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Weekend Insights: Blockchain Basics and Cryptocurrency Compliance

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It is important to understand the tax ramifications of cryptocurrency and blockchain. From cryptocurrency compliance to NFT, we’ll tell you what you need to know in this week’s Insights Roundup.

But first, some background information. In 2014, I followed a story about an alleged online black market called Silk Road, where buyers and sellers did all bitcoin transactions. It was my first time hearing about cryptocurrency and I was intrigued when agents from IRS Criminal Investigation explained it to me.

These days, you can’t pick up a newspaper or click on a website without hearing a hint about cryptocurrency and blockchain. The market cap for cryptocurrency is reportedly over $ 1.7 trillion, with Bitcoin being the most valuable.

The embossed word Bitcoin is on the edge of the bitcoins stacked in this arranged photo in Danbury, UK

Photographer: Chris Ratcliffe / Bloomberg via Getty Images

Bitcoin is a digital currency, which means that instead of a coin that you can hold in your hand, it is essentially a computer file. You can store it in your digital wallet on your computer to use to purchase goods or services, or exchange it for other digital currencies or cash through a platform. What makes it so attractive is that each of these transactions is stored on the blockchain.

Think of blockchain like a general ledger: this is something those of us in the tax and accounting world are familiar with. Instead of recording your general ledger positions with blockchain on a paper or computer spreadsheet, you store information or data in blocks. This data contains the time and order of the transactions – just like your manual ledger entries.

When these blocks are filled, they do not disappear: they are appended to a new block and form a chain. The entire sequence is called a blockchain. Thanks to the technology, the chains are irrevocably linked, so you cannot simply delete or change them.

When you buy or trade bitcoin on its blockchain, that transaction is recorded. And since Bitcoin’s blockchain is decentralized, other users can watch transactions take place. When a transaction takes place, every computer on the network records the change. This transparency is part of the appeal.

But don’t confuse transparency with making your information public. Users can see the transactions, but they cannot necessarily identify the people who are making the transactions. This is because you are using a code called a public key to record the transactions on the blockchain, and not your name or other personal information.

The complexity of the blockchain – and the speed at which transactions can be conducted without a middleman – has made it difficult to determine the tax consequences. The IRS didn’t even offer taxpayers any guidance on how to treat bitcoin – and other virtual currencies – for federal income tax purposes until 2014. The IRS eventually weighed that bitcoin and other cryptocurrencies were considered capital assets.

Now, more and more industries are watching how Bitcoin uses blockchain and are considering how this technology could be used outside of digital currency. We are already seeing this with non-fungible tokens or NFTs. That adds another level of complexity.

What does this mean for tax professionals? Of course, there is a lot to consider, from tax compliance strategies to tax planning.

Quick Numbers Trivia

Currencies are usually divisible into smaller units. For example, dollars can be broken down into quarters, dimes, nickels, and pennies, with pennies being the smallest. What is the smallest Bitcoin unit called?
(Answer below.)

Our summary

In this photo illustration of the cryptocurrency “Altcoins” from Litecoin, Ripple and Ethereum, a photo is arranged on April 25, 2018 in London, England.

Photo by Jack Taylor / Getty Images

The IRS has made no secret of its belief that taxpayers are improperly reporting cryptocurrency transactions. Now if you include a question about cryptocurrency transactions at the top of Form 1040, it means that this is a compliance priority for the IRS. David Zaslowsky and Scott Frewing of Baker McKenzie examined the different ways various U.S. government agencies define cryptocurrency and the IRS’s efforts to increase the revenue stream for cryptocurrency transactions to the government – Part 1. In Part 2, the authors look at others Enforcement efforts by the IRS as well as reporting and withholding tax obligations that may come to the fore due to previous enforcement activities of the IRS.

  • Further information on the frequently asked questions about cryptocurrency by the IRS, the Common Reporting Standard and compliance with cryptocurrency can be found here in this Taxgirl podcast episode. Wendy Walker, Solutions Director at Sovos Compliance, shares what you need to know.

