Video conferencing and social media aren’t the only things getting more attention during the COVID-19 pandemic. With people stuck at home, cryptocurrency is seeing renewed interest by some investors.
“I expected with the pandemic people would want to pull money back, especially if they are losing their jobs,” said Adam Traidman, CEO and Co-Founder of BRD, the cryptocurrencies digital wallet company, in a recent interview. “If you look at the downloads, it’s setting all-time highs every month this year.”
Since March BRD has added 678,000 users in the U.S. and is on track to hit 5 million on a global basis by the end of August. Prior to the pandemic, the 5 million user mark was an end of 2020 goal.
Traidman credits a lot of the surge in downloads to stay-at-home orders still in place in cities across the country and world. People have more time to research alternative asset classes, including cryptocurrency. It didn’t hurt that U.S. stocks were taking a beating in the early days of the pandemic. Panicked investors looking for alternatives set their sights on cryptocurrency. In March and April, trading volumes for bitcoin, the leading cryptocurrency, reached record highs on that interest.
Then there’s the need to send money cross borders. With stores shuttered, consumers are forced to find alternatives to get money in the hands of family overseas. Since the pandemic hit in March, shares of bitcoin, have been surging. That doesn’t mean the price of bitcoin and other cryptocurrencies won’t remain volatile, but with the pandemic changing the way we do pretty much everything it could become more mainstream in a post COVID-19 world.
Samsung Electronics seems to think so. Last week it announced a deal with Gemini Trust, the U.S. cryptocurrency exchange and custodian. Gemini is powering Samsung’s blockchain wallet, enabling its U.S. and Canadian customers to buy, store, and sell digital tokens from the mobile app. By integrating with Gemini Trust, Samsung is removing some of the steps necessary when purchasing cryptocurrencies, making it easier to be adopted by the general public. A big knock on cryptocurrency has been the complexity in purchasing tokens.
JPMorgan JPM is also showing the cryptocurrency market some more love. Earlier this month it accepted Coinbase and Gemini Trust as banking customers. It’s the first time JPMorgan brought on cryptocurrency companies as customers. JPMorgan’s support is good news for the industry, given the bank’s CEO Jamie Dimon had been a critic of bitcoin in the past. He did eventually come around with the bank launching its own digital currency in February of 2019.
While bitcoin has failed to take off with the masses, that may change in a post COVID-19 world where people favor digital payments over physical currency. Contactless payments will undoubtedly grow in a world where social distancing is the norm. That bodes well for digital wallets, whether it’s housing payment information or cryptocurrencies. It’s a new reality the nation’s financial institutions’ are waking up to as well. Traidman at BRD said he’s been fielding calls from major financial institutions that are expressing a need for digital asset technology. “People want a wallet on their phone. They don’t care if it’s in dollars or crypto,” said the executive.
The one who called himself Satoshi Nakomoto, created cryptocurrency so that anyone can keep their financial life untouchable and protected from the interference of others. However, requirements of customer disclosure put these principles at risk and ordinary users under threat of theft, extortion, and even kidnapping by bandits. Find out how you can protect yourself from this.
Why Should Your Cryptocurrency Be Anonymous?
To ensure the inviolability of personal financial information when creating cryptocurrency, Blockchain, which is a decentralized data storage system that can not be cracked, was taken as the basis. But the requirements of mandatory checks KYC / AML, then put forward by governments of many countries to companies operating with cryptocurrencies, do not contribute to maintaining the confidentiality of users personal info.
The problem is that companies such as crypto exchanges are favorite targets for hacker attacks, when personal data of users fall into the hands of attackers. Because of this, users whose data has been stolen are not only in danger of losing their digital assets, but also run the risk of real physical harm.
In the modern world, cyber crime it’s not a separate thing, criminal gangs often consist of representatives of different professions, so the data stolen by hackers is not only used to crack email and digital wallets, but also used by bandits and professional extortionists. Due to the analysis of transactions in the open cryptocurrency blockchain, attackers can easily identify the real owners of crypto addresses, and then their location. After that, getting under the pressure of various criminal gangs who can knock out information from their victims is easy.
So the anonymity of cryptocurrency transactions becomes not just a matter of preference, but a prerequisite for maintaining your digital assets, health, and in some cases even your life. This is especially true for those crypto holders who own significant amounts. Your data that is stored on the crypto exchange due to hacking can fall into the hands of interested parties who can use it against you.
Unfortunately, there are already quite a lot of cases of robberies, abductions and even killings of crypto owners and they are happening all over the world, so you should not assume that digital currencies concern only the virtual world. Tracking transactions on the blockchain, people were tracked down, abducted, and even burst into their houses with weapons. The only reliable way to protect yourself from such incidents is to follow the elementary safety rules on the network and ensure the anonymity of your crypto transactions.
How to Protect Against the Threat of Tracking?
You can prevent the identification of your personality. You can do this if you mix your Bitcoin. Special Bitcoin mixing services have been developed for a relatively long time. Using algorithms for mixing coins from different wallets, they break the chain of transactions between two addresses that could be tracked.
