Category Archives: blockchain

Bitcoin and Cryptocurrency Regulation Updates

The top ten questions you should ask before investing in #blockchain #bitcoin #ripple #ethereum #bitcoincash #cardano #stellar #litecoin #XEM #MIOTA #Dash #cruptocurrency #altcoin #darkcoin are:

1. Who exactly am I contracting with?

A major consideration is who are you contracting with. It is important to check their backgrounds by performing a google search of their names and the company’s name. It’s important to exercise professional skepticism based upon what you find as a result because some of the content could be sponsored. In such a case, it may not be independent. Many Initial Coin Offerings issue white papers as business plans. You should read the white paper to determine if a business plan exists. A final consideration is to ascertain where are they located. Are you contracting out of state or out of country?

2. Where is my money going and what will be it be used for?

Is my money going to be used to “cash out” others?

3. What specific rights come with my investment?

4. Are there financial statements?

If so, are they audited, and by whom?

5. Is there trading data?

If so, is there some way to verify it?

6. How, when, and at what cost can I sell my investment?

For example, do I have a right to give the token or coin back to the company or to receive a refund Can I resell the coin or token, and if so, are there any limitations on my ability to resell?

7. If a digital wallet is involved, what happens if I lose the key?

8. Are there substantial risks of theft or loss, including from hacking?

9. If a blockchain is used, is the blockchain open and public?

Has the code been published, and has there been an independent cybersecurity audit?

10. Has the offering been structured to comply with the securities laws and, if not, what implications will that have for the stability of the enterprise and the value of my investment?

What legal protections may or may not be available in the event of fraud, a hack, malware, or a downturn in business prospects? Who will be responsible for refunding my investment if something goes wrong?

The SEC’s full list is available at www.cjzfirm.com/bitcoin/ @ 11 DEC 2017 Update and at Jay Clayton’s Statement on Cryptocurrencies and Initial Coin Offerings SEC and Statement of Chairman Jay Clayton and Commissioners Kara M. Stein and Michael S. Piwowar on “NASAA Reminds Investors to Approach Cryptocurrencies, Initial Coin Offerings and Other Cryptocurrency-Related Investment Products with Caution” by NASAA

Links

NASAA’s Common Cryptocurrency Concerns

Some common concerns investors should consider before investing in any offering containing cryptocurrency include:
  • Cryptocurrency is subject to minimal regulatory oversight, susceptible to cybersecurity breaches or hacks, and there may be no recourse should the cryptocurrency disappear.
  • Cryptocurrency accounts are not insured by the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits up to $250,000.
  • The high volatility of cryptocurrency investments makes them unsuitable for most investors, especially those investing for long-term goals or retirement.
  • Investors in cryptocurrency are highly reliant upon unregulated companies, including some that may lack appropriate internal controls and may be more susceptible to fraud and theft than regulated financial institutions.
  • Investors will have to rely upon the strength of their own computer security systems, as well as security systems provided by third parties, to protect purchased cryptocurrencies from theft.

Common Red Flags of Fraud

NASAA also reminds investors to keep watch for these common red flags of investment fraud:
  • “Guaranteed” high investment returns. There is no such thing as guaranteed investment returns, and there is no guarantee that the cryptocurrency will increase in value. Be wary of anyone who promises a high rate of return with little or no risk.
  • Unsolicited offers. An unsolicited sales pitch may be part of a fraudulent investment scheme. Cryptocurrency investment opportunities are promoted aggressively through social media. Be very wary of an unsolicited communication—meaning you didn’t ask for it and don’t know the sender—about an investment opportunity.
  • Sounds too good to be true. If the project sounds too good to be true, it probably is. Watch out for exaggerated claims about the project’s future success.
  • Pressure to buy immediately. Take time to research an investment opportunity before handing over your money. Watch out for pressure to act fast or “get in on the ground floor” of a new tech trend.
  • Unlicensed sellers. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms. Check license and registration status with your state or provincial securities regulator. Contact information is available here.

SEC’s Sample Questions for Investors Considering a Cryptocurrency or ICO
Investment Opportunity

  • Who exactly am I contracting with?
    • Who is issuing and sponsoring the product, what are their backgrounds, and have they provided a full and complete description of the product?  Do they have a clear written business plan that I understand?
    • Who is promoting or marketing the product, what are their backgrounds, and are they licensed to sell the product?  Have they been paid to promote the product?
    • Where is the enterprise located?
  • Where is my money going and what will be it be used for?  Is my money going to be used to “cash out” others?
  • What specific rights come with my investment?
  • Are there financial statements?  If so, are they audited, and by whom?
  • Is there trading data?  If so, is there some way to verify it?
  • How, when, and at what cost can I sell my investment?  For example, do I have a right to give the token or coin back to the company or to receive a refund?  Can I resell the coin or token, and if so, are there any limitations on my ability to resell?
  • If a digital wallet is involved, what happens if I lose the key?  Will I still have access to my investment?
  • If a blockchain is used, is the blockchain open and public?  Has the code been published, and has there been an independent cybersecurity audit?
  • Has the offering been structured to comply with the securities laws and, if not, what implications will that have for the stability of the enterprise and the value of my investment?
  • What legal protections may or may not be available in the event of fraud, a hack, malware, or a downturn in business prospects?  Who will be responsible for refunding my investment if something goes wrong?
  • If I do have legal rights, can I effectively enforce them and will there be adequate funds to compensate me if my rights are violated?

