The I.R.S. is Now Interested in Owners of Bitcoins
For most people, strictly-online digital currencies are a vague indescribable type of fuzzy currency that is neither useful nor of value in a person’s daily life of credit cards, debit cards, cash, checks, cashier’s checks, wire transfers, etc. So, it was interesting that the U.S. Treasury has become more than interested in this digital currency since it provides a viable alternative from the traditional pedestrian form of currency such as the U.S. dollar. These virtual currencies offer benefits over hard currency, such as U.S. dollars banking fees and credit cards; such as lower transaction fees, faster transfer of funds and the identity of the parties involved is generally anonymous, leading to a greater possibility of their use in illegal transactions.
Now that I have caught your attention and you ponder how this new currency can benefit you, lets see what some of these currencies are as well as which virtual currencies have no legal tender status in any jurisdiction but acts as a substitute for real currency, termed “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency; digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies. However, there are hundreds, if not thousands, of digital currencies but only a few have significant support. Most so-called alt coins are likely to remain niche instruments. Many who put cash into them are speculators who hope wider take-up will send their investments soaring. But digital currencies have now caught the attention of financial institutions, central bankers and, as I mentioned above, the U.S. Treasury. Here are some of the popular digital coins that are currently available
The first digital currency to gain widespread adoption has the highest market value at about $11bn. Since its creation in 2009, bitcoin has demonstrated that the algorithms driving it are robust. However, it will be forever tainted in the eyes of many because of its use by criminals on dark-net sites and its association with scandals in which customers’ bitcoin were stolen from hacked exchanges. It runs on an open-source protocol that operates across a network of users’ computers. But its flaws are preventing it from being more widely adopted so it can become a means of payment as big as MasterCard or Visa.
Market value: $11bn. Price per coin: $687.41
The second-biggest digital currency is ether, an open-source, decentralized currency running on the Ethereum blockchain. The Ethereum project takes virtual currencies further than bitcoin, by developing new applications on the underlying technology. One innovation is exchanging ether using legally binding contracts stored on its blockchain, the distributed ledger infrastructure on which it operates. Companies such as IBM, Microsoft and Samsung have experimented with Ethereum’s protocol.
Market value: $1bn. Price per coin: $11.26
This cryptocurrency came into being in 2016, when the creators of Ethereum decided to split Ethereum’s blockchain after a hacker stole millions of dollars in customers’ deposits. But this move outraged many who believed a core principle of blockchain — that it was tamper-proof — had been violated by its founders in an effort to protect depositors’ funds. They stuck with the original chain, however, so although Ethereum and Ethereum Classic were once in fact the same algorithm, the two have since become separate currencies despite sharing a similar name.
Market value: $84m. Price per coin: $0.98
Ripple is working with banks including Santander and UBS to develop the infrastructure to allow financial companies to make payments to each other across borders, a core aim of the sector. It aims to be faster and cost less than the infrastructure banks use. It would offer services in competition with existing providers such as Swift, which provides secure financial messaging products.
Market value: $298m. Price per coin: $0.008376
Originally named Darkcoin, this currency began to gain popularity in 2015 by vaunting its privacy benefits. Dash’s network operates in much the same way as bitcoin does, but it is designed to add an extra layer to transactions, mixing them up so it is difficult to link the buyer and seller.
Market value: $65m. Price per coin: $9.49
If bitcoin is gold, Litecoin is silver. That was the principle stated by its founder, a former software engineer at Google. Although it was inspired by bitcoin, it was designed to offer an edge over its rival in that its network can handle more transactions more quickly.
Market value: $193m. Price per coin $4.01
The curiosity smoldered for several years, while the U.S. Treasury was aware that “virtual currency” may be used to pay for purchases and services, or held in virtual wallets for investments as the conversion back to hard currency may be a financial gain. Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies!
WITH ALL OF THIS NEW TYPE OF GLOBAL CURRENCY, WHAT COULD POSSIBLE BE THE DOWN SIDE?
As of November 17, 2016, the U.S. Treasury filed a motion in San Francisco, California against Coinbase seeking the information and identification of approximately 4.9 million customers of Coinbase:
In order to identify taxpayers who have may have underpaid taxes associated with transactions in virtual currency, the United States brings this ex parte proceeding under § 7609(f) and (h) of the Internal Revenue Code (26 U.S.C.) for leave to serve a John Doe summons on Coinbase. The John Doe summons seeks records relating to transactions in convertible virtual currency of John Does whose identities are sought by the summons are United States persons who, at any time during the period January 1, 2013, through December 31, 2015, conducted transactions in a convertible virtual currency. The issuance of the summons is warranted here because (i) the summons relates to an ascertainable group or class of persons; (ii) there is a reasonable basis for believing these U.S. taxpayers failed to comply with internal revenue laws; and (iii) information sufficient to establish these U.S. taxpayers’ identities is not readily available to the IRS from other sources.
A John Doe Summons is a simple and yet effective tool for the U.S. Treasury requiring information which then allows names to be added to the John Doe in an unlimited number as this case is developed by the U.S. Treasury. Obviously this matter is a serious civil and criminal case that will evolve quickly after the last schedule time to respond, February 16, 2017.
Of course, we will keep you appraised on how this landmark case develops in California. Remember, the internet is based in the United States, specifically California, so any summons upheld in California will be a significant probe into the currently confidentiality of Coinbase membership as well as other Bitcoin and other virtual currencies being traded or used in commerce.
Our expertise is in keeping you, the member of these virtual currencies and wallets, in compliance with the U.S. Treasury now before your identification is made available to the U.S. Government wherein aggressive civil and criminal actions will be made through the Department of Justice, DOJ, for incarceration and heavy fines. Contact us if your have any questions and if you are seeking “Attorney/Client Confidentiality”, we are happy to act as your legal representative in this rapidly evolving area.
Michael B. Nelson, Esq.
Attorney and Counselor At Law
2500 Old Crow Canyon Road
San Ramon, California 94583
United States of America