Your crypto operations can be easily monitored in an open blockchain system if you directly send coins to the address of another person or company. When using the Bitcoin mixer, your transaction is distributed in parts among many unrelated addresses and passes through different wallets several times. After that, the transaction amount comes to the address you specified from different sources, which confuses the traces of coins and therefore does not allow any to track you.
That is why most professional traders and crypto investors use the BTC mixer when they withdraw earned cryptocurrency from exchanges and investment platforms, because they usually operate with large amounts that are always of interest to attackers who analyze the blockchain.
However, not every Bitcoin mixer is worth using, trusting it your digital money. In addition to frankly fraudulent sites that simply steal your money, there are those that promise anonymity, but do not actually provide it.
Use the Most Reliable and Fast Bitcoin Mixer
This is not the first year that BitMix.Biz has been the best Bitcoin mixer and it will probably remain so in 2020. This is proved by that on the Internet there are many fakes posing as BitMix.Biz. In order not to run into one of these sites, you can check any BitMix.Biz mixer address using the key 1BitmixQRMUHYYEi11KBRhSfACa1BtcZrZ
There are no other domains for BitMix.Biz – be careful! Also, the most reliable Bitcoin mixer has a bitmixbizymuphkc.onion mirror in the TOR network. Using a proven method of mixing over the years, you will never lose your crypto assets.
BitMix.Biz mixing service, which has been working since 2017, does not have negative reviews, but it is highly rated in many ratings on the most respected and popular cryptocurrency info resources. Also, in some closed forums, there are guarantee deposits worth $15,000 from the BitMix.Biz, which act as insurance to compensate for losses in case of fraud. You can write to firstname.lastname@example.org to get a link to such a forums.
This confirms that the crypto community trusts the reliable BitMix.Biz service, because even if something goes wrong, for example, due to heavy network load or other possible failures or bugs you can always easily contact BitMix.Biz to solve the problem. Be sure to keep the letter of guarantee that you will receive when making a deposit, and also do not clear the logs until the situation parsing begins, but no later than 72 hours later, after which all data is automatically deleted to protect your privacy. For the same purpose, the site does not use any analytical tools.
– No registration required. – In addition to mixing BTC (Bitcoin) and LTC (Litecoin) BitMix.Biz is the first crypto mixer that supports mixing Dash coins, which, despite having its own mixing system, does not give complete anonymity. – Completely prevents the possibility of transactional analysis. – The maximum level of difficulty and randomization. – Large pools of coins that are completely unrelated to each other. – Variable manual or automatic commission. – Constantly mixed coins, which provides instant withdrawal after confirmation. – Transaction delay, which does not allow to detect the sender and receiver by the time of sending. – Ability to use the public API on your website. – Simple and intuitive interface with support for 10 languages, it is possible to save settings. – The presence of an affiliate program. – Maximum performance without the use of unnecessary visual effects.
To protect your privacy with the best Bitcoin Mixer BitMix.Biz just do the following:
1. On the BitMix.Biz website, specify the amount and select the mixing parameters; 2. Indicate the final wallet where you want to get clean coins; 3. Send crypto coins to the mixer; 4. Get a clean cryptocurrency in accordance with the selected mixing parameters.
This is a press release. Readers should do their own due diligence before taking any actions related to the promoted company or any of its affiliates or services. Bitcoin.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in the press release.
Stemming from the confined venue of speculation and economic theory, there is much to address regarding the probability of whether Bitcoin will ever reach $100,000.
To bring light upon the query in motion, we’ll analyze long-standing economic theories versus economist’s doubts while taking under due consideration deeply-rooted market variables, projections, and global acceptance that are all bound to distill a change in the value of Bitcoin in one way or another.
Cryptocurrency enthusiasts have long poised the likelihood of Bitcoin reaching $100,000.
Evidence of this can be noted from high-profile individuals such as Anthony Pompliano, Co-Founder and Partner of Morgan Creek Digital.
“…I still think Bitcoin will hit $100,000 by end of December 2021. Fixed supply. Increasing demand. Time will tell.”
Charles Hoskinson, Ethereum Co-Founder, had tweeted in late 2019:
Bitcoin’s price is going down? Remember everyone, after the FUD, news trading and manipulation clears out, we still have a global movement that’s going to change the world. We will see 10k btc again and welcome 100k. Crypto is unstoppable. Crypto is the future pic.twitter.com/9vlgH4S7u2
Then, of course, we have the more recent actionable insights rendered through ” The Great Monetary Inflation” proclaimed by macro investor Paul Tudor Jones, who acquired Bitcoin as a hedge against inflation earlier this month.
Despite acquisitions and proclamations attesting to Bitcoin’s impending worth, one should also assess whether these claims are rather a publicity stunt to increase Bitcoin participation or rather a deep-rooted belief originating from a coupling between past experiences and a desperate desire of riches to prolong extravagant lifestyles.
Regardless, these speculations should be taken with a grain of salt and weighed accordingly.
Addressing Economic Theory & Models
While crypto enthusiasts rely upon speculation in the crypto news, investors and Bitcoin participants tend to primarily formulate their assumptions upon tangible evidence that is derived from projection models and macroeconomic theories.
Projection models such as the Bitcoin S2F Model and M2 capitalization theory project astronomical valuations for Bitcoin but as time has shown us one of these models has already been debunked.