 

#blockchain #bitcoin #ripple #ethereum #bitcoincash #cardano #stellar #litecoin #XEM #MIOTA #Dash #cruptocurrency #altcoin #darkcoin 

bitcoin

The Future Now: Bitcoin & Cryptocurrency Updates

UPDATE August 27, 2018–Brickell, Miami, Florida

MarketWatch and CNBC have postulated that Bitcoin is correlated to the emerging markets (MSCI Emerging Markets Index). According to Fundstrat’s Tom Lee, hedge funds avoid buying risk when there’s trouble in emerging markets. And when they aren’t buying risk, they’re surely not buying bitcoin. But when that appetite for risk returns, it’ll be enough to carry bitcoin to $25,000. Perhaps this year.

UPDATE August 21, 2018–Brickell, Miami, Florida

The New York Times has recently published an article about a few traders who were down substantially in crypto–After the Bitcoin Boom: Hard Lessons for Cryptocurrency Investors–some are down 70% to be precise.  Why did they invest? They got caught up in the fear of missing out. Many who invested during the boom are now in the red, meaning they’ve lost their initial investment. Many, however, who have recently invested, are probably in the black. Losses are likely particularly significant in South Korea and Japan, where crypto was embraced. Some people have lost their entire savings. They thought crypto was going to be a boom for the common worker.It was literally sticking it to the man! Some people regret investing so much of their savings into crypto without having a backup plan.

UPDATE August 20, 2018–Brickell Key, Miami, Florida

My client recently traveled to Canada, crossing the border from the United States. He’ said he has heard stories about people getting harassed about possibly carrying crypto; and he wanted to know what to say. First of all, perhaps you should consider backing up your wallet. Here’s an article on how to do it. After you’ve read that, here’s something you should consider. If you are carrying a thumbdrive, is itself currency or a monetary instrument.

The United States Customs and Border Protection website states:

What items must I declare when entering the United States?Upon entering the United States you must declare:

1- Items you purchased and/or carrying with you upon return to the United States. (Gifts purchased or received)

2- Items you inherited.

3- Items you bought in duty-free shops, on the ship, or on the plane.

4- Repairs or alterations to any items you took abroad and then brought back, even if the repairs/alterations were performed free of charge.

5- Items you brought home for someone else.

6- Items you intend to sell or use in your business, including business merchandise that you took out of the United States on your trip.

7- All monetary instruments such as traveler’s checks, cash, gold coins, negotiable checks, money orders, promissory notes, and securities or stocks.

I cannot give legal advice in a written article because your individual circumstances may be different. However, generally speaking, think of your cryptocurrency like a bank account, and your thumbdrive as the checkbook. You wouldn’t be required to report your bank balances. However, be aware, that if you purchased cryptocurrency overseas, then this seems to fall within #1 above. It’s always arguable that it falls within #7. It also may depend upon the reason you are carrying the crypto. If you are carrying it to commit a crime such as money laundering, then this is illegal. If you are carrying it because you will need some currency when you travel, then perhaps the result is different. In either case, we recommend that you discuss this PRIOR to getting in trouble with the police. I am checking out a site called moneymunk who asked me to link their article. If you have had any experience with their service, or have looked at their Bitcoin 101 article, please let me know.

CLICK HERE for The top ten questions you should ask before investing in #blockchain #bitcoin #ripple #ethereum #bitcoincash #cardano #stellar #litecoin #XEM #MIOTA #Dash #cruptocurrency #altcoin #darkcoin

Bitcoin $40,000…per CNBC…and Michael Novogratz CLICK HERE. But… in meantime…Bitcoin to drop to $8,000…CLICK HERE… and Novogratz to form a full service, digital assets cryptocurrency “merchant bank.” CLICK HERE.  Also…Crypto could be largest bubble in our lifetimes. Here.

My Current Investment Thesis: The market price of Bitcoin may not reflect demand because of the backlog in opening accounts. I have been waiting for 2 months for an account at bitstamp (and many other exchanges). Bitmain has sold out in less than an hour. In any event, if you are not making your livelihood with Bitcoin, do not invest more than you are willing to lose.

UPDATE April 18, 2018–Brickell Key, Miami, Florida

The Internal Revenue Service announced today that it is providing taxpayers an additional day to file and pay their taxes following system issues that surfaced early on the April 17 tax deadline. Individuals and businesses with a filing or payment due date of April 17 will now have until midnight on Wednesday, April 18. Taxpayers do not need to do anything to receive this extra time.

The IRS encountered system issues Tuesday morning. Throughout the system outage, taxpayers were still able to file their tax returns electronically through their software providers and Free File. Taxpayers using paper to file and pay their taxes at the deadline were not affected by the system issue.

“This is the busiest tax day of the year, and the IRS apologizes for the inconvenience this system issue caused for taxpayers,” said Acting IRS Commissioner David Kautter. “The IRS appreciates everyone’s patience during this period. The extra time will help taxpayers affected by this situation.”

 

UPDATE April 5, 2018–Brickell Key, Miami, Florida aka Claughton Island aka Burlingame Island.

On October 16, 2014, Bitstamp provided the following notice

FINAL NOTICE TO UNVERIFIED ACCOUNT HOLDERS

16 OCT 2014

Dear Bitstamp clients,

Despite being notified of change in our Verification Policy more than a year ago on 4th September 2013, some accounts remain unverified.

Bitstamp cannot allow unverified accounts to trade or offer any other services, as doing so would violate our AML and KYC policies. Read our AML policy here.

We kindly ask all unverified account holders with a balance to get verified within 28 days of this announcement.

Failure to do so constitutes a breach of our Agreement and failure to remedy that breach. This will automatically result in the following: all unverified accounts holding a balance will be terminated, access rights will be removed, and the holders of these accounts will no longer be considered Bitstamp customers.

Any remaining balances will be subject to immediate seizure by and forfeiture to regulatory authorities.

