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      "body": "**A Noob’s Dilemma** \n\nFor the many noobs in the cryptosphere it’s tough and confusing, and haven’t we all lost money uselessly at some point?  Hopefully only a tiny portion of it.  Alas, the gold rush bug camped under my computer keyboard.  Would it not be unnatural if I did not try to throw it some crumbs?  In short, I was one of the (minor by far) investors in the platform.  I only suffered 10% of the total invested, expressed in bitcoin, and it was not very much.  Am considering myself lucky.  A shout out to the Bitconnect promoters who kept me away after the initial splash.\n\nHowever, what I am not buying are the gluttony of arguments “told you so,” and here’s why. \n\nI went in, being one month into this “universe,” still at a stage of understanding the Euclid’s theorem, trap door arithmetics, why and how RSA works, why and when quantum computers may crack the private keys, and what are the chances of various accidental collisions.  That research convinced me that the crypto space is extremely risky and uncertain in its core, and if I am to venture in, then only on a less serious note (I finally found my computer game), at least for now, until various fundamental issues are fixed.  It’s a hedge of sorts: in case it all works out.\n\nFor anyone investing and diversifying holdings in crypto, Bitconnect’s value proposition does not necessarily seem so far fetched.  Let’s compare this investment with any other coin, say an innovating solution being developed by a private company.  In both cases there is a promise to deliver and there is a promise that someone is doing something but without any guarantee that anything is being actually done.  There is an argument that a potential investor can follow progress of most projects on Github but there are plenty that do not use that service or do not allow others to peek in.  \n\nFurther, the options of staking and mining are out of the question for me, at least, and surely many others, way beyond my technical capabilities or time capacity.  A friend told me about the greenhouse farming with bitcoin miners in Alaska, which was amusing but not practical enough.  There are some coins that again are offering a revenue share of sorts.  Those are good opportunities, if the companies get audited on regular basis to make sure that all the payouts are made as promised and expected.  I wonder how those will work out for them. \n\n\n**The Opportunists**\n\nBitconnect claimed to take our bitcoins in exchange for investing them via a bot and sharing the gains in return.  It did not occur to me to look for that “bot” simply because I thought that it was obvious how they could borrow money and make a ton of profit: through an arbitrage.  Everyday, there is an easy 10%, sometimes up to 40%, dollar expressed differential in the prices of bitcoin on various markets throughout the world.  Centralized exchanges in China, Korea, US, Europe, Southeast Asia, Localbitcoins, decentralized exchanges - it all fluctuates greatly.  If a company (like Bitconnect) wants to borrow money to trade around the globe, why would it want to show the bot and explain how and when the trading happens?  If it did, wouldn’t others have tried to follow in the footsteps?  Follow its addresses on various exchanges? This does not make sense.  In fact, being furtive about the “bot” is understandable.  “Let others believe that we play the markets but in fact we’re doing a good ol’ arbitrage and give the public pennies on a dollar.”  That’s how I understood the situation when investing into the platform.  Even if they make 10% a day and give me 1%, fine, more than I personally could have ever made.\n\nDuring almost my entire experience with the platform, it had one of the best running websites out of any other crypto related ones.  Very professionally run, even when there were failures and maintenance issues, they always communicated well.  Their exchange and the internet wallets worked seamlessly.  They also had a huge community (isn’t this one of the main traits of a successful project?).  They had their own coin which kept growing in price.  With a market cap of a billion at some point.  I thought that with such a leverage, even if they had tried to scam everyone in the beginning, they could have done lots of cool things and become an officially legit enterprise. There was a talk about a marketplace for goods and services that uses the coin. With an immense community and promotional networks already in place, they could have positioned themselves to rival any other similar site in the mainstream today.  (There is Bitconnect Ex, but I’m letting them chug along on their own at this point.)\n\nLet’s now compare this failed platform with some “coins” that did an “honest” ICO and ultimately faded away, stopped working, stopped developing after only a few months or even a year or so into it.  I won’t call the names because some crypto gets picked up later to be rebranded, so let’s give them a chance.  But no one announces: “Sorry guys, we the developers are abandoning such and such chain.  Thanks for your support, see you later, it did not work out,” etc.  Instead, they keep up some minor marketing buzz while quietly selling to the unsuspecting public.  In other words, the chances of getting scammed in crypto are higher than not getting scammed.  At such a backdrop, Bitconnect looked reasonably risky and reasonably rewarding.\n\nThe way they went out was to be expected: “we promised to return you Bitconnect coins and we did, here they are, at an average value in the last week,”-  why not.  It’s still a viable coin supported by wallets with an annual return, a very large number of users, reliable… why should it not have its own independent value, outside the lending platform?  Why this coin is not as good as any other coin featuring a similar transactional tech, for example?  Before platform closure, the value of Bitconnect coin was about $250, next day $35, and at the time of this post $10, so it’s still kicking.\n\n\n**The Tax Kicker**\n\nFor all of us the US residents who lost money on the platform, we now must decide whether this is a capital or ordinary loss.  If capital, then we might not be able to deduct it right away against our other income, unless we have capital gains this year.  Even if we do have capital gains, if they are long term (taxed at lower rates), our deduction is not going to be as valuable against them.  We want to find a way for this to be deductible as an ordinary loss, and there is a possibility.\n\nIf Bitconnect lending platform is ruled to be a “Ponzi” scheme, then those who were left out of pocket could deduct the loss as theft and claim an ordinary deduction in 2018.  The party perpetrating the fraud would need to receive cash or property from investors, purporting to earn income for them, and reporting to the investors income amounts that are wholly or partially fictitious.  In the class action suit filed a few days ago (https://cointelegraph.com/news/investors-file-class-action-lawsuit-against-bitconnect-following-its-shutdown), the investors do allege such Ponzi scheme, and if they are successful in proving that it was, then we all could claim the ordinary theft losses on our tax returns for 2018.  \n\nCuriously, such result is not available if there is a fraud is done by corporate offices and the value of the corporate stock goes down. Since this was called “lending,” I think that this quirk in the law should not prevent the theft loss treatment. \n\n**The Takeaway**\n\nThe business as usual. (The crypto markets did not suffer because of this (the reverse is true: Bitconnect suffered because of the market downfall).  \n\nThis is not a financial advice.  Do not invest more than you can comfortably deduct on your tax return.\n\nHang loose and till the next time!",
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      "body": "Crypto is a term used for electronic peer to peer ledgers that keep ownership and transaction records (referred to as “assets”).  The first and best known example is bitcoin.  Thousands of such ledgers are in existence with hundreds popping up every month.  They can be copied (forked) from another or created from scratch, distributed free of charge or sold to the public.  The ledgers are usually supported by computing powers of participating machines (nodes) in a process called “mining” (or “staking,” depending on the algorithm).  Mining is incentivized with asset rewards, and so the system keeps running.\n\nBecause such networks operate in an autonomous manner, without a clearinghouse or any other intermediary, more popular, secured, and functional ones rise in value in relation to the government issued currencies.  This fuels interest from investors and prompts technological and business innovation.  \n\nAn ownership of a record on a ledger constitutes an ownership of an electronic property, according to the tax authorities in the US. When such record is traded for another record on another ledger, it is a tax event.  Both parties to the exchange recognize gain or loss.  The transactions are valued in US dollars at that instant and take place on various mostly centralized exchanges open 24/7.\n\nIf the original asset was acquired when its dollar value was lower, a gain is realized. Such gain is taxed less (by about one third) if the asset was held for more than one year (called long term gain).  All the gains and losses in a year are netted.\n\nUS tax code exempts exchanges of like-kind assets under the famous code section 1031. This often comes up in the real estate transactions or when personal property (such as auto) is exchanged.  Some intellectual properties could be considered of a like-kind in limited circumstances.  Corporate stocks, however, cannot be traded tax free under this provision.  Does swapping of a record in one electronic ledger (that’s what a crypto essentially is) for a record in another qualify here?  The Internal Revenue Service (IRS - the main US income tax agency) has refused to explain under which circumstances it may or may not.  An unsupported speculation would be to look into the underlying rights that such ledger entries represent.  Bitcoin and Litecoin are almost identical in their make up and used for the exact same purpose.  They don’t represent any functionality or ownership of any other asset but are used as a store or exchange of value.  Ethereum, on the other hand, greatly differs from them as it has an enabled Turing complete programming language capable to support smart contracts and launch applications.  Such difference could be subtler.  While Ethereum features Solidity, others like Neo, Lisk, or Stratis deploy other tools in drastically varying ways.  