Own Bitcoin? The IRS is Coming for You

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Pay your taxes on bitcoin...or else.

Late last year, the Internal Revenue Service persuaded a federal judge to require Coinbase, a San Francisco-based digital-currency wallet and platform with about 20 million customers, to turn over customer information. Driving the IRS's decision was its belief that few bitcoin investors appear to be paying taxes due on sales. The court order is one of the agency's first moves as it clamps down on cryptocurrency scofflaws.

By March 16, the IRS will have data on about 13,000 Coinbase account holders who bought, sold, sent or received digital currency worth $20,000 or more between 2013 and 2015. The data include the customer's name, taxpayer identification number, birth date and address, plus account statements and the names of counterparties.

Criminal tax lawyers expect the IRS will act on the information and high-profile cases will follow.

Some cryptocurrency holders are now disclosing past tax lapses to avoid potential criminal prosecution.

Bryan Skarlatos, a lawyer with Kostelanetz & Fink with several such cases, reminds cryptocurrency investors of the IRS's success in piercing the veil of Swiss bank secrecy. Since 2009, more than 56,000 Americans who hid money in offshore accounts have paid more than $11 billion to resolve tax issues.

"Digital currency holders shouldn't think they can hide from the IRS," he says.

Smaller investors are also feeling heat. Many traded during last year's price spike, and tax preparers are now asking clients routinely about cryptocurrency sales. They aren't supposed to sign returns with unreported income.

To be sure, the IRS hasn't clarified important issues on digital currencies, and these gaps leave room for favorable interpretations.

But the gaps don't leave room for hiding income. With the April tax date approaching, here is important information.

Asset type. In 2014, the IRS issued a notice declaring that cryptocurrencies are property, not currencies like dollars or francs. Often they are investment property akin to stock shares or real estate.

So if an investor sells a cryptocurrency after holding it longer than a year, then the profits are typically long-term capital gains. The tax rate is 0%, 15%, or 20%, plus a 3.8% surtax in some cases, depending on the owner's total income.

Short-term gains on cryptocurrencies held a year or less are typically taxable at higher, ordinary-income rates. Capital losses can offset capital gains and up to $3,000 of other income a year, and unused losses can be carried forward for future use.

If digital currencies are held for personal use, as a home is, rather than primarily as an investment, then profits are taxable but losses aren't deductible. The IRS hasn't issued guidance in this area.

Tax triggers. Selling a cryptocurrency for cash typically triggers capital gains or losses. Using it to buy something like a meal or a car also counts as a sale by the buyer, even if the recipient accepts the cryptocurrency.

Recipients of these payments often have taxable income as well. If a worker is paid in bitcoin, payroll or self-employment taxes could also be due.

Cryptocurrency trades. An exchange of one digital currency for another--say, bitcoin for ether--is taxable, beginning Jan. 1, 2018, because of the tax overhaul.

What about earlier swaps? The IRS hasn't said, but some specialists think these could qualify as nontaxable "like-kind" exchanges.

Source. The WSJ.
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  • Profile picture of the author MeelisM
    There's no grounds for taxation until someone actually sells the crypto for fiat currency.

    However, why would I want to change my better version of money for an ancient form of money? It's like selling a Bugatti Veyron for a horse in hopes of having better/faster transportation.
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    • Profile picture of the author OptedIn
      Originally Posted by MeelisM View Post

      There's no grounds for taxation until someone actually sells the crypto for fiat currency.
      Is that your edict, or that of the IRS?
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      • Profile picture of the author MeelisM
        Tell me, how is IRS going to tax people on cryptos that have not been sold for fiat currencies?

        What second are they going to base their calculations on? You do realize that the values against fiat change every second?

        The only way for IRS to tax cryptos is at the point of sale for fiat. Until the point of sale, there is no "profit" made against fiat.