Please take these simple verification steps immediately. You can verify your Bitstamp account here or contact our support at support@bitstamp.net

Best regards,
Bitstamp Team

Upon inquiry of Bitstamp support, many clients received an email as follows:

Dear Client,

As you know, your Account was terminated in November 2014 as part of our new, stricter verification program that is intended to protect Bitstamp and our customers against illegal activities and government enforcement actions.

For more info see: https://www.bitstamp.net/article/final-notice-to-unverified-account-holders/ As you did not respond to our multiple notifications, your Account and its balance got seized by the US government in accordance with our notification.

* * * 

Many people were scared and did not want to pursue the matter because the price of Bitcoin was only a few hundred dollars, and had dropped after reaching highs above $1,000+ in early 2014.

 

If you lost Bitcoin and couldn’t recover it, it may be possible to claim a loss for purposes of income taxes.

UPDATE February 15, 2018–Brickell Key, Miami, Florida aka Claughton Island aka Burlingame Island.

Bitcoin is roaring back. Fundstrat Global Advisors LLC’s Tom Lee: Based on an analysis of the 22 corrections of 20 percent or more that Bitcoin has seen since 2010, Lee determined that in “bull” periods, Bitcoin takes about 1.7 times the duration of its decline to recover. That time frame implies that it will take 85 days for the cryptocurrency to fully bounce back from its latest plunge, which lasted for 50 days — meaning it should rise to fresh records by July 2018. Courtesy Bloomberg

UPDATE February 9, 2018–Brickell Key, Miami, Florida aka Claughton Island aka Burlingame Island.

Forbes’ First List Of Cryptocurrency’s Richest: Meet The Secretive Freaks, Geeks And Visionaries Minting Billions From Bitcoin Mania.

Chris Larsen, Joseph Lubin, Changpeng Zhao, Tyler Winklevoss, Cameron Winklevoss, Matthew Mellon, Brian Armstrong, Matthew Roszak, Anthony Di Iorio, Brock Pierce, Michael Novogratz, Brendan Blumer, Dan Larimer, Valery Vavilov, Charles Hoskinson, Brad Garlinghouse, Barry Silbert, Vitalik, Buterin, Tim Draper, Son Shi-Hyung.

UPDATE January 25, 2018–Quito, Ecuador.

Robinhood plans Bitcoin and Ether while Stripe ending Bitcoin support

The stock-trading company Robinhood plans to offer free Bitcoin and Ether trading services. The company hopes to attract crypto-traders to its traditional securities offerings. READ MORE. I have often spoken about how to invest in crypto. For those who are new to crypto, I recommend you don’t invest more than you are willing to lose. Or stated another way, invest the most you’d be comfortable losing. For the experienced, those who trade, monitor and make their livelihood from crypto, it’s a question of diversification. Some of my clients don’t want to pay me using crypto because to them it’s their most valuable asset. They’d rather give me the shirt off their back. Conversely, in other news, payment processor Stripe announced plans to phase out Bitcoin because it has evolved to become better-suited to being an asset than being a means of exchange. Citing longer transaction times, more transaction failures, and increased transaction fees, Stripe will be “winding down” support for Bitcoin Transactions. READ MORE.  What seems to be apparent to me is that Bitcoin is becoming a store of value vis-a-vis a means of exchange. Bitcoin was developed as a peer-to-peer electronic cryptographic payment system. It is evolving into more of a store of value. Right now, I think I agree with Stripe.

UPDATE January 16, 2018–Albany, NY.

Researchers find that one person likely drove Bitcoin from $150 to $1,000.

Researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman wrote a paper on “Price Manipulation in the Bitcoin Ecosystem” in the Journal of Monetary Economics. The paper identifies and analyzes the impact of suspicious trading activity on the Mt. Gox Bitcoin currency exchange, in which approximately 600,000 bitcoins (BTC) valued at $188 million were fraudulently acquired. Read More.

 

UPDATE January 7, 2018–Miami, Fla.

Coin Marketcap

The market cap of 1,384 coins tracked by Coin Market Cap now exceeds $820.1 Billion dollars. As of January 3rd, our calculations showed the market cap was less than $800 Billion–just a few days ago. The top ten list has changed since then as well. NEM has moved from the #8 spot to the #6 spot, increasing its market cap from $13 bn to $16 bn.

Regulation

The North American Securities Administrators Association or NASAA issued a statement cautioning investors when considering investment in cryptocurrencies. The statement reads:

Investors should go beyond the headlines and hype to understand the risks associated with investments in cryptocurrencies. 94 percent of state and provincial securities regulators believe there is a “high risk of fraud” involving cryptocurrencies.

Cryptocurrencies are a medium of exchange that are created and stored electronically in the blockchain, a distributed public database that keeps a permanent record of digital transactions. Current common cryptocurrencies include Bitcoin, Ethereum and Litecoin. Unlike traditional currency, these alternatives have no physical form and typically are not backed by tangible assets. They are not insured or controlled by a central bank or other governmental authority, cannot always be exchanged for other commodities, and are subject to little or no regulation.

Unlike an Initial Public Offering (IPO) when a company sells stocks in order to raise capital, an ICO sells “tokens” in order to fund a project, usually related to the blockchain. The token likely has no value at the time of purchase. Some tokens constitute, or may be exchangeable for a new cryptocurrency to be launched by the project, while others entitle investors to a discount, or early rights to a product or service proposed to be offered by the project.

NASAA’s animated video

CJZFirm’s top ten questions you should ask

What is Bitcoin?

I recently took a dive into Satoshi Nakamoto’s white paper Bitcoin: A Peer-to-Peer Electronic Cash System. The Abstract sums it up pretty well…

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.

