoin is concerned. Traditional banking is no longer as viable as it used to be, and this means that investors are left with limited options.

The Best Bitcoin Wallet threatens banks

The Best Bitcoin Wallet threatens banks

One of the few options available today is bitcoin, and here’s why:
You will never need permission to use the best bitcoin wallet
In order to access credit cards or banking services, these financial institutions let you do so at their discretion. Some estimates report that there over a billion people who currently don’t own any bank account. And then there are those who are flat out rejected.
To cut the long story short, opening a bank account or applying for a credit card requires you to fill long and tedious documents, not to mentioning signing contracts that don’t always work in your favor. On the other hand, bitcoin wallets are free to use and access from anywhere in the world.
No limits on how much to spend
It’s important to understand that fiat operate through a system called fractional reserve banking. What this means is that all people can’t access their monies at the same time. It is also for this reason that financial institutions like banks are being forced to limit purchases and withdrawals based on spending limits.
On the other hand, your Bitcoin wallet doesn’t have spending limits, meaning you could spend as much as you want. Consequently, most people will agree that this makes better sense than if someone tells you that you are not allowed to spend a certain portion of your hard-earned cash.
Bitcoin doesn’t keep you waiting
A bank wire can clear for days, and this means waiting. Although domestic transfers have become more efficient, cross-boundary transfers still take days to clear.
On the other hand, Bitcoin transactions are cleared instantly. It can only take an hour for the confirmation to arrive. In fact, the current financial system is fraudulent and screwed up. Even if they solved these things and updated the system, they would still hold to your money in a bid to make quick profits.
Access of your money is round the clock when you own the best bitcoin wallet
When you put your money into a permissioned system as in banks, it means the money can’t be available to you at all times. As a matter of fact, history has recorded several instances of bank runs where clients were not able to withdraw their money.
However, with bitcoin, your private keys are what matters. If you have them, you can access your money anywhere anytime. In fact, bitcoin is considered a global form of payment, and it never stops operating because of limiting business hours.
No levies on Bitcoin wallets
Banks are essentially a third party offering their services to the masses. But this also means that people are at their mercies. For this reason, banks have been known to charge unjust levies on client monies. However, your best bitcoin wallet, no one will ever touch your money provided that you’ve kept your private keys secure from hackers. Every single coin in the bitcoin world is locked in a public ledger. So your private keys determine whether or not you shall withdraw your money.
If you worry about security of your money, then bitcoin has come up with private keys that are based on 24 randomly generated characters which could be memorized and stored without a trace. Isn’t that what you need to keep your money safe from unauthorized persons?
Lower transaction fees

Bitcoin wallets have a small transaction fee which goes to miners

Bitcoin wallets have a small transaction fee which goes to miners

Did you know that bitcoin was the cheapest way to send money across international boarders? If you receive payments online most of the time, your safest bet is to go with Bitcoin since it’s the cheapest option out there.

Whenever you send payments, you’ll pay the minimal mining fee which is 20 cents depending on the current network miners. If you get paid through bitcoin, then cashing out becomes easy when you choose the no-fee option. At the end of the day, you could even make profits due to international currency exchange rates. If you opt to have the money in your account the same day, then you will have to incur an extra fee. However, with arbitrage, that fee cancels out and you will never feel the pinch.
That’s it! Bitcoin takes the lead compared to traditional banking. The only problem is that it is still far from becoming a mainstream form of currency. Only time will tell.

Supporting Online Ethereum Wallet Development

Ethereum is facing a serious issue: a lack of online services, including a solid online ethereum wallet. That is, until now. The guys at ethereum-wallet.net have partnered up with major firms to release a distinctive free service. It’s truly what the Ethereum community needs right now.

How Wallets will change the Industry

Blockchain

Blockchain

It hasn’t been long since the days of wallets coming and going. Finding a wallet to use without downloading the blockchain for two days is now possible. And yes, it could that that long, or even longer. The BTC blockchain is 80GB, and the ETH blockchain is 50GB, increasing 2 GB per month. At this rate, you’ll need 1TB to use offline wallets in just a few years. That’s insane.

Rise of the Online Wallet

Ethereum-wallet.net

Ethereum-wallet.net

Initially starting as a small idea to help users around the world, online services have developed from a small maple tree to a massive maple tree. Indeed, today’s services are now a necessity.

Thankfully, online wallets are being developed for Ethereum. There are now services which provide all the features of a regular desktop wallet, but is stored instead on the cloud. People will access their Ether from anywhere. Whether it is at home, at work, or even on their phone, users can use their online ethereum wallet.