M2 Capitalization Theory
Over the past few years, and more prominent now as a method used to combat the financial ramifications of the Coronavirus pandemic, quantitative easing has been performed by countries’ central banks.
Take for instance the U.S. Federal Reserve, which has been printing U.S. dollars at an exponential rate since 1970.
Perhaps the most noticeable effects of the exponential printing of U.S. dollars would be inflation, where the price of goods and services has been rising in unison to meet the money supply.
Generally, a healthy economy would be characterized through depreciation in prices due to entities finding more efficient and affordable alternatives for similar goods and services but that is not the case.
To highlight the core point of this theory, should the Federal Reserve continue to print U.S. dollars at an exponential scale then, as a result, the U.S. dollar price of Bitcoin will also continue to rise at an exponential rate until it has reached a value of $100,000 per Bitcoin.
Bitcoin Stock-to-Flow Cross Asset Model
Also known as the Bitcoin S2F model, the Bitcoin Stock-to-Flow Cross Asset Model ratio created by @100trillionUSD seeks to measure the effect of scarcity on BTC price through measuring current Bitcoin circulation and production rate.
As @100trillionUSD suggested in 2019 through Modeling Bitcoin Value with Scarcity, “The predicted market value for bitcoin after May 2020 halving is $1trn, which translates in a bitcoin price of $55,000. That is quite spectacular. I guess time will tell and we will probably know one or two years after the halving, in 2020 or 2021. A great out of sample test of this hypothesis and model.”
While it doesn’t take a mathematician to deduce how significantly short this economic model failed, up to 8 additional flaws have been reported regarding the Bitcoin scarcity valuation model.
As a result, we can no more put stock in economic theory than we can through unwarranted speculations.
The most level-headed forerunners for predicting future Bitcoin prices may be contributed to economists who have yet to be proven incorrect regarding their cynical-based projections.
Such examples include the projection laid upon us by Kenneth Rogoff, an economist and Harvard University professor, who went on to express the following during a CNBC interview:
“I think bitcoin will be worth a tiny fraction of what it is now if we’re headed out 10 years from now … I would see $100 as being a lot more likely than $100,000 ten years from now.”
“Basically, if you take away the possibility of money laundering and tax evasion, its actual uses as a transaction vehicle are very small,”
It should be noted that Rogoff isn’t the only economist who feels that Bitcoin won’t amount too much value in the future.
Joe Davis, a lead economist for Vanguard, a high-profile investment firm, stated, “I’m enthusiastic about the blockchain technology that makes bitcoin possible… As for bitcoin the currency? I see a decent probability that its price goes to zero,”
“The bitcoin – its value is based off of scarcity – and an artificial scarcity that’s out there,” “It’s really tough to imagine where the long-term return comes from other than speculation.” – Joe Davis
If speculations regarding Bitcoin’s future applications are truly the driving force behind the volatility then the valuation of BTC as a whole is crippled as a result of diminished cash flow.
Black Swan Consideration
While speculation and debunked theories are two sides of the same coin, black swan events are an entirely different entity that has been known to characterize an era of hardship and uncertainty.
Unforeseen black swan events, such as the recent Coronavirus Stock Market Crash, have gone to illustrate that no economy is impervious to flaws while also dismantling the long-standing ideology that Bitcoin is a ‘safe haven’ asset.
Given the ramifications that can materialize from the wake of black swan events, no Bitcoin valuation can be complete without the possible occurrence of these devastating events.
To expand, modern times must be taken into account.
Such as, those of us reading this have already survived one black swan event but given how countries are starting to open their borders and governing states are once again re-opening their economies, the likelihood of another black swan event occurring as the byproduct of a second outbreak of Coronavirus only increases with each easing of confinement limitations folded back.
Therefore, it would be optimistic to the point of foolishness not to weigh these truths in your mind when speculating the possibility of BTC reaching $100,000.
Bitcoin Adoption Feasibility
One variable piece of the puzzle that can significantly influence Bitcoin’s likelihood of $100,000 per coin would be the mainstream adoption of Bitcoin.
Should a significant surge in Bitcoin participation become present, then the generalized economic theory of supply and demand can be implemented as an increase in participation will likely be contributed to an increase in demand.
Through an increase in demand comes an appreciation of value, which given how Bitcoin supply is limited, should further strengthen the ideology that an increase in Bitcoin demand will increase the price of Bitcoin.
Bitcoin Market Capitalization
Let’s ditch the economic theories and speculations to conduct some simple arithmetic.
The maximum sum of Bitcoins that will exist is 21 million.
Should the value of Bitcoin reach $100,000 per coin then the total potential market capitalization of Bitcoin, once all mined, would be equivalent to $21 million x $100,000 = $2,100,000,000,000 or $2.1 trillion.
According to CNBC in late 2019, the value of the global equities market surpassed $85 trillion, or $85,000,000,000,000.
It should be noted that the global value of the equities for 2019 started under $70 trillion, meaning it saw an increase of no less than $15 trillion throughout the year 2019.
To put that into perspective, should Bitcoin reach a value of $100,000 per coin (even if all were mined) that would mean that the market capitalization of Bitcoin would be more than 40x’s less than what the value of the global equities market was at the end of 2019.