The brilliance in the idea is the decentralized nature of the system. The users of the network, or peers, democratically control the system. So long as the number of honest users exceeds the number of attackers, the system functions.

If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains.

Perhaps the genius in the system is what separates bitcoin from other coins and coin-based systems. Since Bitcoin has been around longer than many newer coins, it is inherently more trustworthy and less susceptible to attack.

The probability of a slower attacker catching up diminishes exponentially as subsequent blocks are added.

The inherit vulnerability in newer coin systems could be their undoing. Or not depending upon system design.

If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.

However, an attacker to the system cannot overtake it.

Nodes are not going to accept an invalid transaction as payment, and honest nodes will never accept a block containing them. An attacker can only try to change one of his own transactions to take back money he recently spent.

Interestingly, I have often wondered what might happen when the 21 million bitcoins have been issued.

Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.

So in sum, Bitcoin is a system that utilizes electronic coins as a medium of exchange. And to remedy the problem of double spending, the system relies upon a system of honest computing where public transactions are recorded.

UPDATE January 5, 2018–Miami, Fla.

Ripple is in the news with a $100 Billion Controversy: XRP’s Surge Raises Hard Questions for Ripple. The price of XRP is up over 1,000 percent in just the last month alone, eclipsing $3.50 per coin Thursday after spending much of 2017 under $0.30. With a market capitalization above $120 billion, the token has usurped ethereum as the No. 2 cryptocurrency after bitcoin. Ripple has had a complex relationship with XRP – at times touting it as a way for banks to transact seamlessly across borders, while at other points describing it as a benign value-add to enterprise versions of the company’s software. Read More Here

Dogecoin

It speaks volumes to the state of the cryptocurrency space in that a currency with a dog on it, which hasn’t released a software update in over 2 years has a market cap of $1 Billion US Dollars. Technology development has suffered its ups and downs because its developers are all volunteers, contributing their spare time to its development. THis si not to say that Dogecoin is not worthy. As discussed in

Blockchain influencers

Coindesk has named its most influential people in the Blockchain of 2017: (10) Jihan Wu, founder of Bitmain (9) Amber Baldet, executive director of JP Morgan’s Blockchain Center of Excellence (8)  Erik Voorhees, ShapeShift and early entrepreneur, (7) Pieter Wuille, Blockstream, (6) Yao Qian, director of the PBOC’s Digital Currency Research Institute (5) Joe Lubin co founder ethereum (4) Naval Ravikant founder of Angel List (3) Charlie Lee, aka Satoshi Lite – founder of Litecoin (2) Jamie Dimon, CEO of JPMorgan Bank. (1) But if Bitcoin Sign Guy–the guy who held up a Bitcoin sign behind the federal reserve chair’s testimony.

UPDATE January 4, 2018–Miami, Fla.

Top Ten Questions before investing in an ICO

I wanted to share an important update about investing in an ICO or initial coin offering. The website ICOAlert lists many ICOs and pre-ICOs for tokens and coins. One thing you should be aware of before you invest is whether you are investing in the token itself by cashing out insiders, or are you investing in tokens which are being used to fund a blockchain technology company. Please make sure you have read the white paper issued by the coin before investing. Furthermore, please make sure you have the questions from the section below titled Questions for Investors Considering a Cryptocurrency or ICO Investment Opportunity.

The top ten questions are:

  1. Who exactly am I contracting with?
    • Who is issuing and sponsoring the product, what are their backgrounds, and have they provided a full and complete description of the product?
    • Do they have a clear written business plan that I understand?
    • Who is promoting or marketing the product, what are their backgrounds, and are they licensed to sell the product?
    • Have they been paid to promote the product?
    • Where is the enterprise located?
  2. Where is my money going and what will be it be used for?
    • Is my money going to be used to “cash out” others?
  3. What specific rights come with my investment?
  4. Are there financial statements?
    • If so, are they audited, and by whom?
  5. Is there trading data?
    • If so, is there some way to verify it?
  6. How, when, and at what cost can I sell my investment?
    • For example, do I have a right to give the token or coin back to the company or to receive a refund?
    • Can I resell the coin or token, and if so, are there any limitations on my ability to resell?
  7. If a digital wallet is involved, what happens if I lose the key?
  8. Are there substantial risks of theft or loss, including from hacking?
  9. If a blockchain is used, is the blockchain open and public?
    • Has the code been published, and has there been an independent cybersecurity audit?
  10. Has the offering been structured to comply with the securities laws and, if not, what implications will that have for the stability of the enterprise and the value of my investment?
    • What legal protections may or may not be available in the event of fraud, a hack, malware, or a downturn in business prospects?
    • Who will be responsible for refunding my investment if something goes wrong?

#1 Most Important: Don’t invest more money than you would be willing to lose.

 

UPDATE January 3, 2018–Miami, Fla. 

Bitcoin is trading at $15,078 @12:11 PM ET.

bitcoin
bitcoin

The top ten coins and their market capitalizations as of January 3rd 2018 are:

(1) Bitcoin BTC $256,482,018,122
(2) Ripple XRP $112,333,060,48
(3) Ethereum ETH $86,239,764,040
(4) Bitcoin Cash BCH $45,652,521,915
(5) Cardano ADA $26,673,251,628
(6) Stellar XLM $15,485,502,222
(7) Litecoin LTC $13,627,818,835
(8) NEM XEM $13,319,279,999
(9) IOTA MIOTA $11,185,747,104
(10) Dash DASH $9,119,265,021

UPDATE January 2, 2018 — Baltimore, Md.

Bitcoin is trading at $13,867 @10:10AM ET. 

Bitcoin has risen 1,300%: What the biggest names in finance are saying

SUPPORTERS

Peter Thiel: ‘Great potentialWhile skeptical, “If bitcoin ends up being the cyber equivalent of gold, it has a great potential left”.