        Think you must (Yoda voice)
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        • Profile picture of the author OptedIn
          Originally Posted by MeelisM View Post

          The only way for IRS to tax cryptos is at the point of sale for fiat. Until the point of sale, there is no "profit" made against fiat.
          Tell that to the IRS. Rest assured they will have an answer for you. You may not like it - but you'll get it, anyway. If what they tell you doesn't work for you, just inform them of same so they can go back and change the law to meet your opinion of how things should be.

          Let us know how that works out for you. :-)
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          • Profile picture of the author MeelisM
            Tell me what point in time can the IRS tax my crypto on?

            Let's say my assets are worth $20435 today. Tomorrow they are worth $18593, the day after that it's $24039. When exactly does the taxation occur, when I don't change for fiat?
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            • Profile picture of the author Odahh
              Originally Posted by MeelisM View Post

              Tell me what point in time can the IRS tax my crypto on?

              Let's say my assets are worth $20435 today. Tomorrow they are worth $18593, the day after that it's $24039. When exactly does the taxation occur, when I don't change for fiat?
              if you use the bitcoin to purchase something .. then it also become a taxable event or if you just give it to someone like a family member ..as long as you possess the bitcoin once it passes from your hands to others hands the tax implications come into effect ..

              the thing that seperates it from other assets at this point..is you can't insure it for loss ..so if the drive you have it stored on or whatever storage system you use ..get damages destroyed hacked ..or stolen ..

              well you know that risk ..
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    • Profile picture of the author whateverpedia
      Originally Posted by MeelisM View Post

      There's no grounds for taxation until someone actually sells the crypto for fiat currency.
      There are grounds for taxation if a crypto is exchanged for another crypto, or any other good or service as well.

      If someone uses bitcoins to purchase something, the bitcoins are being disposed of and therefore if they're disposed at a higher rate than was used to purchase, a capital gain has been made and tax becomes applicable.

      I've no doubt you will argue against this, however the tax office will have the final say on it, and as the OP states the IRS has determined them to be assets, not currencies.

      Here's a simplified version of how it will work:

      Whattycoins are trading at $1 each. I buy 10 of them for an outlay of $10.

      The market price of whattycoins rises to $10. I use one of them to say, register a domain for $10. I have disposed of an asset (1 whattycoin) and made a capital gain of $9 ($10 minus $1) on the disposal of it. I would then be liable to pay capital gains tax of $9 times the applicable capital gains rate.

      This renders bitcoins and other digital assets utterly useless as a medium of exchange.
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      • Profile picture of the author DWolfe
        Originally Posted by whateverpedia View Post

        .

        Here's a simplified version of how it will work:

        Whattycoins are trading at $1 each. I buy 10 of them for an outlay of $10.

        The market price of whattycoins rises to $10. I use one of them to say, register a domain for $10. I have disposed of an asset (1 whattycoin) and made a capital gain of $9 ($10 minus $1) on the disposal of it. I would then be liable to pay capital gains tax of $9 times the applicable capital gains rate.

        This renders bitcoins and other digital assets utterly useless as a medium of exchange.
        I want in, I want in, let me in now ! Have huge venture capitalists behind me. I will offer you $20.00 for each Whattycoin. We can run a ICO and make thousands for the speculators and the people that want to make Millions in their pajamas without leaving the basement. Those $9.00 profits will now be more than double in a few weeks. We can hide the profits overseas buying mansions and Lambo's
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        • Profile picture of the author Odahh
          Originally Posted by DWolfe View Post

          I want in, I want in, let me in now ! Have huge venture capitalists behind me. I will offer you $20.00 for each Whattycoin. We can run a ICO and make thousands for the speculators and the people that want to make Millions in their pajamas without leaving the basement. Those $9.00 profits will now be more than double in a few weeks. We can hide the profits overseas buying mansions and Lambo's
          if you are running a business teaching people how to make fortunes in crypto..and you have the business buy the mansion and lambo or other cars ..and just shoot promotional videos and teaching video and buy you tube adds with the video..those mansion and cars can be business expences..but you probably need a huge amount of ad buys to justify the cost..

          the Thai lopez system ..
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      • Profile picture of the author lanfear63
        Originally Posted by whateverpedia View Post

        There are grounds for taxation if a crypto is exchanged for another crypto, or any other good or service as well.