Similarly, a store and exchange of value functionality may or may not come with privacy features (Dash, PIVX, Nav) or even its own marketplace for buying and selling physical items or services (Syscoin).  My official answer is that until we hear otherwise, all the trades are taxable.\n\nInvestors should evaluate their assets (including crypto) to consider year end moves to optimize.  For example, the price of Bitcoin has risen.  If it is exchanged for another crypto, a gain is realized.  Other assets that have fallen in value may be exchanged as well, thus balancing out taxable gains. A mark to market election is available and can be beneficial if structured correctly.  Although in constantly rising markets, it might be risky to make.\n\nThe new crypto issued for mining is taxable on its US dollar value at the time of the awards.  Expenses related to the production of such income may be deductible and self employment tax may apply, depending on whether the mining effort is casual or run as a business.\n\nA popular form of fundraising for a business project has been an initial coin offering (ICO) when a new crypto is created and sold to the public.  Compliance with securities and money transfer laws is subject to clarifications but any such ICO is definitely a taxable event. When a crypto token is utilized for some functionality on a network (may be one can use it to run a software or buy online storage space or computing power), there might be ways under certain conditions when the taxation is deferred until the functionality is implemented.  This helps greatly with matching the timing of income to expenses, thus eliminating an immediate need for cash outlays to pay the tax.\n\nCommunities can now easily issue their own cryptocurrencies for facilitation of transactions among the community members.  Say a country club or homeowner association or non-profit organization.  Transaction costs are zero on some platforms (e.g. Stellar Lumens), making proliferation of such coins a distinct possibility. With the right set of circumstances, such transactions might be exempt from taxation.\n\nThe crypto space has attracted scammer profiting from the lack of regulations and order. The schemes range from basic to elaborate ones.  An example would be a website promising astronomical returns in exchange for borrowing and locking up crypto assets. After some time, the website becomes unreachable.  Another example would be “pump and dump” coins when an asset is created primarily for selling it to as many people as possible, after which a project is abandoned.  There may be others.  As we discussed above, the crypto is taxed as property and the losses are normally capital losses. However, under certain conditions, it is possible to achieve an ordinary loss treatment so that the losses are deducted against other ordinary income, such as salary or business profits.\n\nIn my opinion, as this new tech advances, the congress should lower the tax on gains in the cryptosphere or at least simplify and clarify various points.  We are still in the very beginning.  Overly complicated reporting and excessive taxation, let alone vigorous enforcement, can hinder the progress with development and adoption by a wider population.\n\nSpeaking of enforcement, the effort by the IRS has been a determined one.  It issued summons to Coinbase (the largest exchange and an entry point into the cryptosphere for the investors holding government issued currencies) to disclose its users trading above $20,000 from 2013 to 2015.  The IRS claims that only 802 people reported crypto transactions on their tax returns in 2015 while millions of users are known to exist.  It’s not clear how they can tell with certainty, just because notations on the tax forms might not fully and properly articulate what gains or losses are reported.  There is no special place for crypto assets on the tax forms, at least yet.  However, the fact that crypto asset trades are not reported to the IRS by the exchanges makes the tax authorities uncomfortable.\n\nIt turns out that it is easy to track a person’s activities in the cryptosphere.  A New York based company Chainalysis (www.chainalysis.com) offers such services for large financial institutions, large businesses, and probably the IRS.  More players are coming to this space as well.  It is not clear to what extent privacy coins or coin mixing can be tracked, this remains to be seen.  In any case, the entry points into a privacy coin can always be identified.\n\nFor an individual investor’s use, I found that https://cointracking.info/ (use my affiliate link https://cointracking.info?ref=B279916 for 10% discount) is the most advanced. You can enter APIs from your wallets or trading sites for convenient tracking of transactions and values.  It generates tax report for the year as well.  If you have found another good service, please, share it with us in the comment area.\n\nPlease, contact a trusted tax adviser for help in navigation through the maze of rules applicable to your case.  I hope that this post will help you think of the right questions and better analyze your situation.  If you don’t know whom to ask and are faced with significant issues, we are happy to help.",
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      "body": "The video from @Ivanontech is very good.  It provides an alternative view of the subject.  He is breaking it down nicely as to what can take place and why and how this all works.   In response to his video, I have made the following comments:  Great video, Ivan, as always.  Missed this one last month, was busy with work.  I call \"accidental\" collisions all of the three instances you have described.  I agree that trying to guess a private key is a special thing that might be done by quantum computers at some point in the future, may be.  There are quantum resistant solutions to which bitcoin will have to switch as well.  I place the word accidental in quotation marks because mostly what I'm referring to is generating and storing keys to various addresses on purpose.  Let's say for a bad actor it is not too much to run an AI bot say on a dozen of machines doing just that and matching addresses against the bitcoin database of existing addresses.  Day and night, and we don't have to be \"sitting here\" for a millennium.  We can go to sleep.  As adoption rises, there are more addresses generated every day.  I am sure that there are other ways to do it as well, especially as our computational capacity goes up.  The humans have a proven record and if a universe is within a reach, rather than going too far to check out the milky way, might as well explore it in numbers :)  All we need is to increase the odds and eventually a collision will occur (even if after ten years).  Now imagine what this will do to the entire crypto space.  The solution will be developed by some new currency that will be accidental collision and quantum resistant.  I entirely agree with you on the title of the video: Bitcoin will never run out of addresses so that each person on the planet for the next hundred years has a million of them, new address for every purchase or transfer in each individual's lifetime and we will still have more than enough addresses to keep going.  This does not mean though that a \"helped\" collision may not occur sooner than we are envisioning.",
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      "body": "@ivanontech has a great video on the same topic https://www.youtube.com/watch?v=Cp-bzCzEuY4  It provides an alternative view of the subject.  He is breaking it down nicely as to what can take place and why and how this all works.   In response to his video, I have made the following comments:  Great video, Ivan, as always.  Missed this one last month, was busy with work.  I call \"accidental\" collisions all of the three instances you have described.  I agree that trying to guess a private key is a special thing that might be done by quantum computers at some point in the future, may be.  There are quantum resistant solutions to which bitcoin will have to switch as well.  I place the word accidental in quotation marks because mostly what I'm referring to is generating and storing keys to various addresses on purpose.  Let's say for a bad actor it is not too much to run an AI bot say on a dozen of machines doing just that and matching addresses against the bitcoin database of existing addresses.  Day and night, and we don't have to be \"sitting here\" for a millennium.  We can go to sleep.  As adoption rises, there are more addresses generated every day.  I am sure that there are other ways to do it as well, especially as our computational capacity goes up.  The humans have a proven record and if a universe is within a reach, rather than going too far to check out the milky way, might as well explore it in numbers :)  All we need is to increase the odds and eventually a collision will occur (even if after ten years).  Now imagine what this will do to the entire crypto space.  The solution will be developed by some new currency that will be accidental collision and quantum resistant.  I entirely agree with you on the title of the video: Bitcoin will never run out of addresses so that each person on the planet for the next hundred years has a million of them, new address for every purchase or transfer in each individual's lifetime and we will still have more than enough addresses to keep going.  This does not mean though that a \"helped\" collision may not occur sooner than we are envisioning.",
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      "body": "@ivanontech has a great video on the same topic https://www.youtube.com/watch?v=Cp-bzCzEuY4  It provides an alternative view of the subject.  He is breaking it down nicely as to what can take place and why and how this all works.   In response to his video, I have made the following comments:  Great video, Ivan, as always.  Missed this one last month, was busy with work.  I call \"accidental\" collisions all of the three instances you have described.  I agree that trying to guess a private key is a special thing that might be done by quantum computers at some point in the future, may be.  There are quantum resistant solutions to which bitcoin will have to switch as well.  I place the word accidental in quotation marks because mostly what I'm referring to is generating and storing keys to various addresses on purpose.  Let's say for a bad actor it is not too much to run an AI bot say on a dozen of machines doing just that and matching addresses against the bitcoin database of existing addresses.  Day and night, and we don't have to be \"sitting here\" for a millennium.  We can go to sleep.  As adoption rises, there are more addresses generated every day.  I am sure that there are other ways to do it as well, especially as our computational capacity goes up.  The humans have a proven record and if a universe is within a reach, rather than going too far to check out the milky way, might as well explore it in numbers :)  All we need is to increase the odds and eventually a collision will occur (even if after ten years).  Now imagine what this will do to the entire crypto space.  The solution will be developed by some new currency that will be accidental collision and quantum resistant.  I entirely agree with you on the title of the video: Bitcoin will never run out of addresses so that each person on the planet for the next hundred years has a million of them, new address for every purchase or transfer in each individual's lifetime and we will still have more than enough addresses to keep going.  This does not mean though that a \"helped\" collision may not occur sooner than we are envisioning.",
