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IRS Releases New Cryptocurrency Guidance

The IRS has released new guidance on the U.S. tax treatment of cryptocurrency for the first time since 2014. The guidance includes Revenue Ruling 2019-24, which provides guidance on the tax treatment of hard forks. The IRS also released a series of FAQs covering a variety of topics that expand on Notice 2014-21. Revenue Ruling… Continue Reading

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The IRS has released new guidance on the U.S. tax treatment of cryptocurrency for the first time since 2014. The guidance includes Revenue Ruling 2019-24, which provides guidance on the tax treatment of hard forks. The IRS also released a series of FAQs covering a variety of topics that expand on Notice 2014-21.

Revenue Ruling 2019-24

Revenue Ruling 2019-24 generally concludes on two scenarios involving hard forks. A hard fork occurs when a blockchain undergoes a protocol change resulting in a permanent diversion from the legacy or existing blockchain, which may result in the creation of a new cryptocurrency on a new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger. In the first scenario, the cryptocurrency blockchain experiences a hard fork but the taxpayer does not receive units of a new cryptocurrency, and in the second scenario, the taxpayer receives units of new cryptocurrency “as a result of an airdrop of a new cryptocurrency following the hard fork.” The Revenue Ruling concludes that the taxpayer does not have income in the first scenario. However, in the second scenario, the taxpayer has ordinary income because he has experienced an accession to wealth. The income arises at the time of the airdrop because the taxpayer is, at that time, able to exercise dominion and control over the forked cryptocurrency.

The Revenue Ruling’s analysis on this point appears to be based on some misconceptions about how units of a new cryptocurrency are accessed by holders of a pre-fork cryptocurrency, and confusion about the relationship between forks and airdrops. An airdrop is distinct from a hard fork – it is a means of distributing units of a cryptocurrency to the distributed ledger addresses of multiple taxpayers. Because of this apparent confusion, the Revenue Ruling does raise some practical issues:

  • What is meant by the receipt of an airdrop of new currency following the fork? For example, does it apply when a custodial wallet provider permits access to the forked cryptocurrency? If the wallet provider does not permit access to the forked cryptocurrency right away (or at all), does the wallet provider have income?
  • What if the taxpayer directly holds a private key associated with a wallet address on a blockchain that undergoes a hard fork?
  • The value of the forked cryptocurrency may be initially high but quickly plummet in value if it does not gain wide acceptance. The effect of the Revenue Ruling appears to be that the taxpayer will recognize ordinary income with no cash to pay the tax, and then recognize a capital loss on the original cryptocurrency (to the extent the value has shifted to the forked cryptocurrency).
  • In addition, it is not clear whether the guidance applies to airdrops of alt-coins to wallets to attract attention and a wider distribution for such alt-coins. Often such coins are airdropped to wallets whose owners have done nothing to receive them and, in fact, may not even be aware of the airdrop or want the airdropped coin.

Nevertheless, the guidance might be read as saying that a taxpayer will recognize income whenever the taxpayer gains dominion and control over the new cryptocurrency following a hard fork (i.e., the ability to dispose of the new cryptocurrency). Although the guidance does not technically apply to an airdrop without a fork (as neither of the fact scenarios involves such an airdrop), the reasoning would likely make that taxable as well.

FAQs for Investors

The IRS also released a series of FAQs that expand on Notice 2014-21. The FAQs apply only to investors holding cryptocurrency as a capital asset. Some of the significant points include:

  • Cryptocurrencies are generally valued as of the date and time the transaction is recorded on the distributed ledger (for on-chain transactions) or would have been recorded on the distributed ledger (for off-chain transactions). For transactions occurring on a cryptocurrency exchange, the value is the amount recorded by the exchange. For peer-to-peer transactions, the IRS will accept the value as determined by a blockchain explorer that analyzes worldwide indices of a cryptocurrency and calculates the value of the cryptocurrency at an exact date and time. This valuation method seems to require the combination of two different services – that of a blockchain explorer that tracks transactions, and that of an index that calculates value.
  • Taxpayers may specifically identify which units of cryptocurrency are deemed to be sold by documenting the unique digital identifier, such as the private key, public key, and wallet address, or by showing the transaction information for all units of a specific virtual currency held in a specific wallet. If the taxpayer does not specifically identify the unit sold, the units are deemed to be sold on a first-in-first-out (FIFO) basis. The provision of a cost basis assumption is welcome guidance, but the FAQ does not permit other assumptions, such as last-in-first-out (LIFO) or average cost basis. In addition, because specific identification is tied to a wallet and not a transaction identifier, if taxpayers want to use specific identification, they should hold cryptocurrency acquired at different times in different wallets.
  • If a taxpayer donates cryptocurrency to a charity, he or she will not recognize income from the donation and generally will be able to deduct the fair market value of the cryptocurrency if it is held for more than one year.
  • Taxpayers must retain records regarding their cryptocurrency transactions that document receipts, sales, exchanges, or other dispositions of virtual currency and the fair market value of the cryptocurrency.