($85,000,000,000,000 global equities value / $2,100,000,000,000 = 40.4761904762)
Putting the Pieces Together
Putting stock in speculations asserted by cryptocurrency advocates will get you no further than faulty economic theories that can in no way, shape, or form take under due consideration all the innumerable variables that nest their way into the ever-changing Bitcoin valuation equation.
Through M2 capitalization theory and the renowned principles of supply and demand, we are rendered rather convincing insights into the possibility that Bitcoin could reach $100,000 which is further strengthened when you compare the capped off Bitcoin market capitalization of $2.1 trillion to that of the $85 trillion for global equities in 2019.
While, at first, it may have seemed like a highly unrealistic projection of Bitcoin reaching $100,000, but when you stop to put it in perspective with the total value of global equities then it may appear, to some, as only a matter of time.
Regardless, and to conclude, it is impossible to accurately predict the value of Bitcoin in 10, 20, or even 40 years from now but if history has taught us one thing it would be that anything is possible.
J.P. Morgan, the largest U.S. bank by assets, has been waging a war of words with bitcoin and cryptocurrency for years.
The bitcoin price has swung wildly since J.P. Morgan chief executive Jamie Dimon called bitcoin a “fraud” in September 2017—rising to around $20,000 per bitcoin before crashing to under $4,000 (twice).
Now, J.P. Morgan’s turbulent relationship with bitcoin appears to be rapidly softening, after the bank added its first crypto exchange customers and Dimon reportedly hosted secret meetings with the boss of major bitcoin and crypto exchange, Coinbase.
Earlier this month, J.P. Morgan signed Coinbase and rival bitcoin and crypto exchange Gemini after a lengthy vetting period, it was first reported by the Wall Street Journal.
J.P. Morgan approved the two bitcoin exchanges’ accounts last month and is already processing transactions—potentially signalling the end of the crypto industry’s banking woes.
The bitcoin and cryptocurrency community has complained for years that banks including J.P. Morgan have denied them services and blocked accounts that dealt with crypto businesses.
Meanwhile, it has emerged Jamie Dimon has been hosting secret meetings with Coinbase chief executive Brian Armstrong since 2018, author Jeff Roberts revealed in his book, Kings of Crypto.
“Ironically, Brian Armstrong and Jamie Dimon of J.P. Morgan—who was the biggest enemy of bitcoin and has pissed on it for years—it turns out they were having secret meetings in 2018 at J.P. Morgan’s headquarters,” Roberts told Laura Shin’s Unchained podcast while promoting the book, which charts Coinbase’s rise to the top of the crypto industry.
However, J.P. Morgan’s interest in cryptocurrencies might not extend all the way to bitcoin quite yet.
“We are supportive of cryptocurrencies as long as they are properly controlled and regulated,” Umar Farooq, JP Morgan’s head of digital treasury services and blockchain, said back in 2017.
J.P. Morgan launched its own answer to bitcoin last year, JPM Coin. Unlike bitcoin, JPM Coin is pegged to the dollar and aimed at speeding up and reducing the costs of global payments.
Meanwhile, some have accused Coinbase’s Armstrong as being “skeptical” of bitcoin while working to promote other blockchain networks and cryptocurrencies such as ethereum.
“I’m sure he would deny it, but it’s interesting to me that the CEO of the world’s most prominent bitcoin-related company seems so skeptical of bitcoin,” said Bloomberg editor and analyst Joe Weisenthal, commenting on a Twitter thread by Armstrong suggesting it might not be bitcoin that pushes the cryptocurrency ecosystem into the mainstream.
Despite J.P. Morgan’s softening attitude toward bitcoin and crypto, the nascent technology is still fighting an uphill battle.
Earlier this year, Treasury secretary Steven Mnuchin warned “significant” new bitcoin and cryptocurrency regulations are on their way, Minneapolis Federal Reserve president Neel Kashkari branded cryptocurrencies “a giant garbage dumpster,” and the Department of Justice called bitcoin mixing “a crime.”
Just this week, Goldman Sachs listed five reasons that “cryptocurrencies including bitcoin are not an asset class” in a much-hyped but ultimately disappointing presentation titled “U.S. Economic Outlook and Implications of Current Policies for Inflation, Gold and Bitcoin.”
Ernest Hemingway described going bankrupt as “gradually and then suddenly”—Wall Street’s adoption of bitcoin and cryptocurrency could be happening the same way.
This week’s headlines from Japan included GMO Coin exchange polling customers on their view of digital assets, Lisk opening a base in Japan, Bitflyer showing 2019 net losses, blockchain startup LayerX securing significant funding, and two entities reported successful collaborative blockchain-based securities experiments.
Check out some of this week’s crypto and blockchain headlines, originally reported by Cointelegraph Japan.
GMO Coin users pick Bitcoin over XRP
GMO Coin, a crypto exchange under Japanese tech outfit GMO, conducted a poll, asking users which crypto asset they think holds the most promising future.
Out of 1,578 polled exchange users, 47% put Bitcoin as their top choice. XRP and Ethereum came in second and third respectively. Similar polling from 2019 found XRP as the asset of choice regarding future expectations. Roughly 70% of customers also listed hodling for the long term as their objective in crypto.