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      "body": "@ivanontech has a great video on the same topic https://www.youtube.com/watch?v=Cp-bzCzEuY4  It provides an alternative view of the subject.  He is breaking it down nicely as to what can take place and why and how this all works.   In response to his video, I have made the following comments:  Great video, Ivan, as always.  Missed this one last month, was busy with work.  I call \"accidental\" collisions all of the three instances you have described.  I agree that trying to guess a private key is a special thing that might be done by quantum computers at some point in the future, may be.  There are quantum resistant solutions to which bitcoin will have to switch as well.  I place the word accidental in quotation marks because mostly what I'm referring to is generating and storing keys to various addresses on purpose.  Let's say for a bad actor it is not too much to run an AI bot say on a dozen of machines doing just that and matching addresses against the bitcoin database of existing addresses.  Day and night, and we don't have to be \"sitting here\" for a millennium.  We can go to sleep.  As adoption rises, there are more addresses generated every day.  I am sure that there are other ways to do it as well, especially as our computational capacity goes up.  The humans have a proven record and if a universe is within a reach, rather than going too far to check out the milky way, might as well explore it in numbers :)  All we need is to increase the odds and eventually a collision will occur (even if after ten years).  Now imagine what this will do to the entire crypto space.  The solution will be developed by some new currency that will be accidental collision and quantum resistant.  I entirely agree with you on the title of the video: Bitcoin will never run out of addresses so that each person on the planet for the next hundred years has a million of them, new address for every purchase or transfer in each individual's lifetime and we will still have more than enough addresses to keep going.  This does not mean though that a \"helped\" collision may not occur sooner than we are envisioning.",
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      "author": "bittax",
      "body": "Great tool to help you keep track of all your gains and losses: https://cointracking.info?ref=B279916.  Use this link and get 10% off.",
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      "author": "bittax",
      "body": "https://tokensale.1worldonline.com/?ref=ff11ed3ff3a006d5f93b0ed4",
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      "body": "Yep, that's about time to think of them.  So much growth cannot go unnoticed :)",
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      "author": "mikej",
      "body": "#### TAXES?",
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      "body": "**Who is paying attention in the middle of all this fun?**\n\nAs we continue to hum along on our respective crypto journeys, the inevitable question of calculating and paying taxes is starting to pop up, like a sunflower during a cold winter... for some.  But for the most of us quite expectedly. \n\nThere are many ways that the sphere participants might generate income.  Every time we should be concerned with whether or not any tax is currently due.  Below is my initial list and possible tax outcomes, if you think that something is not covered, do leave a comment, and I will surely address it in the future posts. \n\nI’ve read and heard some doubts and uncertainty as to how it is all taxed, and wanted to put together this post as a guide and alert for those who would like to listen.  Below are the current tax rules before we hear something new from the tax authorities or law makers.  Disclaimer - this presentation is a quick, approximate, and to the point outline of a very complex body of law which US taxation has become.  Please, be sure to consult your tax adviser for a proper interpretation of your individual circumstances and for a timely personalized advice as to what to do next. \n\n**The frame of reference**\n\nThere are following relevant possibilities for the Federal taxation of various income (I am ignoring the states; the taxability should be the same for the most part but the rate may vary between zero and 13.3%):\n\n“Ordinary income,” (OI) including interest income, is taxed at the rates between zero and 39.6%.\n\n“Business income” (BI) is taxed at the same rates plus the self employment tax, an extra 13% on the first $125K (annually adjusted upward by about $7K or so) and 2.5% thereafter. \n\n“Short term capital gains” (Shote) are taxed the same as OI.\n\n“Long term capital gains” (Lote) are taxed between zero and 20%.\n\nAdditionally, some income above is subject to the “Obama Care” tax of 0.9% for BI and 3.8% for investment income (Shote, Lote, some of OI).\n\nTo put things in perspective, Lote is cheaper than Shote, on average by about 14%. \n\nA couple of important concepts to lay out before proceeding.\n\nOne is the constructive receipt  (CORE) doctrine.  What it says is that as soon as you have access to the additional assets, - cryptocoins or dollar denominated credits that somehow accrued on your trading accounts, - as soon as they are available for withdrawal, it becomes your income.  I’ve heard commentaries before that if one does not touch the assets or the money, there is no income to be recognized but this is not true. \n\nA sporadic pursuit versus business motivated by profit making. If a person conducts an activity as a hobby, for personal enjoyment or interest, without a strong incentive or intention of making profit, then income from such activity is OI.  If it is a trade or business, then it’s taxed as BI.  Such a distinction can be quite difficult to make, and courts must often opine on the border line situations.  Note, that if it is a hobby, then related expense deductions are only allowed to the extent they are higher than 2% of the taxpayer total income for the year, which is usually a very limiting threshold.  We will call it a 2% threshold. \n\n**Zooming in**\n\nHere is the list of various ways of generating income in the cryptosphere:\n\n**1.** Holding cryptocurrency as a long or short term investment. \n\nWhen a cryptocoin is purchased for dollars, it acquires a “tax basis” equal to the purchase price.  Later, when the coin is exchanged for another digital asset or is used to pay for services or any other non-digital asset, its value on that day, expressed in dollars, is the selling price.  The difference between such price and the cost basis is either gain or loss, whatever the case may be.  If the coin was held for at least one year and one day, then it’s Lote, if even a nano second less, then it’s a Shote.  In both cases, related expense deductions are available, subject to the 2% threshold. \n\nExample 1: Dr. Bittax purchased $1,000 worth of bitcoin.  In one year and one day, the value rose to $10,000, and he decided to diversify into three other coins by trading all of that bitcoin for those coins.  He recognizes the gain in the amount of $9,000, which is taxed as Lote.  If he was not sufficiently patient, and did not wait that one extra minute, then he would have had a Shote and paid, on average, 14% more in taxes on that gain.\n\nPlease, do read my previous post Trapdoor Arithmetic.  It describes a year end trap where in volatile markets it is not impossible to be trapped into selling one’s assets on the cheap in order to pay taxes.  Thus, if you think that you are selling on top of a market, then consider hedging the diversification by converting some of it to USD.  \n\n**2.** Actively trade crypto assets on exchanges either using bots or manually or act as a dealer (buying in bulk directly from the coin issuers and selling the coins to the general public). \n\nThere is a mark to market election available.  The election must be made in the beginning of a calendar year or if a new taxpayer (new business entity), when it comes to existence.  If election is made, the expense deductions are available and not subject to limitations.  \n\nIf no election, then the taxation is the same as in 1 above.  There might be additional opportunities for dealers, so check with your tax pro, I might cover it in later posts as well. \n\nExample 2: Dr. Bittax decided to trade some crypto.  He set up a special exchange account for this, invested $1,000 and made a timely election.  At the end of the year, the total value is $5,000.  Because of the mark to market, he recognizes $4,000 ($5K less $1K) in OI.  An advantage here is that all his expenses related to this trading are also deductible without imposition of the 2% threshold. \n\n**3.** Mining coins by buying an expensive piece of hardware, earplugs, and an air conditioner or through less intrusive screensavers.  Staking coins by keeping the wallets open day and night.\n\nIf the operation is run as a business, that is in a serious profit seeking manner, then the net income would have been subject to BI tax scheme, after all relevant expenses allowed full deduction.  If it is more like a hobby, then OI, but expenses related to this activity can be deducted only subject to the 2% threshold. \n\nExample 3:  Dr. Bittax buys the accessories for hot and loud mining.  He gives it his best and by the end of the year $3,000 is earned.  Associated expenses are $1,000.  The BI tax will apply on the $2,000.  If instead he chose an elegant screensaver solution and hardly made any effort during the year, while still earning the same modest amount, then he is taxed at OI rates but could not deduct much of the associated expenses. \n\n**4.** Lending coins to other coin holders, lending to smart websites that pay back. \n\nLending any crypto assets in any shape or form: via lending them to organizations to trade or to master node for staking in exchange for an interest, or “trading,” or “speculating,”  - that would be taxed as an OI investment income.  The same applies to buying “mining” contracts.  