Social Impact

Credit Cards Fire

Credit Cards Fire

It’s strange that we carry around defenseless credit cards. It’s so easily stolen, and people can buy anything with your card so long as they have the ‘tap’ feature. They don’t even need your PIN number! RFID protection won’t help you at that point. The card’s already stolen and thousands of dollars are gone. You’ll then have to contact the card company and talk to them for hours, days, or weeks to get your funds back.

But there is a solution. There is hope. That solution is digital currency. Store your private keys in your phone, USB, or computer and encrypt the data. On top of not needing credit cards, hackers cannot even decrypt your data with today’s security standards. How incredible is that?

For everyone who has lost their wallet, or been stolen from, digital currency like Ethereum is a lifesaver. You simply cannot be robbed unless you’re extorted. Amateurs don’t stand a chance of taking your coins, and pros won’t bother because there are easier targets in the world.

But, are they fast and reliable?

In fact, they’re very fast and reliable – of course, depending on the service. Many of these have been operating since the early days of digital currency, and have built up both trust and reputation on their platform. They are widely trusted and used.

An offline wallet also provides some degree of reliability, but is dependent on the security of your own system. Millions of computers and phones are hacked each year. If spyware gets hold of the users’ systems’, the wallet and funds are completely vulnerable and can be easily taken. However, cloud security storage can help to eliminate this issue.

Conclusion

Ethereum is a fantastic up and coming currency in the cryptocurrency world. Its smart contracts and fast development plus innovation helps to make it a competitor to the popular Bitcoin. While there has been a lot of development from Vitalik, there are still many third party applications that need to be developed on the platform. This includes the application we discussed – an online ethereum wallet.

Bitcoin Taxation Part 4 – Tax Losses

Topic 4: Losses

 

#20: What happens if end up with an overall loss (instead of a gain) from my bitcoins?

First, remember that gains and losses are combined at the end of the year to reach the amount of your “net gain.”  If you had more losses than gains, however, then you will end up with a “net loss.”  Given the two large market crashes bitcoin suffered in 2013, it’s possible that some of you will find yourself in this position.   Net losses are deductible on your tax return, but there are some important limitations depending on whether they are characterized as “capital” or “ordinary” (character is discussed above).

 

#21: Can I deduct my net losses if they are “capital?”

Yes, but subject to a $3,000 maximum per year.   This limitation is painfully low if you have substantial losses.  Fortunately, any losses in excess of that amount can be carried forward and deducted in subsequent tax years (still subject to the $3,000 maximum each year).  There is no limit to how long you carry your capital losses.


#22: Can I deduct my net losses if they are “ordinary?”

Yes.  Ordinary losses are fully deductible and not subject to the $3,000 limitation mentioned above.  If your net losses are so big that they offset all of your other taxable income, you get to carry the unused losses back two -years (by amending your prior tax returns) as a Net Operating Loss.  Any remaining NOL can then be carried forward for an additional twenty years.

 

Keep in mind that most bitcoin holders will not have “ordinary losses.”  The only time your losses will be characterized as ordinary is if (1) you are in engaged in a trade or business with bitcoins as inventory (which is possible in the case of bitcoin miners, although it is still unresolved), or  (2) bitcoins are categorized as a foreign currency and your losses did not arise from a “personal transaction.”

 

Note: this answer ignores the possibility of passive activity or at-risk limitations, which may be applicable and need to be addressed on a case-by-case basis with a tax professional. 

Bitcoin Tax Treatment for US Citizens Part 1 of 7 Realization of Bitcoin Gains

Topic 1: Realization

 

#1: Are gains on Bitcoins taxable? 

Yes.   This is one of the only unequivocal answers you’ll find in this article.   All income is taxable, regardless of source or form, unless the Internal Revenue Code specifically states otherwise.  Bitcoins present a lot of interesting tax questions, but whether gains are taxable is not one of them.

 

#2: When do my gains become taxable?

Gains are taxable in the year they are realized.  Realization occurs when you exchange bitcoins for any type of other property; such as cash, merchandise, or services.    This includes everything from haircuts to yachts.  Essentially, any transaction involving Bitcoin is a realization event and triggers taxable gain.


Because I’ve seen a lot of misinformation on this point, I want to make myself perfectly clear.  If you own bitcoins that have appreciated in value, you cannot use them to purchase goods or services without realizing gain.   Such a purchase is an accession to wealth.  It puts you in the same position as if you had first sold the bitcoins for cash and then used the proceeds to purchase the goods or services directly.  Yet, one would be a taxable transaction while the other would not?  The IRS would never tolerate such a blatant loophole, and neither would the courts.   In fact, this exact argument has already been rejected for other types of assets.  The outcome for bitcoins will be the same.