In the press release that accompanied the guidance, the IRS warned that “[t]axpayers who did not report transactions involving virtual currency or who reported them incorrectly may, when appropriate, be liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.” Because revenue rulings reflect the IRS’s position on how current law applies to a particular set of facts, they apply retroactively. Taxpayers who did not report income from prior hard forks should consider whether to file amended returns if the tax year is still open. This is true, even though many practitioners believed that there were reasonable analogies that would result in hard forks not giving rise to current income (e.g., stock splits, purchasing pregnant livestock, sale of extracted minerals or timber cut from land, division of trust, or sale of portion of larger property).

Source: https://www.steptoeblockchainblog.com/2019/10/irs-releases-new-cryptocurrency-guidance/

Blockchain

SPELLFIRE: First NFT That You Can Actually Touch

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[PRESS RELEASE – Please Read Disclaimer]

Spellfire’s History in the NFT Landscape

Non-fungible tokens (NFTs) took the world by storm in recent months by rapidly expanding out of the score of the cryptocurrency space. Representing a valuable model of digital ownership allowing users and investors to make money garnered the attention of the crowd.

Similarly to physical features, like cash or money in banks accounts, users can employ the NFTs they bought with the help of digital assets, typically on the Ethereum blockchain. Somewhat expectedly, the possibility of speculating with prices drove enhanced volatility in the NFT markets as well. Despite this, though, the realm of non-fungible tokens remains as real as ever.

This provides opportunities for new projects, like the fantasy game Spellfire, which are willing and ready to take advantage and be the wind of change in that matter.

Spellfire – Unique Experience of Owning in-game Cards in Real Life

Spellfire is a fantasy game that presents players with unique experiences in the magical world consisting of lands like Bloodborn, Wet desserts, or The Holy Deadlands. Many users could dive into an ecosystem full of bewitchment that will probably remind you of your favorite fantasy movies or series.

Kings and witches, good guys and evil forces, wars and reasons: the project provides you with everything that a great fantasy game should have and sometimes even more. The digital version suggests hundreds of carefully and artistically designed game cards that represent different characters within several distinctive levels.

With these kinds of games, usually, everything stays in the digital world. However, this is not precisely the case with the current growth of NFTs. The team behind the “Spellfire” took a revolutionary road by presenting the ability to buy real world cards of the game.

The most loyal and engaged fans or people who maybe see the collecting benefits may buy game cards with NFT. Being the digital ledger in a certain way similar to cryptocurrency assets, each NFT is unique and in this instance, could represent real-life goods, like a game card.

You could have it at home, real as any other thing you buy with money, but in the digital world, one card could be highly valuable and simply make you money on its own.

Fighting Evil Monsters and Making Bank Never Been so Easy

If more users get engaged in the market by selling, buying, and reselling, prices go up and down rather rapidly. This enabled already involved users to make more money. In this instance, let’s say you bought “Spellfire’s” Arcana: Fire card which is interactive and upgradable.

After some time, you decide to sell it, you look at the market prices and activities and you follow the moment when prices peak the most: then it is time to sell – if, of course, you are able to catch that top. In this way, having real cards makes the whole experience way better and almost surreal. Players don’t only have part of the virtual world with them but could also see what is helping them make money.

Spellfire allows everyone involved to become a part of the revolution, which connects the past with the future. You own quite a common game card but in reality, you are involved in something surreal and futuristic.

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Source: https://cryptopotato.com/spellfire-first-nft-that-you-can-actually-touch/

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Indian government cautious about crypto-adoption, CBDC is a possibility

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Indian traders and exchanges might be bullish about the crypto market, but the Indian  government doesn’t seem keen on rushing into the scene. At least, not until studying its homegrown fintech industry and the anti-Bitcoin protests in El Salvador.

Tracking global news

Indian finance minister Nirmala Sitharaman in a recent interview with Hindustan Times explained why the country seemed to be falling behind when it came to crypto adoption.

Though she admitted, El Salvador wasn’t “the best example,” Sitharaman said,

“You’d think common people don’t care about digital currency; but the public took to the streets against the move. It’s not a question of literacy or understanding – it’s also a question of to what extent this is a transparent currency; is it going to be a currency available for everyone?”

Sitharaman referred to CBDCs as a “legitimate” cryptocurrency and admitted there could be a “possibility,” in hat regard. She noted that India held the “strength of the technology” and acknowledged the need to formulate a Cabinet note. However, Sitharaman wondered if India was ready to follow El Salvador’s way.