With the only difference that you are allowed to recover your investment basis before any amounts are subject to tax on the profits.  Related expense deductions are subject to the 2% threshold.  \n\nPlease, keep a sharp eye on timing here, remember the CORE doctrine. As soon as the coins and/or accrued interest is available for withdrawal, that’s your money, - whether or not you take it out, - and the tax is due.\n\nExample 4: Dr. Bittax bought an unlimited mining contract at a website for $1,000.  By the end of the year, $1,500 was earned on the contract.  He decided that it is a good deal and reinvested all the earnings before the end of the year in another such contract.  He realized $500 in net income for that year from this activity.  \n\n**5.** Develop crypto personalities, post videos, blogs, affiliate links, forage for faucets and look for airdrops. \n\nThese activities shall be analyzed exactly like in 3 above.  If it is a real business with perseverance and hopes for profits, then BI, if just a free time hobby-adventure, OI.  \n\nExample 5: Dr. Bittax receives a large, undisclosed amount as a tip for his sound advice and keen perspectives.  Because most of his posts are directly related to his trade, he will include the proceeds into his income as a BI. \n\n\n**6.** Look for accidental collisions, break into wallets, or engage in other unsavory activities in order to gain access to crypto assets and be able to spend them is NOT RECOMMENDED and HIGHLY ILLEGAL.  However, it is still subject to tax under the same rules as 3 and 5 above.  No examples will be given.\n\n\n**7.** Issue your own token or coin in an ICO.\n\nVery generally… When ICO is organized as a sale of a fresh crypto asset to the public with proceeds going directly to the company issuing it, such proceeds are included into income of the company.  If, on the other hand, voluntary contributions are going to a non-profit foundation for further development of that wonderful new coin, then neither foundation nor issuing company pays any tax currently.  Instead, the tax is paid when foundation may be paying the company for development and support of the project.  This is outside the scope of this presentation, and we will eventually do a post focusing specifically on the ICOs’ tax results. \n\n\nFor personal investments (1,2, and 4 above) you can avoid any taxation by investing via your retirement plan. More about how to do it in the later posts. \n\nI am hoping that the above presentation shed some light on the possible tax outcomes of various ways that people are profiting in the cryptosphere.  If you found it useful, interesting, if you had any comments, questions or even disagreements, please post your comments. \n\n![bitcoin-1368256_1920.jpg](https://steemitimages.com/DQmZ896hJH7bSf16s2WzsQbjM9ikUyLK7Q88CJUwYv7VGFe/bitcoin-1368256_1920.jpg)",
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      "body": "**Who is paying attention in the middle of all this fun?**\n\nAs we continue to hum along on our respective crypto journeys, the inevitable question of calculating and paying taxes is starting to pop up, like a sunflower during a cold winter... for some.  But for the most of us quite expectedly. \n\nThere are many ways that the sphere participants might generate income.  Every time we should be concerned with whether or not any tax is currently due.  Below is my initial list and possible tax outcomes, if you think that something is not covered, do leave a comment, and I will surely address it in the future posts. \n\nI’ve read and heard some doubts and uncertainty as to how it is all taxed, and wanted to put together this post as a guide and alert for those who would like to listen.  Below are the current tax rules before we hear something new from the tax authorities or law makers.  Disclaimer - this presentation is a quick, approximate, and to the point outline of a very complex body of law which US taxation has become.  Please, be sure to consult your tax adviser for a proper interpretation of your individual circumstances and for a timely personalized advice as to what to do next. \n\n**The frame of reference**\n\nThere are following relevant possibilities for the Federal taxation of various income (I am ignoring the states; the taxability should be the same for the most part but the rate may vary between zero and 13.3%):\n\n“Ordinary income,” (OI) including interest income, is taxed at the rates between zero and 39.6%.\n\n“Business income” (BI) is taxed at the same rates plus the self employment tax, an extra 13% on the first $125K (annually adjusted upward by about $7K or so) and 2.5% thereafter. \n\n“Short term capital gains” (Shote) are taxed the same as OI.\n\n“Long term capital gains” (Lote) are taxed between zero and 20%.\n\nAdditionally, some income above is subject to the “Obama Care” tax of 0.9% for BI and 3.8% for investment income (Shote, Lote, some of OI).\n\nTo put things in perspective, Lote is cheaper than Shote, on average by about 14%. \n\nA couple of important concepts to lay out before proceeding.\n\nOne is the constructive receipt  (CORE) doctrine.  What it says is that as soon as you have access to the additional assets, - cryptocoins or dollar denominated credits that somehow accrued on your trading accounts, - as soon as they are available for withdrawal, it becomes your income.  I’ve heard commentaries before that if one does not touch the assets or the money, there is no income to be recognized but this is not true. \n\nA sporadic pursuit versus business motivated by profit making. If a person conducts an activity as a hobby, for personal enjoyment or interest, without a strong incentive or intention of making profit, then income from such activity is OI.  If it is a trade or business, then it’s taxed as BI.  Such a distinction can be quite difficult to make, and courts must often opine on the border line situations.  Note, that if it is a hobby, then related expense deductions are only allowed to the extent they are higher than 2% of the taxpayer total income for the year, which is usually a very limiting threshold.  We will call it a 2% threshold. \n\n**Zooming in**\n\nHere is the list of various ways of generating income in the cryptosphere:\n\n**1.** Holding cryptocurrency as a long or short term investment. \n\nWhen a cryptocoin is purchased for dollars, it acquires a “tax basis” equal to the purchase price.  Later, when the coin is exchanged for another digital asset or is used to pay for services or any other non-digital asset, its value on that day, expressed in dollars, is the selling price.  The difference between such price and the cost basis is either gain or loss, whatever the case may be.  If the coin was held for at least one year and one day, then it’s Lote, if even a nano second less, then it’s a Shote.  In both cases, related expense deductions are available, subject to the 2% threshold. \n\nExample 1: Dr. Bittax purchased $1,000 worth of bitcoin.  In one year and one day, the value rose to $10,000, and he decided to diversify into three other coins by trading all of that bitcoin for those coins.  He recognizes the gain in the amount of $9,000, which is taxed as Lote.  If he was not sufficiently patient, and did not wait that one extra minute, then he would have had a Shote and paid, on average, 14% more in taxes on that gain.\n\nPlease, do read my previous post Trapdoor Arithmetic.  It describes a year end trap where in volatile markets it is not impossible to be trapped into selling one’s assets on the cheap in order to pay taxes.  Thus, if you think that you are selling on top of a market, then consider hedging the diversification by converting some of it to USD.  \n\n**2.** Actively trade crypto assets on exchanges either using bots or manually or act as a dealer (buying in bulk directly from the coin issuers and selling the coins to the general public). \n\nThere is a mark to market election available.  The election must be made in the beginning of a calendar year or if a new taxpayer (new business entity), when it comes to existence.  If election is made, the expense deductions are available and not subject to limitations.  \n\nIf no election, then the taxation is the same as in 1 above.  There might be additional opportunities for dealers, so check with your tax pro, I might cover it in later posts as well. \n\nExample 2: Dr. Bittax decided to trade some crypto.  He set up a special exchange account for this, invested $1,000 and made a timely election.  At the end of the year, the total value is $5,000.  Because of the mark to market, he recognizes $4,000 ($5K less $1K) in OI.  An advantage here is that all his expenses related to this trading are also deductible without imposition of the 2% threshold. \n\n**3.** Mining coins by buying an expensive piece of hardware, earplugs, and an air conditioner or through less intrusive screensavers.  Staking coins by keeping the wallets open day and night.\n\nIf the operation is run as a business, that is in a serious profit seeking manner, then the net income would have been subject to BI tax scheme, after all relevant expenses allowed full deduction.  If it is more like a hobby, then OI, but expenses related to this activity can be deducted only subject to the 2% threshold. \n\nExample 3:  Dr. Bittax buys the accessories for hot and loud mining.  He gives it his best and by the end of the year $3,000 is earned.  Associated expenses are $1,000.  The BI tax will apply on the $2,000.  If instead he chose an elegant screensaver solution and hardly made any effort during the year, while still earning the same modest amount, then he is taxed at OI rates but could not deduct much of the associated expenses. \n\n**4.** Lending coins to other coin holders, lending to smart websites that pay back. \n\nLending any crypto assets in any shape or form: via lending them to organizations to trade or to master node for staking in exchange for an interest, or “trading,” or “speculating,”  - that would be taxed as an OI investment income.  The same applies to buying “mining” contracts.  With the only difference that you are allowed to recover your investment basis before any amounts are subject to tax on the profits.  Related expense deductions are subject to the 2% threshold.  \n\nPlease, keep a sharp eye on timing here, remember the CORE doctrine. As soon as the coins and/or accrued interest is available for withdrawal, that’s your money, - whether or not you take it out, - and the tax is due.\n\nExample 4: Dr. Bittax bought an unlimited mining contract at a website for $1,000.  By the end of the year, $1,500 was earned on the contract.  He decided that it is a good deal and reinvested all the earnings before the end of the year in another such contract.  He realized $500 in net income for that year from this activity.  \n\n**5.