Cameron Winklevoss: ‘A multitrillion-dollar asset’ “Long-term, directionally, it is a multitrillion-dollar asset,” Cameron Winklevoss, who founded bitcoin exchange Gemini with his twin brother Tyler, said in December.

Tim Draper: ‘The greatest technology since the internet’ “This is the greatest technology since the internet. This is a sociological transformation, it’s a movement,” Silicon Valley venture capitalist Tim Draper said in November.

SKEPTICS

Jamie Dimon: ‘If you’re stupid enough to buy it you’ll pay the price for it one day,” Jamie Dimon, CEO of JPMorgan Chase said in October, predicting governments would eventually “crush it.”

Janet Yellen: ‘It is a highly speculative asset’

“It is not a stable source of value and it does not constitute legal tender. It is a highly speculative asset,” Janet Yellen, the chair of the Federal Reserve, said last month.

Warren Buffett: ‘A real bubble’

“You can’t value bitcoin because it’s not a value-producing asset,” renowned investor Warren Buffett said in October. He added that its unpredictable price makes it a “real bubble in that sort of thing.”

Lloyd Blankfein: ‘A vehicle to perpetrate fraud’

“Something that moves 20% [overnight] does not feel like a currency. It is a vehicle to perpetrate fraud,” Goldman Sachs CEO Lloyd Blankfein said in November.

Joseph Stiglitz: It ‘ought to be outlawed’

“Bitcoin is successful only because of its potential for circumvention. It doesn’t serve any socially useful function,” Nobel laureate Joseph Stiglitz said in November.

Bloomberg’s Cryptocurrency Explanation Video

Companies Investing in Blockchain

IBM, Toyota, and Microsoft have invested in blockchain technology. What prevents widespread adoption? Fraud and Regulation. In July 2017, the SEC announced that federal securities laws likely apply to cryptocurrencies requiring ICOs to be registered. China and South Korea have outlawed ICOs (Initial Coin Offerings) and coin exchanges. Switzerland imposed rules on how coins go to market. Venezuelan miners have been jailed.

blockchain
blockcain

UPDATE December 24, 2017 — Miami, Fla.

Bitcoin is trading at $13,110 @1:39PM ET as I write this article, adding to a 30% selloff since Bitcoin reached an all-time high of $19,666 on December 16. 2017. Bitcoin traded as low as $11,159 on December 21st. I recently reported the cryptocurrency had slightly recovered on December 22, 2017, as it was trading at $14,692.25 at 10pm.

“The crypto market went to astronomical highs, so it’s got to come back to reality,” said Mati Greenspan, senior market analyst at Tel Aviv-based online broker eToro. “Something that goes up 150 percent in less than a month is probably going to have double-digit retracement.”

Ethereum, the No. 2 cryptocurrency by market value, also dropped 13 percent in the past 24 hours, to $651.16

Bitcoin has its critics.

Morgan Stanley analyst James Faucette and his team sent a research note to clients a few days ago suggesting that the real value of bitcoin might be … $0. His research report (titled “Bitcoin decrypted”) did not give a price target for bitcoin. But in a section titled “Attempts to Value Bitcoin,” Faucette described why it is so hard to ascribe value to the cryptocurrency. It’s not like a currency, it’s not like gold, and it has had difficulty scaling.

Data from Morgan Stanley’s report show that Bitcoin is scarcely accepted by the top 500 e commerce merchants. In Q1 of 2016 just 5 of the top 500 merchants accepted it. In Q3 of 2017, just 3 accepted it. Several local merchants in Miami have announced they will accept Bitcoin as payment. However, Coinbase’s website states “We’re no longer accepting new merchant services businesses. Stay tuned for new offerings that are coming soon.”

JPMorgan CEO James Dimon claimed that he would fire any trader who was found to be trading in bitcoin, calling Bitcoin a “fraud.”

As cryptocurrency seems poised to have a huge impact on the world’s economy, we’re also going to see more of its environmental effect because computer programs that mine cryptocurrency require energy.

In November, a federal judge ordered CoinBase to supply the IRS with details of users who bought, sold, sent, or received $20,000 or more in the cryptocurrency in a single year between 2013 and 2015.

UPDATE December 11, 2017 SEC REGULATION

The SEC has announced cryptocurrency ICO initial coin offerings are subject to the securities laws. Importantly, there is substantially less investor protection than in traditional securities markets, with correspondingly greater opportunities for fraud and manipulation. To date, no initial coin offerings have been registered with the SEC.  The SEC also has not approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies.

As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, exercise extreme caution and be aware of the risk that your investment may be lost. ICO markets span national borders and significant trading may occur on systems and platforms outside the United States. Invested funds may quickly travel overseas without your knowledge.  As a result, risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds.

Initial Coin Offerings.

Typically these offerings involve the opportunity for individual investors to exchange currency such as U.S. dollars or cryptocurrencies in return for a digital asset labeled as a coin or token. Many ICOs issue White Papers as an offering document. Ask good questions, demand clear answers and apply good common sense when doing so.

Halted Initial Coin Offerings and Tokens

RECoin touted by Maksim Zaslavskiy as “The First Ever Cryptocurrency Backed by Real Estate”  was deemed fraudulent by the SEC.

Munchee Inc’s ICO was halted for failing to register with the SEC, although fraud was not involved.

PlexCoin was deemed fraudulent as introduced by recidivist Dominic Lacroix and his partner Sabrina Paradis-Royer.