Lisk opens up shop in Tokyo
Crypto asset project Lisk (LSK) has chosen to start up a base in Japan. Lisk-related pursuits will take place at the Lisk Center Tokyo, built by the Lisk Foundation. Lisk looks to fortify its Japanese community.
Blockchain marketing outfit Binary Star also joined forces with the Lisk Foundation last month.
Bitflyer tallies 2019 losses
Financial totals from 2019 show Tokyo-based crypto exchange Bitflyer ended the year in the red. January to December 2019 posted net losses of approximately $6,967,574, in USD terms.
In contrast, 2018 yielded a profit of $49,552,350.
LayerX garners millions in capital
On Thursday, blockchain company LayerX unveiled its capital raise totals, touting $27,833,187 in garnered funds. Focused on bringing physical processes into the digital world, LayerX has secured the backing of VC firms JAFCO and ANRI, as well as YJ Capital, a Yahoo VC entity.
“Corona has exposed various issues in Japan,” JAFCO director Keisuke Miyoshi said. “It is further accelerating the big trend called DX,” Miyoshi noted, referring to the digitization of business processes. Blockchain “is not a technology keyword, but a phase of actual demand for infrastructure reconstruction,” he added.
Fujistu and BOOSTRY note successful blockchain-based securities testing
Computer company Fujitsu, and Nomura Group’s blockchain entity BOOSTRY, noted collaborative testing success of digital securities transactions.
The group has begun research to create a platform for blockchain-based digital securities trading, factoring in aspects such as membership entitlements, a Fujitsu statement said.
It’s been a strange week for BTC as we move forward in our new mining rewards era. The price ends the week down but a late rally has pushed it back over $9,000. Technical analysts expect Bitcoin to continue rising based on the liquidation range of short positions, a discussion of cryptocurrency in Goldman Sachs’s client call, and a lack of funding in the futures market. On the other hand, if ratings agency Weiss is right, more than 21 million Bitcoins may now be in circulation. The agency, known for controversial opinions, blames leverage in agencies.
The entry of Google into the blockchain space might help soak up some that extra supply though, if it exists. Blockchain company Theta Labs has partnered with Google Cloud to let users deploy and run nodes. Google Cloud will also act as a validator serving Europe. On the other hand, Google’s Chrome is facing strong competition from crypto-powered Brave. The browser now offers video calls, even as the Telegram messaging service seals its departure from the Telegram Open Network. TON will now stand for “The Open Network.”
While Google prepares to validate, other Bitcoin owners have been in-validating. They’ve used 145 addresses to call Satoshi pretender Craig Wright “a liar and a fraud.” Wright had claimed that he controlled the addresses. Maybe they should have just asked Wright if he owned a Mac. Laszlo Hanyecz, the “Bitcoin pizza guy” who worked with Satoshi to develop Bitcoin, has said that Satoshi only worked on Windows. Kenneth Blanco, Director of the United States Financial Crimes Enforcement Network (FinCEN), warned in an interview with Chainalysis against bad actors as well as rogue nations hijacking blockchain technology.
A crypto-enthusiast could soon control the Fed though. President Trump’s nominee for the US Federal Reserve board of governors, Judy Shelton, has talked of a return to a gold standard, with a side of cryptocurrency. Other national banks appear to be moving the same way. The Bank of Lithuania has completed research into its blockchain project, LBChain. Antigua and Barbuda’s House of Representatives has passed a bill that will start to make the region a friendly place for digital assets. China, too, looks set to promote its DCEP digital currency, which is backed by the country’s central bank, as a rival to the US dollar.
Private industry also continues to warm to the blockchain. Household goods manufacturer LG has joined the governing council of Hedera Hashgraph. Hedera wants to build an enterprise-grade blockchain platform to benefit businesses and consumers. Coinbase is buying brokerage Tagomi in order to cash in on the rise of hedge fund and macro investors in cryptocurrencies. In the world of online entertainment, Dapper Labs, the maker of CryptoKitties, is swapping cute digital cats for collectible digital basketball cards in a deal with the NBA. PornVisory wants to give users tokens for watching porn(!) And Minecraft is giving cryptocurrency a new kind of mining. The EnjinCraft plugin now lets players integrate blockchain-based Minecraft assets. That’s a whole different kind of mining reward.
Check out the audio version here:
Joel Comm is an internet pioneer, New York Times best-selling author, futurist speaker and co-host of The Bad Crypto Podcast. That’s a fancy way of saying he writes words, says things and loves to play with cryptos.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
China has passed the country’s long-awaited civil code which expands the scope of inheritance rights to include cryptocurrency, such as bitcoin. Inherited cryptocurrencies will be protected under the new law. Meanwhile, several Chinese courts have recently ruled that bitcoin and ethereum are properties protected by law.
Inherited Cryptocurrencies Protected by Law
The third session of the 13th National People’s Congress (NPC), China’s top legislature, voted on and passed the “Civil Code of the People’s Republic of China” on Thursday. In addition to general and supplementary provisions, the civil code ”includes six parts on real rights, contracts, personality rights, marriage and family, inheritance, and tort liabilities,” Xinhua News Agency reported.
