The increasingly popular cryptocurrency known as Bitcoin has doubled in value over the past month. More recently, China banned individuals and organizations from raising funds through initial coin offerings (ICO) on the grounds that it constituted illegal fundraising. ICOs, by definition, are a method of crowdfunding cryptocurrencies for ownership of various projects. Although ICO’s do not directly affect the value of Bitcoin or other cryptocurrencies, this decision has still resulted in a small loss of confidence to the tune of an 8% decrease in value from $4,584 to $4,350. While most Bitcoin investors expect this downtrend to be relatively short-lived, the nature of digital currencies remains mostly volatile due to its unregulated structure. Despite this, many Bitcoin investors are holding fast that the best has yet to come in terms of long term growth.
Additionally, the Internal Revenue Service (IRS) has recently implemented monitoring mechanisms in an attempt to track who is avoiding taxation on their digital currency investments. Given that Bitcoin is not an officially recognized currency by any government, the IRS is currently classifying the currency as property (though it may easily be changed to income in the near future). The irony of the matter is that Bitcoins are recorded on a public ledger, a “blockchain,” and is easily accessible to anyone who looks for it. However, this ledger only records digital addresses, transactions, and amounts. Since the IP addresses of transactions can be tracked, many Bitcoin users already have workarounds in place to ensure their anonymity. Despite this, the IRS claims to be able to track 50% of all transactions and hopes to further increase that number and subsequently decrease the projected number of tax evaders in this $76 billion industry.
I would be interested to see if the IRS can actually track transactions - what if users are going through a proxy server? It seems to me like they couldn't know who owns Bitcoin or even if these transactions are in the US without engaging in some kind of cyber surveillance. The tax evasion implications for Bitcoin are also interesting.
ReplyDeleteFrom an accounting standpoint I think it would be interesting to see how changing the classification of Bitcoins from property to something else could really affect the taxes of individuals. In addition, if Bitcoins does become an accepted currency worldwide, it will be interesting to see what rules and regulations are put in place and how that can change the way taxes are done in some areas.
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