        If someone uses bitcoins to purchase something, the bitcoins are being disposed of and therefore if they're disposed at a higher rate than was used to purchase, a capital gain has been made and tax becomes applicable.

        I've no doubt you will argue against this, however the tax office will have the final say on it, and as the OP states the IRS has determined them to be assets, not currencies.

        Here's a simplified version of how it will work:

        Whattycoins are trading at $1 each. I buy 10 of them for an outlay of $10.

        The market price of whattycoins rises to $10. I use one of them to say, register a domain for $10. I have disposed of an asset (1 whattycoin) and made a capital gain of $9 ($10 minus $1) on the disposal of it. I would then be liable to pay capital gains tax of $9 times the applicable capital gains rate.

        This renders bitcoins and other digital assets utterly useless as a medium of exchange.
        I have been looking into this new Crapto Currency opportunity known as Whitcoins. All major Donut and KFC stores and some Vacuum Cleaner outlets accept them as payment. However, there are concerns that they are prone to inflation and I don't want to get sucked in if a bad investment.
        Has anyone bought into this and what is your experience? Thanks in advance.
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  • Profile picture of the author TrickyDick
    One VITAL thing to keep in mind....

    Once you file your taxes in the US of A, the IRS can generally "audit" those returns for three years...

    BUT...

    They can go back as far as they want to nail you for "unreported income."


    I have a family member who got nailed for $3,000 of "unreported income" from a decade ago!

    So, those who are not paying their taxes will eventually be nabbed... It is simply a matter of time....
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    • Profile picture of the author yukon
      Originally Posted by TrickyDick View Post

      I have a family member who got nailed for $3,000 of "unreported income" from a decade ago!
      Before Bitcoin was invented?

      So they owed what, $700, lol.
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      • Profile picture of the author TrickyDick
        Originally Posted by yukon View Post

        Before Bitcoin was invented?

        So they owed what, $700, lol.
        I guess you're new to the IRS... and how it works...

        On $3,000 of income, you have the taxes......

        Then, you have the penalty....

        Then, you have the interest on that over a decade...

        It came out to roughly $2,400... Not a ton of money...

        But, a sizeable percentage of the gross income....

        On a side note, people were failing to report income many, many, many, many, many, many years before BitCoin.
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    • Profile picture of the author OptedIn
      Originally Posted by TrickyDick View Post

      So, those who are not paying their taxes will eventually be nabbed... It is simply a matter of time....
      You can't tell these people anything as it directly attacks the fantasy of their 'Magical Mystery Tour.' They're too invested in their mindset to ever admit that they may have made a mistake.

      Forget what the IRS says. They actually believe that it's what they postulate that matters.

      Federal inmate No. 584862. :-)
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      • Profile picture of the author yukon
        Originally Posted by OptedIn View Post

        You can't tell these people anything as it directly attacks the fantasy of their 'Magical Mystery Tour.' They're too invested in their mindset to ever admit that they may have made a mistake.

        Forget what the IRS says. They actually believe that it's what they postulate that matters.

        Federal inmate No. 584862. :-)


        So you're trying to recruit cult followers?



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        • Profile picture of the author OptedIn
          Originally Posted by yukon View Post

          So you're trying to recruit cult followers?
          Currently turning people away due to overbooking.

          You are invited to get on the waiting list.
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  • Profile picture of the author yukon
    Funny thread.

    Odds are the IRS is involved when you hand out personal data regardless of the subject. In this case that personal data defeats the whole point of crypto.

    Carry on.
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  • Profile picture of the author Kay King
    There's no grounds for taxation until someone actually sells the crypto for fiat currency.
    Not necessary - using the crypto to pay for services or products or living expenses might be labeled as 'barter' by the IRS ...and still taxable.

    Disaster is going from $0.003 to $8000 in 8 years. What a freaking disaster That's just a rise in value of 2,4 million times.
    That's why it will get 'sticky' for some. The quote above is what you posted in another thread today.