Noting that the decision to draft a civil code was announced in October 2014 and the legislative process started in June 2016, the news outlet detailed:
[The new civil code] states that the property rights of individuals are equally safeguarded to those of the State and collective, and online virtual assets are protected, too.
Wang Chen, vice chairman of the Standing Committee of the National People’s Congress, told the session that “The compilation of the civil code is an important component of the plans of the Communist Party of China (CPC) Central Committee with Comrade Xi Jinping at the core for developing the rule of law,” the publication conveyed. This new civil code will enter into force on Jan. 1, 2021.
The scope of inheritance has been expanded from the existing law. Under the new civil code, “virtual assets, such as bitcoins, [can] be inherited,” as are all property legally acquired by a natural person, the news outlet emphasized.
Wang Liming, executive vice president of the Renmin University of China and a law professor, was quoted as saying: “The civil code is the first law to carry the title ‘code’ for the People’s Republic of China. It lays down the fundamental principles and regulations regarding civil activities and relations. It reflects the will of the people and protects their rights and interests.”
Several Chinese courts have also ruled that cryptocurrencies are property that should be protected by law. For example, the Shanghai No.1 Intermediate People’s Court ruled that bitcoin is an asset protected by law while the Shenzhen Futian District People’s Court ruled that ethereum is legal property with economic value.
Meanwhile, China is working on issuing its own central bank digital currency but there is currently no timetable for the launch, Yi Gang, governor of the People’s Bank of China (PBOC), told reporters this week. Internal pilot tests have been conducted in various cities “to check the theoretical reliability, system stability, conveniency, applicability and risk controllability of the digital currency,” the governor confirmed.
What do you think about China’s new civil code protecting inherited cryptocurrency? Let us know in the comments section below.
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On May 12, the IRS issued a statement of work soliciting “consulting services to support a taxpayer examination involving virtual currency.” The SOW was sent to popular cryptocurrency tax software companies such as CyrptoTrader.Tax, among others, in an effort to provide the IRS with the industry expertise necessary to identify and pursue cases where taxpayers reporting (or lack thereof) of digital assets is inconsistent with their actual cryptocurrency transactions. In other words: the IRS is hiring outside contractors who are experts in cryptocurrency to help them identify cryptocurrency investors whose tax returns either omit or contain incorrect data regarding cryptocurrency transactions. There’s only one reason why the IRS would hire experts in cryptocurrency as outside contractors: because they plan to significantly increase the volume and scrutiny of cryptocurrency audits.
How Does the IRS Treat Cryptocurrency?
The IRS defines a virtual currency as “a digital representation of value” functioning “as a unit of account, a store of value, and a medium of exchange.” Any asset with these characteristics, “[r]egardless of the label applied, . . . will be treated as virtual currency for [f]ederal income tax purposes.” Some virtual currencies are convertible, which means that they have equivalent values in one or more traditional currencies (fiat) and may act as substitutes for them. The more well-known virtual currencies, such as Bitcoin, Ethereum, and Ripple, are termed cryptocurrencies because they use cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain.
IRS Guidance on Treatment of Cryptocurrency
In Notice 2014-21, the IRS issued the first formal guidance on how cryptocurrency should be taxed. In a surprising move, the IRS applied general principles of tax law to conclude that virtual currency is property, rather than “currency,” for federal tax purposes. Consequently, an exchange of one virtual currency for another (e.g., Bitcoin for Ethereum) is a taxable transaction, resulting in gain or loss as well as a reporting obligation on the part of the taxpayer. This makes a lot of crypto transactions subject to the favorable capital gain and loss treatment instead of the more onerous ordinary income treatment. Mining and other receipt of units of cryptocurrency, such as being paid in cryptocurrency, create tax obligations and may need to be reported as ordinary income if they constitute income. Much like with the purchase of stock traded on a public exchange, simply buying or investing in cryptocurrency does not create a taxable event. Rather, it is the sale or exchange of virtual currency, or receipt of virtual currency in exchange for services performed or other property, that creates a taxable event.
The IRS provided further guidance in Revenue Ruling 2019-24, finding that a cryptocurrency “hard fork” (a single cryptocurrency splitting into two) in which no units of a new cryptocurrency are received does not result in gross income, but an “airdrop” (free distribution of units of cryptocurrency) does. In addition, the IRS has released and published on its website a set of frequently asked questions addressing the tax treatment of other virtual currency transactions, including those in which the virtual currency is held as a capital asset.
IRS Cryptocurrency Enforcement
In 2017, the IRS filed a lawsuit against Coinbase (one of the largest crypto exchanges) to obtain account holders’ names and account information. Why? Because during the years 2013 through 2015 Coinbase had almost six million customers, but only 800 – 900 taxpayers filed tax returns that reported gains from cryptocurrency. That’s a huge gap, and the court agreed that the IRS had a legitimate interest in investigating further. In 2018, Coinbase turned over 13,000 names to the IRS as a result of the litigation.