** Develop crypto personalities, post videos, blogs, affiliate links, forage for faucets and look for airdrops. \n\nThese activities shall be analyzed exactly like in 3 above.  If it is a real business with perseverance and hopes for profits, then BI, if just a free time hobby-adventure, OI.  \n\nExample 5: Dr. Bittax receives a large, undisclosed amount as a tip for his sound advice and keen perspectives.  Because most of his posts are directly related to his trade, he will include the proceeds into his income as a BI. \n\n\n**6.** Look for accidental collisions, break into wallets, or engage in other unsavory activities in order to gain access to crypto assets and be able to spend them is NOT RECOMMENDED and HIGHLY ILLEGAL.  However, it is still subject to tax under the same rules as 3 and 5 above.  No examples will be given.\n\n\n**7.** Issue your own token or coin in an ICO.\n\nVery generally… When ICO is organized as a sale of a fresh crypto asset to the public with proceeds going directly to the company issuing it, such proceeds are included into income of the company.  If, on the other hand, voluntary contributions are going to a non-profit foundation for further development of that wonderful new coin, then neither foundation nor issuing company pays any tax currently.  Instead, the tax is paid when foundation may be paying the company for development and support of the project.  This is outside the scope of this presentation, and we will eventually do a post focusing specifically on the ICOs’ tax results. \n\n\nFor personal investments (1,2, and 4 above) you can avoid any taxation by investing via your retirement plan. More about how to do it in the later posts. \n\nI am hoping that the above presentation shed some light on the possible tax outcomes of various ways that people are profiting in the cryptosphere.  If you found it useful, interesting, if you had any comments, questions or even disagreements, please post your comments. \n\n![bitcoin-1368256_1920.jpg](https://steemitimages.com/DQmZ896hJH7bSf16s2WzsQbjM9ikUyLK7Q88CJUwYv7VGFe/bitcoin-1368256_1920.jpg)",
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      "body": "**Success!**\n\nI must report a small victory in my crypto journey. After two days of trying, I was finally able to split my pre-August bitcoin into two coins each with its own B slightly tilted in two opposite directions. Yay! I first transferred all the coins away from the original wallet, then exported my private keys into a notepad, found the right address pair, entered it into an Electron wallet, and voila, saw my assets as BCC. The problem was that the wallet showed all the coins transferred out (?!), with “unconfirmed” next to it.\n\nI panicked a bit at first, went to blockchair.com to check my address which still showed all the BCC in place and BTC transferred out as it should be. Tried to work with ABC Wallet but before it managed to download all the history of the bitcoin chain, with all its splits and forks and -wits to date, my Electron came to its senses and showed the correct balance.\n\n**A concern…**\n\nWhat it confirmed to me, - in addition to the self-promotion from a tyro to a novice, - was how easy it is to claim the assets assigned to any address if its private key is known. Since any key pair is unique, any generated and published public key is forever vulnerable to eventual, accidental, or not so accidental, collision with another randomly generated public key, and whoever knows the private key can claim the assets assigned to that public key. \n\nIn my understanding, all the cryptos operate the same way and thus possibly are vulnerable to this “perceived” flaw in the system. Let me say that I am very far from being a “techy” type. I only read and learn as much as necessary to move forward with what I have to do.  It has been a fascinating process to dig in and understand technology behind the cryptosphere. May be this absence of sufficient experience still does not allow me to brush off the accidental collisions concern with ease. Over the past couple of months I have found myself coming back to this issue, especially as the markets keep climbing up undeterred, and the number of participants grows.\n\n**Reaching out for answers**\n\nI went on a Slack forum to ask about it, and here is an edited exchange featuring the most relevant comments:\n\n“Bittax Question (BQ): Accidental collisions are an obvious problem. I am surprised that bitcoin came as far as it has now. Am I correct in thinking that it is possible for a random address generator to generate the same address as an existing address and thus cause a “collision,” where two key holders will be in possession of the same private key that opens the same public key?\n\nAnswer/Comment (A/C): Essentially it’s 100% certain there is going to be an address collision when you randomly generate addresses. This collision is so rare that it can take over 1 million years to popup or tomorrow. If you have a neat solution to solve this then you are welcome to share them with us. (Bittax: do you?)\n\nA/C: I think I calculated the odds for collision on Bitcoin and it was a number like 64 zero's behind it...\n\nA/C: I agree that it might be a point people make in the future but the math is the math - you're infinitely more likely to lose your funds to the bank literally collapsing before an address collision steals your funds.\n\nA/C: Has there ever been even one actual collision reported in the history of crypto? (Bittax: I am not aware of any such situation but would be great to hear if anyone was. The crypto has not been that popular yet.)\n\nA/C: I agree with a concern of collision, but my bank messes up way more than even the dumbest hashes collide..\nBittax comment: Sure, but a bank returns your money after a bit of screaming. Not possible here.\n\nA/C: Am I mistaken in thinking that the worry should more be with intentional collisions rather than random? (Bittax: this person hit the issue right on the head, that’s what I am mostly worried about.)\n\nA/C: Regarding your concerns of collision in ... there is 68^62 potential addresses = 4,1262219762811934458417701385818e+113. Random Generating the exact same address twice in our lifetime doesn’t seem likely. (Bittax: however, if this technology is to be built for the lifetimes of many generations to come, that’s how the investors are viewing it, is the foundation strong enough?)\n\nA/C: How did this dumb s---t ended up on this channel?\n\nA/C: Well if someone knows your private key then they can sign for you and spend all your funds. But guessing a private key is impossible.\n\nBQ: One doesn't need to “guess” a particular key, all is needed is to know various randomly generated key pairs. When a known key pair pops up on the blockchain, one can see the public key, see how much money is in there, wait till there is \"enough,\" and pull the trigger. It might take five, ten, fifteen, or fifty years but a distinct threat. It’s like fishing on a quiet lake, all you need is patience.\n\nA/C: No..Number space too big.. One of the consequences of the second law of thermodynamics is that a certain amount of energy is necessary to represent information. To record a single bit by changing the state of a system requires an amount of energy no less than kT, where T is the absolute temperature of the system and k is the Boltzman constant. (Stick with me; the physics lesson is almost over.)\n\nGiven that k = 1.38×10-16 erg/°Kelvin, and that the ambient temperature of the universe is 3.2°Kelvin, an ideal computer running at 3.2°K would consume 4.4×10-16 ergs every time it set or cleared a bit. To run a computer any colder than the cosmic background radiation would require extra energy to run a heat pump.\n\nNow, the annual energy output of our sun is about 1.21×1041 ergs. This is enough to power about 2.7×1056 single bit changes on our ideal computer; enough state changes to put a 187-bit counter through all its values. If we built a Dyson sphere around the sun and captured all its energy for 32 years, without any loss, we could power a computer to count up to 2192. Of course, it wouldn't have the energy left over to perform any useful calculations with this counter.\nBut that's just one star, and a measly one at that. A typical supernova releases something like 1051 ergs. (About a hundred times as much energy would be released in the form of neutrinos, but let them go for now.) If all of this energy could be channeled into a single orgy of computation, a 219-bit counter could be cycled through all of its states.\n\nThese numbers have nothing to do with the technology of the devices; they are the maximums that thermodynamics will allow. And they strongly imply that brute-force attacks against 256-bit keys will be infeasible until computers are built from something other than matter and occupy something other than space.\n\nBQ: Thanks! I was not concerned with brute force. Rather with an accident, intentional or unintentional. But thanks, it answers my question. There does not seem to be any specific guards against a possibility of a collision apart from a very low probability.\n\nA/C: Correct..it is counterintuitive at first.. But number space makes that probability infinitesimally small. (Assuming entropy and randomness in keys)”\n\nI found this comment exchange interesting. People seem to have thought about this quite a bit, and concluded that despite an obvious possibility, there is not much to worry about.\n\n**Speculations**\n\nHere is my take on it. We marvel at how the universe, our galaxy, and the solar system have all come together. How little probability we might have had to be making our terrestrial journey as planet Earth and as people on this planet. There might have been a different planet with a different name with different creatures on it but instead this is us. If we are creating millions of universes inside of our digital crypto realm, why would accidents be so improbable from occurring when we see how many wonderfully random events came together to create everything around us? I am not saying that someone could “guess” a random pair, I am saying that eventually (may be even during the next hundred years) random key generators will start generating the keys that have been generated previously and thus collisions will occur.\n\nThis is not a FUD (“fear uncertainty and doubt”) opinion. I am investing money, time, and effort into this technology alongside with everyone else, and would like to be wrong on accidental collisions. But no one was able to make me doubt the conclusion.