Questions for Investors Considering a Cryptocurrency or ICO
Investment Opportunity

  • Is the product legal?
  • Is it subject to regulation, including rules designed to protect investors?
  • Does the product comply with those rules?
  • Is the offering legal?
  • Are those offering the product licensed to do so?
  • Are the trading markets fair?
  • Can prices on those markets be manipulated?
  • Can I sell when I want to?
  • Are there substantial risks of theft or loss, including from hacking?
  • Who exactly am I contracting with?
    • Who is issuing and sponsoring the product, what are their backgrounds, and have they provided a full and complete description of the product?
    • Do they have a clear written business plan that I understand?
    • Who is promoting or marketing the product, what are their backgrounds, and are they licensed to sell the product?
    • Have they been paid to promote the product?
    • Where is the enterprise located?
  • Where is my money going and what will be it be used for?
    • Is my money going to be used to “cash out” others?
  • What specific rights come with my investment?
  • Are there financial statements?
    • If so, are they audited, and by whom?
  • Is there trading data?
    • If so, is there some way to verify it?
  • How, when, and at what cost can I sell my investment?
    • For example, do I have a right to give the token or coin back to the company or to receive a refund?
    • Can I resell the coin or token, and if so, are there any limitations on my ability to resell?
  • If a digital wallet is involved, what happens if I lose the key?
    • Will I still have access to my investment?
  • If a blockchain is used, is the blockchain open and public?
    • Has the code been published, and has there been an independent cybersecurity audit?
  • Has the offering been structured to comply with the securities laws and, if not, what implications will that have for the stability of the enterprise and the value of my investment?
  • What legal protections may or may not be available in the event of fraud, a hack, malware, or a downturn in business prospects?
    • Who will be responsible for refunding my investment if something goes wrong?
  • If I do have legal rights, can I effectively enforce them and will there be adequate funds to compensate me if my rights are violated?

What is a blockchain?

A blockchain is an electronic distributed ledger or list of entries – much like a stock ledger – that is maintained by various participants in a network of computers.  Blockchains use cryptography to process and verify transactions on the ledger, providing comfort to users and potential users of the blockchain that entries are secure.  Some examples of blockchain are the Bitcoin and Ethereum blockchains, which are used to create and track transactions in bitcoin and ether, respectively.

What is a virtual currency or virtual token or coin?

A virtual currency is a digital representation of value that can be digitally traded and functions as a medium of exchange, unit of account, or store of value.  Virtual tokens or coins may represent other rights as well.  Accordingly, in certain cases, the tokens or coins will be securities and may not be lawfully sold without registration with the SEC or pursuant to an exemption from registration.

What is a virtual currency exchange?

A virtual currency exchange is a person or entity that exchanges virtual currency for fiat currency, funds, or other forms of virtual currency.  Virtual currency exchanges typically charge fees for these services.  Secondary market trading of virtual tokens or coins may also occur on an exchange.  These exchanges may not be registered securities exchanges or alternative trading systems regulated under the federal securities laws.  Accordingly, in purchasing and selling virtual coins and tokens, you may not have the same protections that would apply in the case of stocks listed on an exchange.

Who issues virtual tokens or coins?

Virtual tokens or coins may be issued by a virtual organization or other capital raising entity.  A virtual organization is an organization embodied in computer code and executed on a distributed ledger or blockchain.  The code, often called a “smart contract,” serves to automate certain functions of the organization, which may include the issuance of certain virtual coins or tokens.  The DAO, which was a decentralized autonomous organization, is an example of a virtual organization.

Source: SEC Investor Bulletin

Per Coinbase on January 4, 2018:

Do taxes apply to virtual currency gains?

Yes. Although Coinbase cannot provide legal or tax advice, the U.S. Internal Revenue Service has released guidelines for how to report and pay taxes relating to digital currency activity. You can read them on the official IRS.gov website here: http://www.irs.gov/pub/irs-drop/n-14-21.pdf.

We remind all our customers, both US and international, that you have a responsibility to self-report and pay taxes on all taxable gains. Please consult with your accountant or tax advisor to ensure that you file and pay taxes correctly.

Will Coinbase send me a 1099 or similar form?

For U.S. users only, Coinbase provides Forms 1099-K to certain business users and GDAX users that have received at least $20,000 cash for sales of cryptocurrency related to at least 200 transactions in a calendar year.

Does Coinbase provide other tax reporting information?

You should refer to your account transaction history for records to compute your gains and losses over a given period. As a convenience to our customers, Coinbase also provides a Cost Basis for Taxes report (in beta) which will help with filing your taxes.

This report provides a summary of your digital currency purchases and sales, showing your cost basis and capital gain/loss.

We use a FIFO (first in first out) method for this report. Transactions sending into or out of your Coinbase wallet are treated as buys or sells at the current market price in this report. However, you should keep your own records for best results and update the report accordingly. For example, if you transfer funds offsite to a desktop wallet, and then back again, you would not count this as a sale of digital currency.

You can generate the report here, by clicking on “New Report” in the upper right hand corner.


Note that if you have any deleted digital currency wallets within your Coinbase account, they will not appear in the report generation tool. To restore them, navigate to your accounts page, select “Show Deleted” at the bottom, and then un-delete the wallet you’d like to run a report on.

Our cost basis tool is in beta mode and we do not guarantee the accuracy of gain/loss calculation provided. You should always refer to your account transaction records for the details of all trades. We expect the cost basis tool to be released in final version in January 2018.

Disclaimer: This report does not constitute legal or tax advice. Tax laws and regulations change frequently, and their application can vary widely based on the specific facts and circumstances involved. You are responsible for consulting with your own professional tax advisors concerning specific tax circumstances for your business. Coinbase disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns.

End of Coinbase Statement.