Thanks to blockchain, NFTs are the “next big thing”. But just because NFTs are new doesn’t mean the IRS is not paying attention. In How Are Non-Fungible Tokens (NFTs) Taxed? Describes CoinTracker’s Shehan Chandrasekera how NFTs are taxed, what records must be kept, and what forms must be submitted.

Cryptocurrency isn’t the only control that tax professionals scratch their heads these days. The Biden government has proposed changes to both the estate tax rate and tax exemption – and that raises some questions about what to do next. In Estate Planning for Proposed Tax Changes: Privately Held Company Valuation Guidelines, Mark Zyla of Zyla Valuation Advisors LLC explains what privately held company owners need to know in order to transfer those companies to their heirs and minimize the value of the interest transferred for tax purposes.

  • For more information on wealth planning considerations, see the Biden proposal in this episode of Talking Tax. Bloomberg tax reporter Allyson Versprille speaks to Brad Dillon, a senior wealth strategist at UBS Group AG in New York City, about what the plan could mean for real estate.

When we think about how we can improve businesses, improving technology shouldn’t be the only goal. Derrick Coleman of Creative Financial Staffing, a subsidiary of GHJ, writes that companies should approach diversity with the same mindset in order to find efficiency gains or new target markets. Having a diverse workforce, including the C-Suite, is good for both culture and bottom line, he says, explaining how you can achieve this by developing and maintaining various hiring practices after the pandemic.

Write for us

Bloomberg Tax Insights articles are written by tax professionals who provide expert analysis of current tax practice and policy, tax trends and issues, and the practice and management of tax and accounting firms. If you have an interesting, never-published article to publish, we’d love to hear about it. You can contact our Insights team by emailing TaxInsights@bloombergindustry.com.

Beyond taxes

One of the dangers of collecting data – in a table or on the blockchain – is whether collecting and keeping the data is allowed. Employers may want to collect information about the diversity of applicants and employees for follow-up purposes. However, these efforts are grounds for potential data breach-related litigation and discrimination claims outside of the United States. Faegre Drinker’s attorneys Erika C. Collins and Ryan H. Hutzler investigate pitfalls for US companies collecting diversity data overseas.

Headlights

This week’s main focus is on Jessalyn Dean, an American who has lived and worked in the US, Australia, India, Ireland and now the Netherlands. She is a tax advisor who helps companies interpret, implement and automate tax transparency regulations – also known as business taxes – such as 1099/1042-S, QI, FATCA, CRS and DAC6. You can find out more about Jessalyn – and how to make a nomination – in our first part of the series.

Student writing contest

Think you have what it takes to write Bloomberg Tax Insights? We’re excited to have our first Bloomberg Tax Insights writing competition designed to highlight the best of student writing.

Run with us

Ready to blow off some steam after a long (long) tax season? Bloomberg Tax challenges you to a virtual 5k. Run as fast as you want – or take a walk to soak in the fresh air – and earn a cool medal. And since #TaxTwitter loves their waffles, pancakes and other breakfast foods, we keep paying them by donating the proceeds to World Central Kitchen to help fight hunger. Here you can sign up.

Fast response to numbers

It’s called Satoshi. And 100,000,000 satoshi = 1 BTC. This currently means 1 satoshi = 0.0003871248 USD or vice versa 1 USD = 2,585 satoshi.

Satoshi was named after the Bitcoin founder Satoshi Nakamoto.

A neon sign reads “We are Satoshi Nakamoto,” a reference to the unknown creator of Bitcoin at the entrance to Foxbit International’s office in Sao Paulo, Brazil.

Photographer: Patricia Monteiro / Bloomberg via Getty Images

Exclusive content for Bloomberg Tax subscribers

With the IRS making cryptocurrency a priority, tax professionals need to know how to respond on behalf of their clients. Our IRS Response Letter for Letter 6174 – Reporting Virtual Currency Transactions can point you in the right direction. Here is a reply letter along with sample IRS letters (Letter 6173, Letter 6174, and Letter 6174-A) and other resources and links for analysis.
* Note: Your Bloomberg Tax login is required to read IRS Response Letters, Letter 6174 – Reporting Virtual Currency Transactions.