 

Unfortunately, this has some serious implications for the future of bitcoin.  I have to question the effectiveness of bitcoin as a medium of exchange when the user has to calculate his or her tax liability on every single transaction.  As the saying goes, the power to tax is the power to destroy, and this is no exception.

 

Note: there is a code section that might provide some relief here, but only if bitcoins are categorized as a foreign currency.   Under this code section, the use of bitcoin to buy goods and services would be tax free as long as the transaction was personal (i.e. not for business or investment) and did not generate more than $200 of gain.

 

#3:  What if I sell my bitcoins but do not withdraw the proceeds from the exchange?

Your gains were realized the moment you sold the bitcoins.  It is irrelevant whether the proceeds from the sale are kept in your bank account or your exchange account, you have still realized a gain for tax purposes.

 

#4:  What if I exchange my bitcoins for altcoins?

The answer to this question implicates what is known as a “like kind exchange.”  Like kind exchanges do not trigger realization, and are therefore tax-free.  Although it’s technically possible for Bitcoin and altcoins to qualify for-like kind treatment, it’s exceedingly unlikely.  The regulations for like kind exchanges require the two property types to have the same rights, characteristics, and obligations.  Whether altcoins and Bitcoin meet this test is uncertain, but I would tend to think not.  Additionally, Bitcoin would be automatically barred from like-kind treatment anyways if it is characterized as a foreign currency.  Thus, there are two significant legal hurdles that Bitcoin must be overcome before qualifying for like-kind status with another altcoin.  Although nothing is for certain when it comes to bitcoins, I’m fairly confident they will fail at one or both of these hurdles.  Thus, I would not suggest that you try to qualify such a transaction as a like kind exchange unless further guidance on this issue is given by the IRS.

 

#5: So what can I do to avoid realizing gains on my bitcoins?

The only way to avoid realization is to hold your bitcoins without selling or exchanging them.  If you were hoping for a different answer, I’m sorry.  Whether you decide to actually report you realized gains is of course a different matter, but as far as the law is concerned, you have realized gains upon any sale or exchange of your bitcoins.

 

#6: How does the IRS know about my gains?

The IRS only knows what it is told.  This means that it has no knowledge of your bitcoin transactions unless someone tells them.  Here are four way that can happen (others may exist).

 

First, your bitcoin exchange or payment processor may report your transactions to the IRS.  This would be done with a Form 1099, which you’ve probably encountered at one time or another in a different context.   However, it does not appear that bitcoin transactions are currently subject to the 1099 reporting requirements (although that will probably change).   Thus, unless they voluntarily file a 1099 against you, it is unlikely that the IRS will receive a report of your bitcoin transactions.  Note that they would need your social security number to file a 1099 in your name.

 

Second, your bank or bitcoin exchange might file a Suspicious Activity Report (“SAR”).   US banks and bitcoin exchanges are required to file SARs for wire transfers that are “suspicious” and larger than $5,000 ($2,000 in the case of bitcoin exchanges).   The meaning of “suspicious” is very vague and highly discretionary.  Out of an abundance of caution, many banks automatically treat all international transfer as “suspicious.”  So, if you’ve sent or received a wire transfer of more than $5,000 to/from an international bitcoin exchange like Mt. Gox or BTC-e, you can be pretty sure that your bank has already filed a SAR against you (although they are prohibited from telling you if they did, so you’ll never know for sure).   The larger and/or more frequent you SAR filings, the more likely they will become a legitimate red flag and trigger an investigation.  Although FinCEN is generally concerned with money laundering activities, the IRS does have access to FinCEN filings and it is common for IRS special agents to participate in FinCEN investigations.

 

Third, someone can rat you out to the IRS, which happens far more often than you might think.   The simple fact is that people get jealous, and if they’ve heard that you’ve made lots of tax-free money with bitcoin, they might get tempted to make sure justice is served.  There’s also that nice reward the IRS will pay them for snitching.

 

Fourth, you voluntarily and accurately report your gains on your tax return.   That might sound ridiculous to some people given the inherent anonymity of bitcoin, but there are some very rich people in prison right now who used to think the same thing about their Swiss bank accounts.  The fact is that penalties for failing to report income are significant.  This includes the possibility of criminal prosecution.   You can also add to this the additional penalties for failing to report foreign financial accounts (discussed below), which can be even more severe.