Bitcoin Taxes Update (Internal Revenue Service)

  1. Wages paid to employees using virtual currency are taxable. Therefore, they must be reported on Form W-2. Wages are subject to federal income tax withholding and payroll taxes.
  2. Payments made to independent contractors using virtual currency are taxable and self-employment tax rules apply. Payers must issue Form 1099.
  3. The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset.
  4. A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.
  5. Some advisers have taken the position that exchanges of Bitcoin could be treated as like-kind exchanges, under section 1031 of the Internal Revenue Code. The Tax Cuts and Jobs Act of 2017 limits 1031 exchanges to real property. This eliminates the possibility of like-kind exchange treatment for virtual currencies after December 31, 2017.

Like-Kind Exchange Section 1031

Much discussion has been circulated through message boards and chat rooms concerning whether 1031 exchanges apply to cryptocurrencies such as bitcoin. Why use section 1031? The idea is that if trading coins or tokens qualifies as a like-kind exchange, tax that would otherwise be due in the year of the sale or exchange is deferred. That means you will owe them but you will not owe the in the current year. So the tax deferral, called non-recognition of income, is like a interest free loan.

Section 1031 (26 U.S.C.1031 or I.R.C. 1031) allows property held for use in a trade or business, or for investment be traded for another property held in trade or business, or investment. The property must be of like-kind. Cryptocurrencies are intangible personal property. Thus, an exchange of nondepreciable intangible personal property qualifies for nonrecognition of gain or loss under section 1031 only if the exchanged properties are of a like kind without regard to whether they are of like class. For example, Treasury Bonds with differing maturity dates are not like-kind. The problem is that section 1031 does not allow exchanges of securities or stocks. And the SEC is now calling some coin and token offerings “securities.”

Another point is that like-kind exchanges have special forms that need to be filed with your tax return.

Wash Sale Rule

I haven’t seen much written about the wash sale rule with respect to cryptocurrencies. If it applies because coins and tokens are deemed securities, you should know the following:

  • The wash-sale rule was designed to discourage people from selling securities at a loss simply to claim a tax benefit.
  • A wash sale occurs when you sell a security at a loss and then purchase that same security or “substantially identical” securities within 30 days (before or after the sale date).
  • If you end up being affected by the wash-sale rule, your loss will be disallowed and added to the cost basis of the securities you repurchased.

Again, it may not apply, but ask any professional investor and the wash sale rule is on their radar.

Bitcoin IRS Disclosure

Are you worried about the IRS discovering your Bitstamp or Coinbase account? There’s reason to worry as the IRS is aggressively pursing John Doe Subpoenas against crypto wallets. A federal court has recently ordered disclosure to the IRS of all accounts above $10,000. “Now” is the time to get into compliance with the IRS before you receive an audit letter. You should not represent yourself. Your counsel should pursue a strategy of minimizing penalties and interest. Failing to report income from bitcoin, litecoin, ethereum, bitcoin cash, and altcoin transactions could constitute a crime. The IRS is secretly pursuing people who have failed to report cryptocurrency transactions on their income tax returns. If you are a US citizen or resident, you must report income from all sources within and outside of the U.S.  This is true whether you received a W-2 or 1099.

BITCOIN F.A.Q. — Frequently Asked Questions

What is Bitcoin?

Bitcoin is a peer-to-peer electronic cash system. It is intended as a means of payment. Bitcoin is called a cryptocurrency because it is encrypted. Bitcoin relies on two encryption keys. One public and one privately created.

Who created Bitcoin and when?

Satoshi Nakamoto created Bitcoin in 2009.

How does Bitcoin work? 

Bitcoin relies upon Blockchain technology to function. The Blockchain is the record keeping system (or ledger of transactions) that Bitcoin, and many other virtual currencies for that matter, rely upon to function. Bitcoins are registered to address keys. The Blockchain records Bitcoin transactions and the history of the Bitcoin ownership.

What are Bitcoin Miners?

Miners facilitate Bitcoin transactions. Bitcoin users who transact Bitcoins with another party, rely upon miners to perform the transaction. The miners are rewarded with Bitcoins. New Bitcoins are created every day as a reward for Bitcoin mining.

How are Bitcoin Miners paid? 

The successful miner is rewarded with newly created bitcoins and transaction fees. As of 9 July 2016, the reward amounted to 12.5 newly created bitcoins per block added to the blockchain. The bitcoin protocol specifies that the reward for adding a block will be halved every 210,000 blocks (approximately every four years).

Is there a limit on the number of Bitcoins?

Yes, 21 million Bitcoins.

What is a Bitcoin Hash Rate?

The hash rate is a measuring unit of the processing power of the Bitcoin network. The Bitcoin network is required to make intensive mathematical operations for security purposes. When the network reached a hash rate of 10 Th/s, it meant it could make 10 trillion calculations per second.

Who administers Bitcoin? 

Bitcoin is a decentralized currency. There is no government or authority that administers Bitcoin. Bitcoin was created as an open source software. The decentralized Blockchain consists of numerous independent computers that store copies of the ledger across the globe.

Is Bitcoin Legal? 

In the US, Bitcoin is legal. However, in some countries such as Malta and Venezuela, it may be illegal. Furthermore, in other places, Bitcoin may have restrictions.

Is Bitcoin subject to taxes? 

In the USA, yes. If you receive Bitcoin for services, it may be includable in income and you are required to report it on your IRS Form 1040. If you sell appreciated Bitcoin, you may owe capital gains taxes.

What is bitcoin cash?

Bitcoin Cash (BCH) is a direct result of a Bitcoin fork that occurred on August 1, 2017. It is an alternate version of Bitcoin that makes use of new features and rules, and has a different development roadmap. For more information on Bitcoin Cash, see www.bitcoincash.org

What is Coinbase?