Not surprisingly, just over a year after the IRS received 13,000 names from Coinbase, the IRS sent roughly 10,000 “soft letters” to Cryptocurrency account holders. A so-called “soft letter” is not an IRS audit, but instead warns the recipient that they may want to consider taking certain action on their tax returns before an audit happens. Soft letters certainly doesn’t feel “soft” to the recipient, because anyone who gets one knows that the IRS knows something specific about them. If that isn’t on the tax return, that’s when trouble starts. Those soft letters didn’t necessarily mean that something was wrong on the recipients’ tax returns, but it may have been, and gave everyone a good faith opportunity to check the return and make sure all crypto was reported correctly.
Just about a year has gone by, and now the IRS is looking to hire crypto experts to assist with audits of taxpayers who have crypto. The statement of work looks for contractors who can “ingest all data provided by the IRS, as well as any attendant or related data the contractor collects through their systems.” Even though a cryptocurrency blockchain is anonymous, it remains susceptible to tracing as a public ledger. According to the statement of work, contractors should be able to analyze blockchain data and application programming interface keys obtained from virtual currency exchanges. Further, a contractor should “be available to consult with the IRS during meetings with taxpayers or their representatives,” including meetings with IRS Appeals Officers, “assist the IRS with trial preparation,” and, if needed, “to testify at trial as a summary witness explaining the calculations derived from the underlying data.” In other words, play time is over.
Can the IRS Do That?
You might be thinking, wait, I thought IRS data is private and they can’t provide my tax return information outside of the IRS agency, right? Yes, in general that’s the rule: the IRS has to keep tax return information private. But there are exceptions to that rule, and the IRS has used outside contractors before. The IRS has long relied on such advice for valuation purposes—most frequently for valuing non-cash charitable contributions, gifts, and estates. Conservation easements and artwork are especially contentious valuation items, often pitting the IRS’ experts against the taxpayer’s. Indeed, for artwork, the IRS has institutionalized reliance on outside expert advice in the form of the Commissioner’s Art Advisory Panel, comprised of academics and industry representatives from the private, public, and non-profit sectors, and the Art Appraisal Services (AAS) unit in the IRS Appeals Office. The panel provides advice and makes recommendations to AAS regarding the acceptability of appraisals that taxpayers submit supporting the fair market value claimed on the wide range of works of art featured in income, estate, and gift tax returns. In addition, anytime a tax return selected for audit includes an appraisal of a single work of art valued at or more than $50,000, the examining agent or appeals officer is required to consult AAS for possible referral to the panel, which meets in closed session to review all referred appraisals.
Procedures adopted by the AAS ensure strict compliance with the confidentiality requirements. These procedures ensure that information provided to panel members does not include the taxpayer’s name, the type of tax, the tax consequences of any adjustments to the appraised value, or details regarding the appraiser. To minimize the possibility that panelists recognize a taxpayer’s entire collection, the works of art are usually discussed in alphabetical order by artist or, in the case of decorative art, by object type. If there is a conflict of interest with a panelist and a work of art under review, the panelist does not participate in the discussion and is excused from that portion of the meeting.
In sharp contrast with how it has routinely used outside expert advice on artwork appraisal audits, the IRS pushed the envelope when in 2014, it engaged the California-based litigation powerhouse Quinn Emanuel Urquhart & Sullivan to assist with Microsoft’s transfer pricing audit, spanning the company’s 2004 to 2006 tax years. The $2.2 million contract with Quinn Emanuel was authorized by a Temporary Treasury Regulation issued in June 2014, issued two weeks after the contract was awarded. The regulation was issued under the IRS’ authority for summoning “books, papers, records, or other data” for examination and summoning individuals for taking their testimony under oath. Those regulations have now been finalized, and provides that a contractors may “receive and review” the summoned materials and “participate fully” in taking the testimony of the summoned person “in the presence and under the guidance of an IRS officer or employee.”
News of the Quinn Emanuel contract provoked sharp criticism from practitioners and on Capitol Hill, with many questioning the propriety of the IRS’ delegating a core governmental function—a tax audit—to private litigators. In a summons enforcement action, Microsoft challenged the validity of the regulation on those grounds. But a taxpayer challenging summons enforcement is in for an uphill battle. Although the district court expressed concern at “Quinn Emanuel’s level of involvement in this audit” and was troubled by “[t]he idea that the IRS can ‘farm out’ legal assistance to a private law firm,” the court ordered enforcement of the summons. The case is United States v. Microsoft Corp., 154 F. Supp. 3d 1134, 1143-44 (W.D. Wash. 2015).
Although the Court upheld the summons, a warning that “this case may lead to further scrutiny by Congress” proved prophetic when, in 2019, Congress passed the Taxpayer First Act, which added a new Section of the Internal Revenue Code that expressly prohibits the type of Quinn Emanuel arrangement permitted in Microsoft. That new subsection precludes an outside consultant from examining summoned “books, papers, records, or other data,” except for “the sole purpose of providing expert evaluation and assistance to the Internal Revenue Service.” It also prohibits any person, “other than an officer or employee of the Internal Revenue Service,” from “question[ing] a [summoned] witness under oath.” It is a question of when and how the IRS’s use of outside experts in cryptocurrency cases will be challenged in court – not if.