More great tax content

This is a practitioner-authored weekend round-up from Bloomberg Tax Insights that includes expert analysis of current tax practice and policy issues. For a full archive of articles, see Daily Tax Report, Daily Tax Report: State, Daily Tax Report: International, Transfer Pricing Report, and General Ledger by Jurisdiction.

You can also follow Bloomberg Tax on Twitter, Facebook, and LinkedIn.

What did you think?

We hope you enjoy the new format – and the new look and feel – of Weekend Insights. We’d love to hear what you think. Here is our email: TaxInsights@bloombergindustry.com.

Cryptocurrency

bitcoin price: Top cryptocurrency prices today: Bitcoin, Polkadot, Ethereum surge up to 16%

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NEW DELHI: Major cryptocurrencies traded higher on Tuesday after investor confidence was boosted by Tesla CEO Elon Musk’s tweet over the weekend. Led by Bitcoin and Polkadot, all of the top 10 digital tokens saw an increase of up to 16 percent.

After another weekend of wild price swings, the crypto market got its mojo back after Musk pared criticism of its market influence, saying Tesla had sold Bitcoin but may have resumed transactions with it. Investors eagerly await Tesla’s next earnings update – due next month – for any disclosure of changes in its position.

The crypto market rose sharply as Tesla announced purchases in digital Numero Uno tokens, while the virtual currency market collapsed

to use. Tesla’s U-turn on cryptos wasn’t the only trigger, however. Around the same time, the Chinese government took action against institutions dealing with cryptocurrencies.

“Bitcoin is the market leader and the dominant asset. It has managed to keep the crypto community, financial institutions and banks interested in the asset as the volume has held the position and has not decreased much. This is the result of banks, MNCs and, in some cases, even governments seeing the potential of the asset, “ZebPay told Trade Desk.

“A highly anticipated event, the Ethereum Protocol Upgrade Proposal (EIP-1559), which promises us to provide an improved transaction process and streamline the user’s experience by reducing transaction costs and making the determination of fees much easier and simpler Being made less stressful and wasteful is also due very soon, “she added.

“We can see a consolidation in the markets. Trading volumes remained low. This consolidation was well anticipated and could continue for the whole month. The sell-off had very little trading volume, which is a positive sign for the crypto market, ”said Edul Patel. CEO and co-founder of Mudrex.

Crypto shopping cart: Quick Glance (Source: coinmarketcap.com, data as of 9.30 a.m., ACTUAL on June 15, 2021)

  • Bitcoin: $ 40,518.56, up 4.32 percent
  • Ethereum: $ 2,595.23, up 4.82 percent
  • Tether: $ 1.00, up 0.07 percent
  • Binance Coin: $ 373.65, up 4.22 percent
  • Cardano: $ 1.58, up 2.54 percent
  • Dogecoin: $ 0.33, up 1.74 percent
  • XRP: $ 0.89, up 2.16 percent
  • Polkadot: $ 25.26, up 16.785 percent
  • USD coin: $ 1, up 0.04 percent
  • HEX: $ 0.092, up 6.09 percent

Note: price change in the last 24 hours

Tech View of Giottus Cryptocurrency Exchange


Cardano (ADA)


Everyone is talking about Cardano at crypto town and has gained incredible amounts after one of the founders discussed its roadmap through 2025. Cardano will grow into one of the most sophisticated ecosystems in the crypto space in the coming years. This news is very bullish for Cardano and the market has reflected it on its charts.

ETMarkets.com

Cardano recently broke trendline resistance of a falling wedge pattern. It is expected to test the trendline resistance of a huge ascending channel, a short-term bullish pattern. ADA remains bullish and will remain so until it is on the channel. Once broken down, it can hit multiple lows. But when ADA breaks and exceeds $ 2.45, new highs can be formed.

All of these moves remain dependent on the movement of Bitcoin, which broke out of its downtrendline this week and appears to be targeting $ 43,000 as the next resistance.

Main stages

Support: $ 1.25, $ 1.16, $ 0.96

Resistance: $ 1.87, $ 2.0, $ 2.45

Binance Coin (BNB)

Binance Coin (BNB) has risen parabolically since late 2020 and recorded a more than 60 percent correction after the crypto crash in May 2021. It is the native coin of the Binance exchange.