    Even you describe the VALUE of BitCoin by relating it to US dollars. In every thread the 'value' of crypto is 'explained' by its value compared to a standard currency. If you never plan to sell the crypto - what is the point of having it? Is there anywhere you can live and pay for your lifestyle using BitCoin and no 'fiat currency'?

    Will be interesting to see how it plays out.
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    • Profile picture of the author MeelisM
      Bitcoin is not about making money. Bitcoin is about replacing money.

      Soon we will have no need for USD or EUR or any other fiat money. How are you going to track how much cryptos I have and what do i trade?

      If I find a person who accepts crypto for whatever service or good I want, then why would I want to even use the USD?
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      • Profile picture of the author OptedIn
        Originally Posted by MeelisM View Post

        If I find a person who accepts crypto for whatever service or good I want,
        Good luck with that.
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        • Profile picture of the author MeelisM
          [DELETED]
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          • Profile picture of the author OptedIn
            Originally Posted by MeelisM View Post

            It's already possible.

            You are being ignorant. You don't know much about this space, yet you act like you do. I can find anybody to provide me any service or sell me any good for cryptocurrency today.
            Calling MeelisM. Party of one. Your table is ready!
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  • Profile picture of the author Plutorial
    I think it's unsettling that there's no 'secure' place you can hide behind when the government decides they want to find you. Just like when they decided to tighten their laws on online piracy and random people got caught up in it.
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    • Profile picture of the author yukon
      Originally Posted by Plutorial View Post

      I think it's unsettling that there's no 'secure' place you can hide behind when the government decides they want to find you. Just like when they decided to tighten their laws on online piracy and random people got caught up in it.

      They're sitting outside your house in a black unmarked sedan.

      Geez, relax.
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      • Profile picture of the author Plutorial
        Not being paranoid, but I mean it's just that the thought is unsettling, but it kinda gets the point across I guess? You catch a couple of people, turn it high profile, and scare everyone else off from doing it, regardless of whether it was piracy or hiding your money in places to avoid taxes.
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        • Profile picture of the author OptedIn
          Originally Posted by Plutorial View Post

          scare everyone else off from doing it, regardless of whether it was piracy or hiding your money in places to avoid taxes.
          Yes, scaring people off from committing crimes like hiding your money to avoid paying taxes is precisely the name of the game.
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      • Profile picture of the author Regional Warrior
        Originally Posted by yukon View Post

        They're sitting outside your house in a black unmarked sedan.

        Geez, relax.
        Sorry I know this is off track but does not anyone notice that Yukon is back!!!! I remember reading the goodbye thread on how you did not like the place you you were quittin the forum...!
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        • Profile picture of the author yukon
          Originally Posted by Regional Warrior View Post

          Sorry I know this is off track but does not anyone notice that Yukon is back!!!! I remember reading the goodbye thread on how you did not like the place you you were quittin the forum...!

          Yes, it's true. I'm here.

          I've been summoned to save the world.
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        • Profile picture of the author dave147
          Originally Posted by Regional Warrior View Post

          Sorry I know this is off track but does not anyone notice that Yukon is back!!!! I remember reading the goodbye thread on how you did not like the place you you were quittin the forum...!
          It's the Mandela Effect...he didn't say that in this reality
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    • Profile picture of the author OptedIn
      Originally Posted by Plutorial View Post

      I think it's unsettling that there's no 'secure' place you can hide behind when the government decides they want to find you.
      Why would you ever have a need to hide from your government? Lead a good, clean life, pay your taxes and stay on the right side of the law.

      Regardless of the inane drivel espoused by the paranoid, hyperbolic conspiracy-theorists, the jack-booted thugs are not out to put their heel on your throat.

      You can take that to the bank. You know, the place where they keep real money. :-)
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    • Profile picture of the author Odahh
      Originally Posted by Plutorial View Post

      I think it's unsettling that there's no 'secure' place you can hide behind when the government decides they want to find you. Just like when they decided to tighten their laws on online piracy and random people got caught up in it.
      Here is a rule book for the proper way to live in the 21st century ,,where everything you do is recorded somewhere .. do as little as possible that you know you should not be doing expecting no one to find out .. it is not just the government .. in 30 years and more if you have kids and grandkids .everything will be there for them to see .

