The blockchain has completely dominated the news cycle for the last quarter of 2017 and is looking to do the same for the first quarter of 2018. Bitcoin and Ethereum, two forms of blockchain-based virtual currency that were only spoken of in nerdy ...and more »
YEC We cover startups, founders and entrepreneur lessons. Opinions expressed by Forbes Contributors are their own.
Bryce Welker is a CPA and the CEO of multiple companies in the online education space including The CPA Exam Guy.
The blockchain has completely dominated the news cycle for the last quarter of 2017 and is looking to do the same for the first quarter of 2018. Bitcoin and Ethereum, two forms of blockchain-based virtual currency that were only spoken of in nerdy subcultures only a few years ago, have suddenly become household names. With tales of massive fortunes being amassed through the buying and selling of these coins, everyone is looking to get a piece of the pie in this gold rush for the 21st century.
Part of the reason for the staggering highs that these blockchain-based currencies have achieved is the lack of regulation. As a radically new and decentralized form of currency, Bitcoin and altcoins like it have been subject to market surges and crashes that may have been manipulated artificially by bad players. If cryptocurrency is to replace fiat currency as the dominant holder of value, it’s going to need to address this complete lack of regulation.
This is where accountants like me come in. Thanks to all the buzz around cryptocurrency, the potential for new business is mind-boggling for a tax professional who is knowledgeable in this new financial sphere. To help my fellow financial professionals make the most of this opportunity, here are some tax considerations for buying and selling cryptocurrencies such as Ethereum and Bitcoin.
Cryptocurrency Crash Course
Before getting into the specifics of cryptocurrency taxation, it may be helpful to quickly go over some basic concepts. Here’s what you need to know:
A blockchain is a virtual ledger that is decentralized and constantly updated. Due to its heavy encryption and easy verification, blockchains have been used as the basis for a new form of online currency. Starting with Bitcoin in 2008, over 1000 different blockchain-backed cryptocurrencies have been created, with more being made every day.
Some popular cryptocurrencies are Bitcoin, Ethereum, Ripple, Litecoin, Monero, Dash, Dogecoin and Tether. Non-Bitcoin cryptocurrencies are also commonly referred to as altcoins. Not all altcoins manage to gain or hold significant value. However, in 2017 the number of cryptocurrencies that had a market cap of over $1 million was greater than 300.
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