 

At the end of the day, you have a decision to make.  You can comply with the law and pay taxes just like everyone else, which is admittedly unpleasant.  Alternatively, you can violate the law and hope that you don’t get caught.  Maybe you will, maybe you won’t.  If you are caught, though, the amount of money you’ll be forced to pay in penalties and interest will drastically exceed the amount you saved.  That’s not to mention the possibility of a felony criminal conviction and a prolonged stay at Club Fed.   Personally, I have seen the havoc wreaked on people’s lives by tax crimes and I would never want to be in their shoes.  Neither should you.

 

Conclusion

Gains on bitcoins are taxable income. They become taxable when you sell bitcoins for cash or exchange them for goods or services. The IRS does not receive any direct information regarding your bitcoin transactions, but it has other ways of finding out. The monetary and criminal penalties for failing to report gains are not worth the taxes you’d save.

Why are Banks closing Bitcoin Related accounts?

There have been posts about the Chase and Bank of America accounts closed for Bitcoin related activities and ties with Bitstamp or Coinbase.

The underlying speculation is that senior bank management sat in a board room and said “Hmm, this Bitcoin thing is a threat, instruct the minions to squash it.” Similar to the speculation about Apple and Bitcoin related apps.

The truth is that this is very unlikely. The CEOs and other Senior management at banks don’t care much about Bitcoin and don’t spend much time thinking of it.

These account closings are due to need for compliance with the BSA- Banking Secrecy Act. The BSA is the latest flavor of the day for regulators. Regulators typically focus on one thing for a while, shake down the major players for fines and fees, the industry changes policies and then the regulators move on to something else.

Market timing, after hours trading, viatacles, senior citizen marketing, derivatives, structured bond products, Patriot Act compliance, AML, soft dollar arrangements etc etc….. it goes through cycles.

Right now BSA is on the radar of the regulators….Chase is facing the brunt of the enforcement, they’ve had fines levied and are closing MANY accounts, not just Bitcoin. B of A is following suit because they know they have a target on their back.

So no…..this isn’t an effort by banking management against Bitcoin.

Even in the unlikely event that bank CEOs think it’s the “next big thing” it’s still too small to be on their radar….there is no acquisition or move which would “move the needle” for the multi-billion dollar banks. If it does take off they feel they will have plenty of time and capital to make meaningful aquisitions and moves into the space once there are billion dollar in revenue Bitcoin related businesses.

So no, the big banks are not plotting to destroy Bitcoin….they honestly don’t care about Bitcoin. These people have business unit heads, country and regional heads and others reporting to them who have people in turn reporting to them who have hundreds of product lines….all of which are larger than the value of all Bitcoin on planet earth.

A banking CEO is meeting his board, his major investors, doing media appearances….getting reports from the head of international, legal etc etc. “We have $23 billion at risk due to instability in Ukraine.” “This $45 billion joint venture in China will help us crack hundreds of billions in retail accounts.” “The SEC just fined us $1 billion.” “We will earn a $1.5 billion fee for the investment banking work we just did on Facebook’s acquisition” “This Sovreign Wealth Fund just made a $1.5 billion commitment to our hedge fund unit” “We think that long term, Africa is a growing market and recommend investing $20 billion into aquisitions”. “The EU is slowing down, we need to do 20,000 layoffs”. etc.

No where in these conversations is an executive coming to a bank CEO saying “This thing called Bitcoin is worth $7 billion and is someday going to be a threat to is, let’s squash it.”

Same goes for Apple — they closed the apps, likely not due to competitive reasons but due to fear of regulators.

Are people aware that Apple faces so much regulation that they have ON SITE US government regulators and enforcement personnel from the DOJ and others who report for work AT APPLE HEADQUARTERS full time, every day? Apple literally has teams of people who deal with government regulators all day. The fear of the apps is likely that the DOJ or any of 50 other government regulators decides that Apple is violating some rule by allowing apps and goes after them.

The regulators don’t even really care if a violation was made or what the intent of the company was….they know that an Apple sized company will almost always settle when faced with a lawsuit saying “Apple charged by DOJ for aiding and abetting money launderers” — the regulators get another $50 million or so in fees and a headline and a justification of their existence. Apples other option is to fight it….spending valuable time and $100 million in legal fees against an enemy with an unlimited taxpayer-funded budget.

For Chase and Bank of America the stakes are 100 fold larger as are the compliance efforts and fees.

Major businesses are completely governed by compliance fears and crippled by the red tape and legal concerns surrounding them.

This is the reality of the situation.

Letter to Senator Manchin regarding Bitcoin

United States Senator Joe Manchin
US Senate
Washington DC

Dear Senator Manchin:

I am a member of The Bitcoin Association, an industry group focused on Bitcoin and related technologies.