      Part of the reason the city government came after street performers in Las vegas is many where makeing a good amount of money and not reporting it ..and the businesses/casinos where tired of us making money with no costs except costumes ..

      The are many legal way you reduce the amount of money you pay in taxes through proper business expenses ..avoiding or delaying the taxes..but evasion is bad ..and the irs can tell when your lifestyle exceeds you stated earning.. worked to get mobsters drug dealers and high end prostitutes ..

      notice a trend usually the groups trying to evade taxes are involved in Outlawed activities or unregistered businesses ..

      now for a long time bitcoin was the black market currency .. now that it is becoming a recognized asset class .. the regulations will have to clean up the murky history of the currency ..

      so those who bought and held will probably be fine as no profits have been realized and bitcoin does not produce anything of value .. for someone mining if they have not tracked their expenses for equipment and electricity ..or registered as a business .. there is a chance they can get taxxed for the full value of bitcoins when they sell them ..and for traders there are probably a lot of the people who made money in the big jump at the end of the year..who might end up owing quite a bit of money in taxes and getting put in jail ..
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  • Profile picture of the author Kay King
    I think it's unsettling that there's no 'secure' place you can hide behind when the government decides they want to find you. Just like when they decided to tighten their laws on online piracy and random people got caught up in it.
    "the government" refers to the U.S. or to YOUR government?

    Maybe they all money grub where they can?
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  • Profile picture of the author lanfear63
    Lets see now, you buy some Monopoly Money. Then some people will accept Monopoly Money as payment for stuff. How can Monopoly Money be taxable?
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  • Profile picture of the author DWolfe
    The U.S. Goverment shoud regulate the exchanges and the big time players in money laundering. Once that happens and the price stablizes it may become mainstreet and Wall Street may step in. Without getting into the rest of the nonsense. Bitcoin has and is being used as an exchange legally in a few country's. Will Bitcoin last who knows, but it will be interesting to watch.

    Just notice who goes to jail in the next year for failure to pay taxes in the US when the law was decieded awhile back it came be tax. If someone has made more than 100 grand in profits in 2017 in the US you better have a good accountant. If not look out you will need a lawyer. IMHO.

    Thanks for posting the information in the O.P.
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    • Profile picture of the author DWolfe
      Originally Posted by MeelisM View Post

      Wall street is already in the game.
      I'm talking about the big hedge funds not the shorters like the groups on the CME. A good exchange fund of top 5 crypto currency's or top 5 small cap investing would be a big boost
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      • Profile picture of the author Odahh
        Originally Posted by DWolfe View Post

        I'm talking about the big hedge funds not the shorters like the groups on the CME. A good exchange fund of top 5 crypto currency's or top 5 small cap investing would be a big boost
        once the big hedge funds figure out how to get in to cryptocurrency and take all of the gains they get while sticking taxpayers with big loses or all the losses .. they will get in ..plus it is hard for modern wallstreet to get in when their HFT algorithms can't buy and sell in fractions of a second
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      • Profile picture of the author MeelisM
        Goldman Sachs backed Circle also recently acquired one of the biggest crypto exchanges Poloniex, so Wall Street guys are definitely in. Also Coinbase is creating exactly what you are proposing - an index fund of top cryptos.
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  • Profile picture of the author hardraysnight
    is solar power and wind power taxable or tax deductible?
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  • Profile picture of the author whateverpedia
    Let's take another example here using whattycoins again.

    Whattycoins become accepted as legitimate currency. You can even pay your taxes with them.

    You receive a bill from the tax office for $1,000. Whattycoins are trading at $10 each. You pay your bill using 100 whattycoins. Shortly after paying your bill, whattycoins increase tenfold, that is they now have a market value of $100 per coin. That means you have effectively given da eevil gubbernment $10,000 to settle a $1,000 bill.