\n\nWhat if there is someone who keeps generating various random keys, billions of them. Say that he or she or them can generate one key every three seconds. Let’s say that this bad actor operates one hundred computers designed for this task. In one year, it’s possible to have a database of only one billion of such key pairs. That’s a tiny fraction, of course. But remember that we are patiently fishing in a quiet lake populated by lazy fish. From the other end, the adoption of the crypto grows. Each person who is moderately involved in this, may generate about thirty new addresses a year on average and use them for various needs. Say thirty billion of new addresses that are waiting to collide with one billion from that rogue database. Very tiny probability indeed.\n\nBut the time goes on, year after year, both parties keep on with their tasks. In addition to individuals, there are corporations, businesses, more and more and more. There is lesser and lesser space in our millions of universes with each birthday…. and, finally, a collision takes place. A proven random or by design collision in any crypto is sufficient to sow panic among unprepared investors and users, after which many may sell off and asset values may crumble.\nNow, what’s very important, in my opinion, is for all the investors, institutions as well as individuals, to understand clearly how this technology operates. Before investing, they should realize that each time when they create a wallet, an address inside a wallet, they throw a little stone into a huge space of millions of universes and safety of their assets (that may represent a lion portion of their lifetime savings) depends, among other important things, on whether this stone hits another in this blind petanque game.\n\n**Questions**\n\nAm I wrong to suggest that as a community, we shall anticipate this very remote possibility and build in defenses early on? Is there an issue here either for now or for later? How could/should we address this “issue?”\n\nDo you agree or disagree with me? Do you have any specific ideas which could either make collisions more remote or completely eliminate them? Please, leave your comments or send me a message.\n\nBy the way, just to reiterate.  We are years away from this becoming a real issue.  However, now is the right time to start thinking about. \n\nI am leaving you with a video that I found today.  It describes in more details why a collision is possible.  https://www.youtube.com/watch?v=2bEL3ok8D70",
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      "body": "**Success!**\n\nI must report a small victory in my crypto journey.  After two days of trying, I was finally able to split my pre-August bitcoin into two coins each with its own B slightly tilted in two different directions.  Yay!  I first transferred all the coins away from the original wallet, then exported my private keys into a notepad, found the right address pair, entered it into an Electron wallet, and voila, saw my assets as BCC.  The problem was that the wallet showed all the coins transferred out (?!), with “unconfirmed” next to it.  \n\nI panicked a bit at first, went to blockchair.com to check my address which still showed all the BCC in place and BTC transferred out as it should be.  Tried to work with ABC Wallet but before it managed to download all the history of the bitcoin chain, with all its splits and forks and -wits to date, my Electron came to its senses and showed the correct balance. \n\n\n**A concern…**\n\nWhat it confirmed to me, apart from the self-promotion from a tyro to a novice, was how easy it is to claim the assets held by any address if its private key is known.  Since any key pair is unique, any generated and published public key is forever vulnerable to eventually, accidentally, or not so accidentally, collide with another randomly generated public key, and whoever holds that other newly generated public key will know private key to that key pair and could claim the assets. \n\nIn my understanding, all the cryptos operate the same way and thus possibly are vulnerable to this “perceived” flaw in the system.  Let me say that I am very far from being a “techy” type.  I only read and learn as much as necessary to move forward with what I have to do.  Being a tax accountant, I don’t need to know coding or computer network knowledge.  It has been a fascinating process to dig in and understand the technology behind the cryptosphere.  May be this absence of sufficient experience still does not allow me to brush off the accidental collisions concern with ease.  Over the past couple of months I have found myself coming back to this issue, especially as the market keeps climbing up undeterred, and the number of participants grows.\n\n\n**Reaching out for answers**\n\nI went on a Slack forum to ask about it, and here is an edited exchange featuring the most relevant comments:\n\n“Bittax Question (BQ): Accidental collisions are an obvious problem.  I am surprised that bitcoin came as far as it has now.  Am I correct in thinking that it is possible for the random address generator to generate the same address and thus cause a “collision,” where two key holders will be in possession of the same private key that opens the same public key?\n\nAnswer/Comment (A/C): Essentially it’s 100% certain there is going to be an address collision when you randomly generate addresses. This collision is so rare that it can take over 1 million years to popup or tomorrow. If you have a neat solution to solve this then you are welcome to share them with us. (Bittax: do you?)\n\nA/C: I think I calculated the odds for collision on Bitcoin and it was a number like 64 zero's behind it...\n\nA/C: I agree that it might be a point people make in the future but the math is the math - you're infinitely more likely to lose your funds to the bank literally collapsing before an address collision steals your funds.\n\nA/C: Has there ever been even one actual collision reported in the history of crypto? (Bittax: I am not aware of any such situation but would be great to hear if anyone was.  The crypto has not been that popular yet.)\n\nA/C: I agree with **a** concern of collision, but my bank messes up way more than even the dumbest hashes collide..\n\nBittax comment: Sure, but a bank returns your money after a bit of screaming.  Not possible here.\n\nA/C: Am I mistaken in thinking that the worry should more be with intentional collisions rather than random? (Bittax: this person hit the issue right on the head, that’s what I am mostly worried about.)\n\nA/C: Regarding your concerns of collision in ... there is 68^62 potential addresses = 4,1262219762811934458417701385818e+113. Random Generating the exact same address twice in our lifetime doesn’t seem likely.  (Bittax: however, if this technology is to be built for the lifetimes of many generations to come, that’s how the investors are viewing it, is the foundation strong enough?)\n\nA/C: How did this dumb s---t ended up on this channel?\n\nA/C: Well if someone knows your private key then they can sign for you and spend all your funds. But guessing a private key is impossible.\nBQ: One doesn't need to “guess” a particular key, all is needed is to know various randomly generated key pairs.  When a known key pair pops up on the blockchain, one can see the public key, see how much money is in there, wait till there is \"enough,\" and pull the trigger.  It might take five, ten, fifteen, or fifty years but a distinct threat.  It’s like fishing on a quiet lake, all you need is patience. \nA/C: No..Number space too big.. One of the consequences of the second law of thermodynamics is that a certain amount of energy is necessary to represent information. To record a single bit by changing the state of a system requires an amount of energy no less than kT, where T is the absolute temperature of the system and k is the Boltzman constant. (Stick with me; the physics lesson is almost over.)\nGiven that k = 1.38×10-16 erg/°Kelvin, and that the ambient temperature of the universe is 3.2°Kelvin, an ideal computer running at 3.2°K would consume 4.4×10-16 ergs every time it set or cleared a bit. To run a computer any colder than the cosmic background radiation would require extra energy to run a heat pump.\nNow, the annual energy output of our sun is about 1.21×1041 ergs. This is enough to power about 2.7×1056 single bit changes on our ideal computer; enough state changes to put a 187-bit counter through all its values. If we built a Dyson sphere around the sun and captured all its energy for 32 years, without any loss, we could power a computer to count up to 2192. Of course, it wouldn't have the energy left over to perform any useful calculations with this counter.\nBut that's just one star, and a measly one at that. A typical supernova releases something like 1051 ergs. (About a hundred times as much energy would be released in the form of neutrinos, but let them go for now.) If all of this energy could be channeled into a single orgy of computation, a 219-bit counter could be cycled through all of its states.\nThese numbers have nothing to do with the technology of the devices; they are the maximums that thermodynamics will allow. And they strongly imply that brute-force attacks against 256-bit keys will be infeasible until computers are built from something other than matter and occupy something other than space.\nBQ: Thanks!  I was not concerned with brute force.  Rather with an accident, intentional or unintentional.  But thanks, it answers my question.  There does not seem to be any specific guards against a possibility of a collision apart from a very low probability.\nA/C: Correct..it is counterintuitive at first.. But number space makes that probability infinitesimally small. (Assuming entropy and randomness in keys)”\n\nI found this comment exchange interesting.  People seem to have thought about this quite a bit, and concluded that despite an obvious possibility, there is not much to worry about.  \n\n\n**Speculations**\n\nHere is my take.  We marvel at how the universe, our galaxy, and the solar system have all come together.  How little probability we might have had to make our terrestrial journey as planet Earth and as people on this planet.  There might have been a different planet with a different name with different creatures on it but instead this is us.  If we are creating millions of universes inside of our digital crypto realm, why would accidents be so improbable from occurring when we see how many wonderfully random events came together to create everything around us?  I am not saying that someone could “guess” a random pair, I am saying that eventually (may be even during the next hundred years) random key generators will start generating the keys that have been generated previously and thus collisions will occur. \n\nThis is not a FUD (“fear uncertainty and doubt”) post.  I am investing money, time, and effort into this technology alongside with everyone else, and would like to be wrong on the accidental collisions.  But no one was able to make me doubt the conclusion.