Facts on the ground

Though accessibility is a pressing concern, more Indians have discovered crypto than perhaps expected.

Nischal Shetty, CEO of the Indian crypto exchange WazirX – a subsidiary of Binance Holdings – has stated that WazirX sign-ups from India’s tier-two and tier-three cities overtook those from tier-one cities this year. Even so, sign-ups from tier-one cities themselves saw a 2,375% rise. Furthermore, WazirX added one million users in April 2021 alone.

Adding to this, the cost of electricity and Internet data in India are relatively cheaper, which could boost both crypto trading and mining in the future. However, at the last count, there was only one Bitcoin ATM in the whole country.

As per data by Useful Tulips, which combined data from Paxful and LocalBitcoins, India saw transfers worth around $4,502,369 in the last two weeks.

Could anti-Bitcoin protests happen in India?

There is evidence to support both sides. India has a strong history of mass protests, with the farmers’ protests against the government’s agricultural laws being one such example. The 2016 demonetization of part of the country’s paper currency still haunts many, and Internet penetration is yet to cross 50%.

However, India also has the largest diaspora in the world, with approximately 18 million people living outside the country. Crypto innovation could lead to hundreds of millions of dollars being saved on remittance charges as money is sent across borders.

But for the time being, it seems India’s urban residents are more bullish about crypto than its government.

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Source: https://ambcrypto.com/indian-government-cautious-about-crypto-adoption-cbdc-is-a-possibility

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A Deep Dive Into The Bitcoin Wallets Of U.S Congress Members, And Why Bitcoiners Are Strongly Against Them

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A Deep Dive Into The Bitcoin Wallets Of U.S Congress Members, And Why Bitcoiners Are Strongly Against Them

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Key takeaways

  • U.S. Congress’ split disposition towards cryptocurrencies raises concerns among market participants.
  • Bitcoin proponent, James Loop goes digging into the financial disclosures of Congress members.
  • His findings revealed only three Congress members have ever disclosed that they hold Bitcoin.

The United States is a key base for innovation and adoption in the cryptocurrency industry. According to data from Crunchbase, there are at least 1,135 organizations founded in the U.S. that provide various cryptocurrency-related services.

Despite the broad adoption of the asset class by the country’s citizens, the government is still divided on opinions about the growing cryptocurrency industry. This can be seen in the U.S. Congress where members of Congress are split between those who support and those who do not support Bitcoin, the most prominent cryptocurrency.

This polarised disposition of Congress has been a pain point for Bitcoiners. Bitcoin market participants have pointed out several issues that emanate from the fact that there are still members of Congress who have not shown themselves to fully understand Bitcoin.

The sentiment is that Congress members who do not fully understand the asset, having not used it, should not be responsible for making laws about it. Additionally, market participants also think it will be a conflict of interest if members of Congress who oppose Bitcoin are found to be holding Bitcoin or if those who support it do not own any. 

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Jameson Lopp, the co-founder, and chief technology officer of Casa – a leading provider of Bitcoin self custody solutions, has gone digging into the United States Senate Financial Disclosures portal. The investigation was carried out to identify Congress members who have declared holdings of cryptocurrencies, and Bitcoin in particular, in their portfolios. 

His findings paint a dismal picture as the majority of the members of Congress who have been vocal in supporting Bitcoin have not held the asset at all according to their financial disclosures for the year ending 2020.

According to his findings, only 3 Congress members have disclosed that they own Bitcoin. The now-retired Representative Bob Goodlatte of Virginia was the first Congressman to disclose the ownership of Bitcoin, doing so in 2017 even before laws were passed to make disclosure mandatory. According to his disclosure, he owned between $1,000 and $15,000 of Bitcoin at the time.

Among currently seated Congress members, only Senators Cynthia Lummis and Pat Toomey have reported Bitcoin holdings in their portfolios in 2020. Senator  Lummis reported owning $100,000 – $250,000 of bitcoin in 2020 making up between 0.6% and 2.75% of her net worth. Similarly, Senator Pat Toomey reported purchasing $1,001 – $15,000 of GBTC in June 2021. The GBTC investment is between 0.01% and 0.7% of his net worth.

The sleuth however concedes that he did not have the time and resources to go through the financial disclosures of all 535 congressional members. Nonetheless, it is telling that of the ones he checked, even members of caucuses in Congress that are affiliated to cryptocurrency and members that have drafted bills that will provide clarity for the industry do not hold Bitcoin or other cryptocurrencies as their financial disclosures show.

PlatoAi. Web3 Reimagined. Data Intelligence Amplified.

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Source: https://zycrypto.com/a-deep-dive-into-the-bitcoin-wallets-of-u-s-congress-members-and-why-bitcoiners-are-strongly-against-them/

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