Thank you for taking the time to express your concerns regarding Bitcoin. Bitcoin and crypto-currencies in general represent a new, but exciting technology. We are encouraged and applaud anyone’s pro-active attempt to understand this new technology in their role as the chosen representative of constituents and the American people in general.

Bitcoin is a communications standard that simply facilitates the distribution of an asset ledger across a network. It is a revolutionary technology that, when applied properly, can provide us with improved transparency and fairness in our economy. Before the invention of the internet,our communication structures were centralized, cumbersome and inefficient. The internet has decentralized the sharing of information. Now, instead of mailing a handwritten letter to a destination around the world and waiting up to four weeks for a response, we can perform this same action in seconds via email and the Internet. This new technology has been incorporated into every aspect of our economy creating new innovative American companies such as Google and Amazon, robust job growth, American economic growth and a higher standard of living for all Americans. I’d ask you to please Imagine what the world would be like today without this technology.

As the internet is more than just email, Bitcoin is more than just a currency. The bitcoin distributed trusted ledger can be applied to any centralized source of data. The result is a more stable, secure, open and fair information system. Just as the case with the invention of the internet in the 1990s, no one knows the full extent of the positive benefits we as a society will enjoy from the application of this new technology. One example could involve the largest private employer in your own home state of West Virginia, Wal-Mart. Wal-Mart’s competitive strengths include its extremely efficient logistical systems facilitating the competitive pricing of goods and robust profits in a hyper competitive industry. Wal-Mart incorporating Bitcoin technology by accepting it as a medium of exchange could reduce retail transaction costs by up to 3% of their entire sales total. Wal-Mart incorporating bitcoin into its supply chain could reduce supply chain transaction costs and logistical friction creating further savings. The savings will boost Wal-Mart profits allowing them to concentrate on what they do best, sourcing and selling great products. Not managing their banking costs.

In your letter to federal regulators you highlight some of the risks of using bitcoin as a currency. You note that the price has been unstable and disruptive to our economy. Much of the price instability has to do with the lack of liquid bitcoin exchanges. We agree that bitcoin has evolved to be an integral part of the US and global economy and therefore requires the establishment of more reliable exchanges. This is why we view the efforts of Benjamin M. Lawsky, New York State Superintendent of Financial Services in providing more clarity to those entrepreneurs who want to create jobs, with great interest. We believe this clarity will open the door for the establishment of large, liquid and reliable bitcoin exchanges in the USA. US based bitcoin exchanges not only may help solve your concerns about price fluctuations but they may also create new job growth and economic growth in the America.

You expressed concerns regarding bitcoin facilitating illegal activity. These are concerns everyone shares and we, lawmakers, regulators and industry, need to address them together. Regulatory framework can be put in place that balances the risk of bitcoin use in illegal activities while maximizing the legitimate economic growth we are already enjoying from bitcoin. Already the USA is home to some of the largest and most well respected bitcoin companies in the world such as Bitpay, the largest bitcoin payment processing company located in Atlanta, Georgia and Coinbase, one of the world’s largest online wallet providers and online marketplaces located in San Francisco, California. These companies are creating new jobs and real economic growth and will continue to do so in the future. Bitcoin companies may be the world’s future “Googles” and “Amazons”, and they are American companies leading the growth of the global bitcoin economy.

Your concern about the recent failure of Mt. Gox is valid. We, as an industry share your concerns. Before our parents and children are willing to use Bitcoin, they must be sure that they can trust it. We as an industry understand and agree with those concerned about this. The entire Bitcoin and Crypto ideals resolve around transparency and trust. The failure of Mt. Gox, in the same manneras the shut down of Silk Road, represents a milestone transition from the innovator to the early adopter stage of Bitcoin adoption. If this transition is to be successful, we as an industry understand that transparency and trust must play a key role in our process.

Most individuals and institutions in the bitcoin economy have exemplified the highest level of integrity and transparency and a notable list of industry leaders were active in making statements about transparency in the wake of the Mt. Gox shutdown.

Please hear us clearly Senator. We share some of your concerns. Many of your concerns need to be addressed and resolved if this incredible technology and the promise it represents is to thrive and prosper. It is prudent to pro-actively address them. Working together lawmakers, regulators and industry can and will find solutions to these challenges. We are looking forward to collaborating with you in the creation of a common sense regulatory architecture that enables innovation while at the same protecting the public.

Best regards,

Greg Simon
Founding Member and Member of the Government Outreach Committee
Bitcoin Association

David Mondros
Founding Member, Bitcoin Association

bitcoinassociation.org

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