\n\nWhat if there is someone who keeps generating various random keys, billions of them.  Say that he or she or them can generate one key every three seconds.  Let’s say that this bad actor operates one hundred computers designed for this task. In one year, it’s possible to have a database of only one billion of such key pairs.  That’s a tiny fraction, of course.  But remember that we are patiently fishing in a quiet lake populated by lazy fish.  From the other end, the adoption of the crypto grows.  Each person who is moderately involved in this, may generate about thirty new addresses a year on average and use them for various needs.  Say thirty billion of new addresses that are waiting to collide with one billion from that rogue database.  Very tiny probability indeed.  \n\nBut the time goes on, year after year, both parties keep on with their tasks.  In addition to individuals, there are corporations, businesses, more and more and more.  There is lesser and lesser space in our millions of universes with each birthday…. and, finally, a collision takes place.  A proven random or by design collision in any crypto is sufficient to sow panic among unprepared investors and users, after which many may sell off and asset values may crumble. \n\nNow, what’s very important, in my opinion, is for all the investors, institutions as well as individuals, to understand clearly how this technology operates.  Before investing, they should realize that each time when they create a wallet, an address inside a wallet, they throw a little stone into a huge space of millions of universes and safety of their assets (that may represent a lion portion of their lifetime savings) depends, among other important things, on whether this stone hits another in this blind petanque game.\n\n**Questions**\n\nAm I wrong to suggest that as a community, we shall anticipate this very remote possibility and build in defenses early on?  Is there an issue here either for now or for later? How could/should we address this “issue?”  \n\nDo you agree or disagree with me?  Do you have any specific ideas which could either make collisions more remote or completely eliminate them?  Please, leave your comments or send me a message. \n\nI am leaving you with a video that I found today.  It describes in more detail why a collision is possible.  https://www.youtube.com/watch?v=2bEL3ok8D70",
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      "body": "Very interesting observations.   I understood from the general spirit of your posts that you are for the downside protection, which is great and very important.  I sure hope though that if everything does go down, we as a group of humans can figure out a way to keep on going collectively.  Even in banking crisis if only people don't panic, things would not be so bad.   But, of course, each individually needs to be prepared in the best possible way.  Before reading this post, I have written up about a possible crypto network which could help us barter more efficiently, not only with goods but services, and could actually help in a case of a total collapse.  You can read it under my handle: @bittax.  Cheers!",
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      "body": "@@ -1399,18 +1399,19 @@\n onsider \n-th\n+som\n e fundam\n@@ -1459,11 +1459,14 @@\n e?  \n+*\n Yes\n+*,\n  it \n@@ -1471,20 +1471,23 @@\n t is in \n-some\n+certain\n  cases a\n@@ -1484,24 +1484,30 @@\n in cases and\n+ *no*,\n  it is not i\n@@ -1518,17 +1518,16 @@\n me other\n-s\n .  Would\n@@ -1727,24 +1727,43 @@\n ich all the \n+goods and services \n exchanges wi\n@@ -1760,22 +1760,18 @@\n changes \n-will b\n+ar\n e tax fr\n@@ -1995,21 +1995,19 @@\n e users \n-could\n+may\n  be very\n",
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      "body": "@@ -700,25 +700,18 @@\n *Making \n-exchanges\n+it\n  nontaxa\n",
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      "author": "bittax",
      "body": "**Basic tax rules for convertible virtual currencies**\n\nBuying and selling of crypto is a taxable transaction.  The tax authorities here in US call them “convertible virtual currencies.”  “Convertibility” is the use in real world transactions to buy or sell goods or services or exchange for fiat currencies.  Crypto is taxed on par with property transactions. Fair enough. \n\nIs it then possible to create a cryptocurrency that will not be taxed as property but can be used to exchange goods and services among the participants?  It might be. \n\nIf certain rules are followed, we could probably carve out a “coin” which can be a medium of exchange for goods and services and no tax would be due...\n\n**Making exchanges nontaxable**\n\nOh, no, don’t report me to the tax authorities just yet.  Let’s call it a theoretical construct with some possible practical implications.\n\nFirst off, let’s get back to basics and let’s ditch the word “coin.”  Crypto is nothing else but a trusted repository of records of various transactions.  The main reason why it is called a “coin” is for ease of understanding:  we are all very familiar with what coins do.  Let’s instead call that ledger a record book.  \"Crypto-record-book?”  Think of this as a book of records of various exchange transactions between individual members of a particular imaginary network, The Record Book Crypto Network (RBCN), as a platform. \n\nNext, let’s consider the fundamental rules of tax.  Barter. Is it taxable?  Yes it is in some cases and it is not in some other.  Would it be possible for us to artificially limit the exchanges on RBCN to those barter transactions that would not be taxable?  If that can be done technically, then we can have a network within which all the exchanges will be tax free.  It is likely that the participants of that crypto network would be happy to use that network for those instances when they can and thus avoid paying tax as providers or consumers of various goods and services.  The users could be very happy to see such a network created.  \n\n**Nontaxable barter inside a community**\n\nThe devil is in the details very much, and it is not quite clear whether this can be pulled off, but if it can, this could be awesome.  \n\nBelow are the conditions, where barter was not a taxable transaction, as formally approved by the tax authorities in the US.  Please, beware that those conditions may not be the only ones necessary under certain circumstances. On the other hand, some of these conditions could be relaxed.  Below is what I have compiled from the two well known cases where barter transactions were approved to be tax free based on specific facts and circumstances.  One case was considered in 1996, the other in 2007 (only ten years ago! that is recent in the realm of tax rules and regulations). \n\n1. All services are valued equally under the program: one hour of service equals one good neighbor point. \n1. Services provided are primarily domestic or personal in nature. Participants in the program commonly provide services such as housekeeping, babysitting, gardening, errand running, housecleaning, home maintenance, music lessons, or other personal services, including medical consultations and exams, massage, and other holistic treatments.  Some members also offer tangible items, tickets, or discounts from menu items at certain restaurants. \n1. Members who are self-employed cannot use points to obtain services for their businesses.\n1. The definition of a member of the program is a participant who has completed the application, interview, orientation, and reference check process.\n1. No fees were charged for participating in the program. \n1. There was no guarantee that members would receive services for accumulated points: a member who has performed services does not thereby have a contractual right to receive any services.\n1. Exchanges were done on an “informal” “non-commercial” basis. The informal nature of the transactions was evident by the fact that intermediary only connected the two parties together and it was up to those parties to determine whether any services will be performed, to determine the time and place for performance of the services, and to ensure that the services are satisfactorily performed.  Also, either member could contact the intermediary to report the hours.  Such reports could be made on a postcard or a phone call. \n1. In one case, members could not transfer points or sell points except that members may donate points to other members in the member's immediate family or household. In the other, newer, case, the members were able to donate points to other members.\n1. No limits were placed on when the services can be received. \n1. Both were community organizations, members of which live in a certain area. \n1. Many members participants of the networks were motivated by the desire to serve their community and never received any services in exchange, there were 25% of such members in one instance.  The purpose of the network is to strengthen relationships between neighbors and members of the community based on reciprocity and equality. The credits serve merely as a means to motivate the volunteers to continue their community service.\n\n\n\n\n**Possible recipe**\n\nAs long as it is done informally, on a non-commercial basis, locally (within a local geographical area, which could probably be a city or neighborhood or individual building, perhaps, that’s not clear), and services or items are personal in nature, then it sounds like there could be an electronic record book out there which could keep the records on behalf of the participants and participation will not incur any tax liability.  \n\nThere would not be a specific fiat or crypto currency value for a particular unit of measure for the services provided or goods exchanged.  Otherwise, this will not work as a nontaxable exchange. By getting these community goodwill records, an individual simply hopes and trusts that the community will repay in kind later, there cannot be any enforceable obligation that accumulated points could be used. \n\n\n**Euphoria**\n\nIf this works out, it may bring communities closer together in a beautiful way.  The crypto technology can then not only enable fast transactions across the globe but also make certain transactions with the members of a local community possible.  It can serve not only to record the transactions but also be a market place indicating the need for and availability of goods and services.  We will finally get to know our neighbors.\n\nExamples are abound: help with shopping, fixing things, trading away extra items in home that one does not use, babysitting, giving a ride, helping with personal budgets, lots and lots.  Most of those interactions may not have ever happened unless members of the same community knew to offer their skills and availability and in exchange could expect help when they might need it in turn.  Since the ledger is there forever, the community records could be safely preserved until that individual needs the goods or help that the community has to offer.  An additional exchange in goods and services takes place which otherwise would not have.  This will improve efficiency and a win-win situation for the people and the government, especially in the times of aging population when many people chose to stay at home and need an extra help to live comfortably.\n\nShould we then give it an even longer name: Community Crypto Record Book (CCRB)? \n\nNames are a fun part about the cryptosphere.  One can dream them up endlessly.  I especially like it when the projects keep on changing their names and their coin names.  It makes things look so much less formal and that much closer to the notion of the community where we all explore and invent. \n\n**Sobriety**\n\nAll is good except that for now the tax law is such that every crypto is a property that can be bought and sold and such transactions are taxable.  Could something be constructed which will use the technology but will not be quite a “convertible virtual currency?” \n\nIt is probably possible either now or in the future, we might even get some help from the tax authorities. \n\nThat’s just a thought, don’t give me up just yet.\n\nIf you liked or did not like this post, please leave your comments below.   It would be great to know what you think.\n\n**Affiliate codes:**\n\nhttps://bitconnect.co/?ref=bittax",