    To all those loopy libertarian types who are so enamoured of bitcoins because da eevil gubbernment has no control of them, are you happy with that concept?

    Well are you?
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    • Profile picture of the author yukon
      Originally Posted by whateverpedia View Post

      Whayycoins become accepted as legitimate currency. You can even pay your taxes with them.

      You've already lost the majority of the market.

      I doubt many would use that coin because there's +1,500 alternatives (seriously) and some even designed for privacy, example, Monero or Zcash.

      I can see more coins heading in this direction, where privacy is the main feature of a coin. Privacy was originally part of what Bitcoin touted but it wasn't really all that private considering it has a public ledger.

      As far as taxes, the way they tax is when you link the coin to something personal, like coinbase or an address. So, there's that and that's done by the end user not any tax agency.

      I know you're anti-crypto but crypto can be useful to a lot of people in a lot of different situations. Example, look at Venezuela where their Gov has pretty much collapsed, their currency is useless so the people are using crypto to buy food to survive.

      Right now, Bitcoin only exist because it was grandfathered into the market, it's only used as a baseline. The fees aren't practical and haven't been for about 1.5 years. When someone says Bitcoin, they don't necessarily mean Bitcoin itself, they mean the overall market (the grandfathered baseline).

      Like I've said before, the real money is in alt-coins, where Bitcoin went up 9 times it's value in a year, a lot of alt-coins can do that in a month, like Bitcoin did when it was new.

      I see a lot of you folks going on about how crypto is used for illegal activities, well, guess what, US cash has been used for illegal activities since it was invented in the 1700's and still happening today and will happen tomorrow.

      My point is, you can't save the world from itself, good people do good things, bad people do bad things. That's life.
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  • Profile picture of the author whateverpedia
    Furthermore does having an index fund of the major digital assets really improve their prospects? No one can say for sure however let us cast our mind back to a couple of months ago. Remember how the ability to trade bitcoin futures was going to put a floor under prices and see them continue to rise in value? Well that worked fine for a week or two as bitcoins hit a record high of just under $20,000 a coin. After that the short-sellers stepped in and the price of bitcoins has continued to fall ever since.

    Having an index fund that continues to fall in value is the investment equivalent of flushing your money down the toilet. But at least the people who sell these products will make a killing. So will the fund managers who'll continue to "earn" their fees even as the fund(s) go south.
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  • Profile picture of the author tagiscom
    Originally Posted by lanfear63 View Post

    I have been looking into this new Crapto Currency opportunity known as Whitcoins. All major Donut and KFC stores and some Vacuum Cleaner outlets accept them as payment. However, there are concerns that they are prone to inflation and I don't want to get sucked in if a bad investment.
    Has anyone bought into this and what is your experience? Thanks in advance.
    Nah, they are fine, just don't leave them out in the sun!

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  • Profile picture of the author whateverpedia
    Forget the tax office, German authorities have discovered images of child abuse in bitcoin's distributed ledger.

    German researchers have discovered unknown persons are using bitcoin's blockchain to store and link to child abuse imagery, potentially putting the cryptocurrency in jeopardy.

    The blockchain is the open-source, distributed ledger that records every bitcoin transaction, but can also store small bits of non-financial data. This data is typically notes about the trade of bitcoin, recording what it was for or other metadata. But it can also be used to store links and files.

    Researchers from the RWTH Aachen University, Germany found that around 1,600 files were currently stored in bitcoin's blockchain. Of the files least eight were of sexual content, including one thought to be an image of child abuse and two that contain 274 links to child abuse content, 142 of which link to dark web services.

    "Our analysis shows that certain content, eg, illegal pornography, can render the mere possession of a blockchain illegal," . "Although court rulings do not yet exist, legislative texts from countries such as Germany, the UK, or the USA suggest that illegal content such as [child abuse imagery] can make the blockchain illegal to possess for all users."
    Oh dear. Oh dear, oh dear.

    https://www.theguardian.com/technolo...llegal-content
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