Coinbase is a secure online platform for buying, selling, transferring, and storing digital currency. Its mission is to create an open financial system for the world and to be the leading global brand for helping people convert digital currency into and out of their local currency.

Coinbase aims to:

  • Make buying and selling digital currency easy.

  • Make sending or receiving digital currency between online wallets, friends, or merchants on Coinbase free!

  • Handle security and backups so you don’t have to worry.

  • Be a “one stop shop” – offer a wallet, an exchange, and merchant tools in one interface.

  • Coinbase is a platform on which many applications are being built using its API.

What is Litecoin?

Litecoin is similar to Bitcoin. In some ways it is a direct competitor. Like Bitcoin, Litecoin exists as a blockchain where participating nodes process transactions and miners provide security and verification for those transactions.

Charlie Lee conceived and developed Litecoin in 2011 by Charlie Lee. For a period of time, Charlie was a Director of Engineering at Coinbase, having joined in 2013. Since its launch in 2011, Litecoin has seen steady adoption with an active community of traders, merchants, and developers. Thus, Litecoin is likely here to stay and will continue to play an important role in cryptocurrency and digital asset development.

What is Ethereum?

Vitalik Buter founded Ethereum in 2014 as a decentralized blockchain platform. Like Bitcoin, Ethereum is an open-source project that is not owned or operated by a single individual. This means that anyone, anywhere, can download the software and begin interacting with the network.

Unlike the Bitcoin network, the primary purpose of Ethereum is not to act as a form of currency, but to allow those interacting with the Ethereum Network to make and operate ‘smart contracts’ without having to trust each other or use a middleman. Smart contracts are applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third party interference – a smart contract works exactly the same every time it’s used.

Ethereum uses a ‘virtual machine’ to achieve all this, which is like a giant, global computer made up of many individual computers running the Ethereum software. Ether is the virtual currency unit that allows this system to work. People interact with the Etherum network by using ether to pay the network to execute smart contracts.

Ethereum aims to take the decentralization, security, and openness afforded by blockchains and extend those to virtually anything that can be computed.

About the Author

Charles Zimmerer ESQ, CPA, is a licensed investment advisor. He is president of Charles J Zimmerer PA, a tax and investment consulting firm. www.cjzfirm.com. Mr. Zimmerer’s firm assists taxpayers with their tax questions. Also, the firm also helps people with liquidating their Bitcoin holdings and diversifying their investments. If you would like to speak with him, please contact him here Contact Here.

Sources:

Price and Trading data provided by Bitstamp; Bloomberg; and CoinMarketCap. Tax data provided by CJZFirm.com and IRS. Also see Bitcoin.org and Coinbase, SEC, and ICO Alert, ft.comwww.fatf-gafi.org and Coinschedule. Coindesk.

Bitcoin’s down…But remember…the Empire always strikes back…

Bitcoin is trading at $14,692.25 at 10:51 PM December 22, 2017 according to Bitstamp. Bitcoin once traded as high as $19,187.78 on December 16th.

Unfortunately, today’s price drop in Bitcoin of as much as 30% is nothing short of a rout. Coinbase, among the world’s largest cryptocurrency exchanges, said all buying and selling was temporarily disabled today from delays in processing wire transfers, verifying new customers, and high traffic.

We know from the Star Wars trilogy that the Empire strikes back. Luke Skywalker gets his tail kicked. That’s capitalism. Markets rise and markets fall. But in the end, the Rebels win. Luke Skywalker blows up the Death Star and then parties on the forest moon of Endor in a treehouse with the Ewoks.

This week’s losses represent a major test for the cryptocurrency industry and the blockchain technology that underpins it.

Bears–those forecasting the cryptocurrencies will fall in value–cast doubt on the value of the virtual assets. Financial powerhouse UBS called bitcoin the “biggest speculative bubble in history.” Bulls–those who believe the currency will rise in value–argue the technology is a game changer for the world of investment and finance.

Everyone will be closely watching the outcome of the current selloff.

Long Island Iced Tea Corp shares rose as much as 289% after the unprofitable Hicksville, New York-based company rebranded itself Long Blockchain Corp. Similarly, Longfin CEO Venkat Meenavalli called the metoeric rise in his company’s stock price from $5 to $130 pure speculation. He said, it’s “insane.” Longfin acquired Ziddu.com, a website positioning itself as a blockchain-linked provider of financing for small businesses in emerging markets using Bitcoin and Ethereum.

Bank of Japan Governor Haruhiko Kuroda said Bitcoin isn’t functioning like a normal means of payment and is being used for speculation.

Michael Novogratz, a former Goldman Sachs Group macro trader, said he’s putting plans to start a cryptocurrency hedge fund on the back burner. He predicted that bitcoin may extend its plunge to $8,000.

Like Star Wars, Bitcoin could come back strong.

Novogratz also said that bitcoin could reach $40,000 within a few months. Goldman Sachs Group is setting up a trading desk to make markets in digital currencies such as bitcoin. Bitcoin futures are now traded on the CBOE and CME.

If you’d like to read an article on the price history of cryptocurrencies, click here.

In any event, don’t forget that you’ll owe income taxes on Bitcoin when you’re ready to sell and that’s where we come in. Thanks to my cryptocurrency tax consulting, I was the #1 attorney in Miami and #16 attorney in the US this week by profile views on martindale.com.

I also was recently awarded a Gold Client Champion Award for 2017. Please visit my site if you’d like to discuss your cryptocurrency holdings such as Bitcoin, Ethereum, Bitcoin Cash, Ripple, IOTA, Litecoin, and Dash. Contact Page.

FYI By the time I finished this article, Bitcoin was trading at $14,839.75 at 11:29 PM.