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      "body": "**Basic tax rules for convertible virtual currencies**\n\nBuying and selling of crypto is a taxable transaction.  The tax authorities here in US call them “convertible virtual currencies.”  “Convertibility” is the use in real world transactions to buy or sell goods or services or exchange for fiat currencies.  Crypto is taxed on par with property transactions. Fair enough. \n\nIs it then possible to create a cryptocurrency that will not be taxed as property but can be used to exchange goods and services among the participants?  It might be. \n\nIf certain rules are followed, we could probably carve out a “coin” which can be a medium of exchange for goods and services and no tax would be due...\n\n**Making exchanges nontaxable**\n\nOh, no, don’t report me to the tax authorities just yet.  Let’s call it a theoretical construct with some possible practical implications.\n\nFirst off, let’s get back to basics and let’s ditch the word “coin.”  Crypto is nothing else but a trusted repository of records of various transactions.  The main reason why it is called a “coin” is for ease of understanding:  we are all very familiar with what coins do.  Let’s instead call that ledger a record book.  \"Crypto-record-book?”  Think of this as a book of records of various exchange transactions between individual members of a particular imaginary network, The Record Book Crypto Network (RBCN), as a platform. \n\nNext, let’s consider the fundamental rules of tax.  Barter. Is it taxable?  Yes it is in some cases and it is not in some other.  Would it be possible for us to artificially limit the exchanges on RBCN to those barter transactions that would not be taxable?  If that can be done technically, then we can have a network within which all the exchanges will be tax free.  It is likely that the participants of that crypto network would be happy to use that network for those instances when they can and thus avoid paying tax as providers or consumers of various goods and services.  The users could be very happy to see such a network created.  \n\n**Nontaxable barter inside a community**\n\nThe devil is in the details very much, and it is not quite clear whether this can be pulled off, but if it can, this could be awesome.  \n\nBelow are the conditions, where barter was not a taxable transaction, as formally approved by the tax authorities in the US.  Please, beware that those conditions may not be the only ones necessary under certain circumstances. On the other hand, some of these conditions could be relaxed.  Below is what I have compiled from the two well known cases where barter transactions were approved to be tax free based on specific facts and circumstances.  One case was considered in 1996, the other in 2007 (only ten years ago! that is recent in the realm of tax rules and regulations). \n\n1. All services are valued equally under the program: one hour of service equals one good neighbor point. \n1. Services provided are primarily domestic or personal in nature. Participants in the program commonly provide services such as housekeeping, babysitting, gardening, errand running, housecleaning, home maintenance, music lessons, or other personal services, including medical consultations and exams, massage, and other holistic treatments.  Some members also offer tangible items, tickets, or discounts from menu items at certain restaurants. \n1. Members who are self-employed cannot use points to obtain services for their businesses.\n1. The definition of a member of the program is a participant who has completed the application, interview, orientation, and reference check process.\n1. No fees were charged for participating in the program. \n1. There was no guarantee that members would receive services for accumulated points: a member who has performed services does not thereby have a contractual right to receive any services.\n1. Exchanges were done on an “informal” “non-commercial” basis. The informal nature of the transactions was evident by the fact that intermediary only connected the two parties together and it was up to those parties to determine whether any services will be performed, to determine the time and place for performance of the services, and to ensure that the services are satisfactorily performed.  Also, either member could contact the intermediary to report the hours.  Such reports could be made on a postcard or a phone call. \n1. In one case, members could not transfer points or sell points except that members may donate points to other members in the member's immediate family or household. In the other, newer, case, the members were able to donate points to other members.\n1. No limits were placed on when the services can be received. \n1. Both were community organizations, members of which live in a certain area. \n1. Many members participants of the networks were motivated by the desire to serve their community and never received any services in exchange, there were 25% of such members in one instance.  The purpose of the network is to strengthen relationships between neighbors and members of the community based on reciprocity and equality. The credits serve merely as a means to motivate the volunteers to continue their community service.\n\n\n\n\n**Possible recipe**\n\nAs long as it is done informally, on a non-commercial basis, locally (within a local geographical area, which could probably be a city or neighborhood or individual building, perhaps, that’s not clear), and services or items are personal in nature, then it sounds like there could be an electronic record book out there which could keep the records on behalf of the participants and participation will not incur any tax liability.  \n\nThere would not be a specific fiat or crypto currency value for a particular unit of measure for the services provided or goods exchanged.  Otherwise, this will not work as a nontaxable exchange. By getting these community goodwill records, an individual simply hopes and trusts that the community will repay in kind later, there cannot be any enforceable obligation that accumulated points could be used. \n\n\n**Euphoria**\n\nIf this works out, it may bring communities closer together in a beautiful way.  The crypto technology can then not only enable fast transactions across the globe but also make certain transactions with the members of a local community possible.  It can serve not only to record the transactions but also be a market place indicating the need for and availability of goods and services.  We will finally get to know our neighbors.\n\nExamples are abound: help with shopping, fixing things, trading away extra items in home that one does not use, babysitting, giving a ride, helping with personal budgets, lots and lots.  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      "body": "If you liked or did not like this post, please leave your comments below.   It would be great to know what you think.\n\n**Affiliate codes:**\n\nhttps://bitconnect.co/?ref=bittax",
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      "body": "@@ -5204,16 +5204,17 @@\n ice.%0A%0A%0A%0A\n+%0A\n **Possib\n",
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      "body": "@@ -5203,16 +5203,17 @@\n vice.%0A%0A%0A\n+%0A\n **Possib\n",
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      "body": "@@ -3595,16 +3595,19 @@\n rocess.%0A\n+1. \n No fees \n@@ -3654,16 +3654,19 @@\n ogram. %0A\n+1. \n There wa\n@@ -3843,16 +3843,19 @@\n rvices.%0A\n+1. \n Exchange\n@@ -4373,16 +4373,19 @@\n  call. %0A\n+1. \n In one c\n@@ -4624,16 +4624,19 @@\n embers.%0A\n+1. \n No limit\n@@ -4688,16 +4688,19 @@\n eived. %0A\n+1. \n Both wer\n@@ -4768,16 +4768,19 @@\n  area. %0A\n+1. \n Many mem\n@@ -5203,17 +5203,16 @@\n vice.%0A%0A%0A\n-%0A\n **Possib\n",
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      "body": "@@ -2800,16 +2800,19 @@\n ons). %0A%0A\n+1. \n All serv\n@@ -2907,16 +2907,19 @@\n point. %0A\n+1. \n Services\n@@ -3353,16 +3353,19 @@\n rants. %0A\n+1. \n Members \n@@ -3445,16 +3445,19 @@\n nesses.%0A\n+1. \n The defi\n",
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      "body": "@@ -1,8 +1,10 @@\n+**\n Basic ta\n@@ -45,16 +45,18 @@\n rrencies\n+**\n %0A%0ABuying\n@@ -691,16 +691,18 @@\n due...%0A%0A\n+**\n Making e\n@@ -720,16 +720,18 @@\n ntaxable\n+**\n %0A%0AOh, no\n@@ -1023,20 +1023,20 @@\n s.  The \n-only\n+main\n  reason \n@@ -1072,32 +1072,31 @@\n for \n-marketing purposes since\n+ease of understanding: \n  we \n@@ -1139,107 +1139,8 @@\n s do\n- (although may be someone should eventually introduce cryptobills, but that%E2%80%99s for another occasion)\n .  L\n@@ -1144,20 +1144,23 @@\n   Let%E2%80%99s \n-just\n+instead\n  call th\n@@ -1189,15 +1189,10 @@\n k.  \n-Say, %E2%80%9Cc\n+%22C\n rypt\n@@ -1262,16 +1262,28 @@\n exchange\n+ transaction\n s betwee\n@@ -2038,16 +2038,18 @@\n ted.  %0A%0A\n+**\n Nontaxab\n@@ -2076,16 +2076,18 @@\n ommunity\n+**\n %0A%0AThe de\n@@ -5171,16 +5171,18 @@\n ice.%0A%0A%0A%0A\n+**\n Possible\n@@ -5188,17 +5188,18 @@\n e recipe\n- \n+**\n %0A%0AAs lon\n@@ -6039,17 +6039,20 @@\n  %0A%0A%0A\n+**\n Euphoria\n- \n+**\n %0A%0AIf\n@@ -7726,16 +7726,20 @@\n . %0A%0A\n+**\n Sobriety\n+**\n %0A%0AAl\n@@ -8282,16 +8282,18 @@\n think.%0A%0A\n+**\n Affiliat\n@@ -8300,16 +8300,18 @@\n e codes:\n+**\n %0A%0Ahttps:\n",
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