BNB is currently forming a rising wedge that can still grow until the first week of July. It will be interesting to see how BNB performs as it broke a large technical and psychological resistance ($ 350) and is being tested

100 (100 day exponential moving average). Breaking the EMA 200 and the trend line resistance of the rising wedge will be extremely bullish for the NBB.
Giottus_BNB_analysisETMarkets.com

Since the ascending wedge is inherently bearish, we cannot rule out the possibility of a bearish reversal. But it will likely bounce off the first ($ 350) or second ($ 275) big support after collapsing. Failure to bounce back from the second big support, the NBB could fall to the USD 210 level.

Main stages

Support: $ 305, $ 290, $ 275

Resistance: $ 410, $ 430, $ 475

The time is in UTC and the daily time frame is 12:00 PM – 12:00 PM UTC

(The views and recommendations in this section are the analysts’ own views and recommendations and do not reflect those of ETMarkets.com. Please consult your financial advisor prior to entering into any position in any of the above assets.)

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‘Banks should be scared’ of cryptocurrency-based DeFi

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Billionaire investor Mark Cuban is very optimistic about the future of DeFi or decentralized finance and DAOs or decentralized autonomous organizations.

“There are many financial institutions that should be concerned,” Cuban wrote in a blog post on Sunday. For one thing, “banks should be afraid,” he wrote.

DeFi applications aim to emulate traditional financial systems with cryptocurrency, while DAOs can control and monitor DeFi applications and other projects.

DAOs are similar to traditional companies or organizations, instead control is democratized within DAOs. Instead of having a centralized leader, DAOs have members who vote on decisions and rules, which are then coded into smart contracts on the blockchain.

For example, DeFi loans allow users to lend cryptocurrencies like a traditional bank does with fiat currency and earn interest as a lender. DeFi loan applications like Aave, Compound and Maker are regulated by DAOs.

The structure of these decentralized protocols is one of the things that piqued Kuban’s interest and made him think that DeFi could be a serious competitor to traditional banks.

He uses Aave as an example to explain why. (A Shark Tank star and owner of the NBA’s Dallas Mavericks, Cuba invested in Aave, which he announced during a Reddit “Ask Me Anything” in February.)

“Aave looks like a bank like its competitor Compound. But it’s not. Nowhere around,” said Cuban. “Aave is a fully automated, permissionless platform with no bankers, no buildings, no toasters, no safes, no cash, no money custody, no forms to fill out, no credit ratings.”

“Everything is controlled by smart contracts. It’s fully automated. You don’t have to get approval from anyone and it takes minutes to get a loan.”

This, of course, is part of what makes DeFi so risky. Unlike a traditional bank, there is no regulation or insurance for your money when you use DeFi. Although DeFi loans are collateralized with other crypto assets, borrowers who use DeFi protocols cannot otherwise be held responsible if they cannot effectively repay a loan.

“The old crypto adage ‘don’t put in more than you can afford to lose’ applies twice to DeFi,” reported CoinDesk. “This stuff is overly complex and a lot can go wrong.”

DeFi-related hacks stole $ 156 million between January and April, according to CipherTrace.

Another feature that draws Cubans to DeFi exchanges is the fact that they don’t necessarily have to raise a lot of capital to scale, he says. “Rather than the company’s owners, investors and their creditors raising capital for all transactions that take place, the liquidity providers (LPs) do it for them,” he wrote.

Liquidity providers are users who fund pools that enable DeFi loans or loans, among other things.

For Cuban, this makes automated financial markets like DeFi “so much more capital and operational than comparable traditional companies”.

Cuban acknowledges the risks and admits that with all of this technology there are technical details to be clarified, but still says that “this approach is the future of private banking”.

And despite the risks, DeFi has been particularly buoyant lately. DeFi Pulse currently has more than $ 60 billion locked in DeFi logs, according to DeFi Pulse.

Cuban is a liquidity provider for a decentralized exchange, he wrote in his blog post. He is also invested in a number of companies in the crypto space, including DeFi companies, and has a portfolio of multiple cryptocurrencies, including Bitcoin and Ethereum.