The Bottom Line
The Coinbase reporting gap puts this problem in perspective: in just one exchange there were over six million customers and less than one thousand taxpayers who reported cryptocurrency transactions. The IRS is justifiably wondering who the rest of the account holders are, why they haven’t reported any cryptocurrency transactions on their tax returns, and will be looking soon to make some strong examples out of cryptocurrency account holders who fail to fulfill their income tax obligations.
Thank you to Tax Notes reporter William Hoffman for bringing this issue to my attention.
Bullets rained down from all angles but Abdelrhman Badr kept calm.
Suddenly an enemy burst through a window. Abdelrhman swung round to face the soldier and save his team. He lined up his sights for a fatal shot and squeezed the trigger but… his screen went black.
His computer had silently and suddenly shut itself down without warning.
Abdelrhman was confused. The game he was playing had never caused problems before.
He reached down and looked inside his computer, which he liked to leave open and on display in his bedroom.
Instinctively he touched one of the components, cursed and pulled his hand back. The graphics card was so hot it had burned his fingers.
The 18-year-old from Sheffield hadn’t realised it yet, but this minor injury was caused by crypto-jacking.
Crypto-jacking is the unauthorised and illegal use of someone’s computer to collect Bitcoin and other crypto-currencies.
There are estimated to be more than 47 million crypto-currency users around the world, although it is difficult to be sure because of their anonymity. Users collect virtual coins by a complex process called “mining” which puts computers through a series of mathematical problems.
In a crypto-jacking operation, hackers fool victims into downloading a malicious file that surreptitiously forces their computers to mine for this money and send it back to the criminals who can spend it on crypto-currency marketplaces or turn it into mainstream cash.
Crypto-jacking attacks increase a victim’s electricity bill and can not only slow down infected computers but potentially cause irreparable damage to hardware.
Abdelrhman Badr has no idea how hackers got into his system. He thinks he must have accidentally downloaded the malware three weeks before he burned his hand, when he started noticing strange things happening to his computer.
“Whenever I put my PC to sleep the screens would go blank but I could still hear the fans running and when I came back to it, it would just open up to the main desktop with none of the usual login page or anything,” he says. “My computer wasn’t actually going to sleep at all.”
‘Shocked and embarrassed’
Even when he burned his hand, he didn’t at first consider he was the victim of a hack.
It was actually a mistake that led to his discovery.
“I was playing around with a program that monitors computer activity and everything looked normal but I accidentally left it on overnight,” he recalls.
“When I next checked I found that my computer had been sending loads of information back to a strange website I’ve never visited or heard of.”
The website was set up to collect the crypto-currency Monero. .
“I was shocked and also a bit embarrassed as I take pride in keeping my PC safe. It’s really frustrating to know that there could be a program running without me knowing and some guy secretly mining crypto, destroying my hardware and stealing my electricity.”
There could be hundreds, or even thousands of victims like Abdelrhman, who are unwittingly lining the digital wallet of this hacker or hackers.
“Crypto-jacking attacks are becoming more sophisticated, using techniques to hide their behaviour,” says Alex Hinchliffe, a threat intelligence analyst at Palo Alto Networks.
“Cyber-criminals look for as many victims’ systems as possible. The more systems, whether it be PCs, servers, cloud services, mobile and other smart devices the better, as more mining can be achieved in a relatively benign and unobtrusive manner.”
Crypto-jacking ‘on the rise’
Experts say the threat of crypto-jacking rises and falls with the fluctuating price of crypto-currencies. According to research from Palo Alto Networks, the attacks are currently on the rise.
“It’s not as profitable as it used to be for hackers so crypto-miners are showing up in the weirdest places on the internet to maximise the number of victims. Sometimes we find them hidden inside the code of free programs, for example,” adds Ryan Kalember from Proofpoint, another information security company.
Security specialists say computer users should be vigilant and look out for changes to their computers, such as a slowing down of performance, or changed settings. It’s also a good idea to install some security software and do regular virus scans.
“We believe that a security whose appreciation is primarily dependent on whether someone else is willing to pay a higher price for it is not a suitable investment for our clients,” said Goldman.
The bank also called out cryptocurrency’s popularity with hedge funds, saying “while hedge funds may find trading cryptocurrencies appealing because of their high volatility, that allure does not constitute a viable investment rationale.”
It didn’t sit well with supporters of cryptocurrency. The Winklevoss twins, who co-founded Gemini, a cryptocurrency exchange platform, responded with vocal backlash to the report.
“Hey Goldman Sachs, 2014 just called and asked for their talking points back,” Cameron Winklevoss said in a tweet.
His brother, Tyler Winklevoss, also joined in the fray, tweeting, “the more I think about it, the Goldman report is probably a head fake.”
In addition, Goldman compared crypto’s popularity and epic 2017 rally to Dutch tulip mania, which occurred in the 17th century and is one of the most famous examples of a speculative bubble.
“Goldman Sachs served a cold dish to the crypto community, which was largely expecting them to come out with a bullish call on the world’s number one digital asset,” Mati Greenspan, founder of Quantum Economics, wrote in a note, Bloomberg reported.
He continued: “Perhaps Goldman is just trying to jawbone Bitcoin to buy more for themselves at a cheaper price. Who knows?”