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Do not miss: This is the fintech that Mark Cuban says you should get to know now

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Nvidia CEO Jensen Huang talked about the value of ethereum, advances in crypto mining and the global semiconductor shortage in a recent interview. Here are the 10 best quotes. | Currency News | Financial and Business News

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Nvidia boss Jensen Huang

  • Nvidia CEO Jensen Huang spoke to a group of journalists at the Computex IT conference.
  • He said Ethereum will be valuable in areas like DeFi because of its scalability and credibility.
  • He also spoke about Nvidia’s role in the future of crypto mining, saying he believes a metaverse is imminent.
  • Check out Insider’s business page for more stories.

Jensen Huang, CEO of chip and graphics card maker Nvidia, recently spoke to a group of journalists at the Computex IT fair about his views on the value of Ethereum, how Nvidia’s products fit into the crypto ecosystem, and why he thinks we are at the There is a threshold to create a metaverse in an interview published by VentureBeat.

Nvidia’s graphics processors are top of the range graphics cards that also have crypto mining capabilities. Huang, a big proponent of artificial intelligence, introduced a lower-resolution graphics card at the conference that was specifically designed for crypto mining. He also addressed the global chip shortage, Nvidia’s role in it and whether he believes the Chinese government will intervene in the development of artificial intelligence.

Here are the ten best quotes from Huang from the interview, which have been slightly edited and condensed for clarity.

  1. “Am I looking forward to the Proof of Stake? The answer is yes … Ethereum has established itself. It now has the opportunity to implement a second generation that will continue the platform approach and all services based on it. It is legitimate. It is Established. There’s a lot of credibility. It works well. Lots of people rely on it for DeFi and other things. This is a great time to prove its worth. ” – about the opportunities that Ethereum offers and the value of the network for blockchain and crypto.
  2. “We purposely reduced the performance of our GPU so that when you want to buy a GPU for gaming you can do so. If you want to buy a GPU for crypto mining you can either buy the CMP version or if you would like to use the GeForce for that, unfortunately the performance will be reduced “- how Nvidia tries to lower the prices of graphics cards and why they developed CMP.
  3. “We’ll just continue to work with our supply chain to keep them informed of the changing world of IT so they are better prepared for future demand. But I believe that the areas we are in, the markets we are in, because we have very specific reasons, will be in great demand for some time “- to deal with the ongoing global shortage of semiconductors.
  4. “It is now clear that Ethereum will be very valuable. There is a future in which these transactions can be processed much faster, and with so many people building on it now, Ethereum will be valuable.” – on the prospects for the Ethereum network due to its scalability.
  5. “I think we’re about to do it. […] There will be many types of metaverse, and video games are one of them. […] We’re going to see this overlay, a metaverse overlay, if you will, into our physical world. “- about when and how a metaverse becomes real.
  6. “You need this blockchain to have fundamental value, and that fundamental value could be mined. Cryptocurrency is here to stay to stay. Ethereum might not be as hot as it is now. It could cool down a bit in a year. But I think crypto mining is here to stay “- on the future of crypto mining and blockchain networks.
  7. “I believe there will be a bigger market, a bigger industry, more designers and creators designing digital things in virtual reality and metaverse than designing things in the physical world. […] The economy in the metaverse, the economy of the omniverse, will be larger than the economy in the physical world. Digital currency, cryptocurrency, could be used in the world of Metaverse “- about his vision for the omniverse that Nvidia is developing.
  8. “I have a feeling that we are welcome in China and will continue to work hard to deserve to be welcomed in China and in every other country.” – Whether the Chinese government will intervene and regulate Nvidia’s work on artificial intelligence.
  9. “One of the most important technologies that we need to develop, for several of them – in the case of the consumer, one of the most important technologies is AR, and it is coming.” – for the development and accessibility of augmented reality.
  10. “This is the biggest market opportunity the IT industry has ever seen. I can understand why it inspires so many competitors. We just have to keep doing our best and act as quickly as possible. ”- on the future of the graphics processing industry and its competition.
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