There is battle on the horizon in the world of finance. This is not a squabble over minor changes in the industry, but an uproar over innovation that could change everything about the way we do business. This complex technology is simply referred to as Bitcoin, the first decentralized cryptocurrency.
The growth of Bitcoin is splitting CEOs, financial officers, and government officials across the nation into camps over whether or not it will revolutionize finance. Silicon Valley leads the charge to support Bitcoin as a currency, as it does in most issues involving the union of technology and business. On the other side is the Federal Government leading the opposition and trying to regulate Bitcoin, as it has an interest in guarding its own currency, the U.S. dollar as well as protecting commercial markets. The use of Bitcoin is also overshadowed by its decentralized and unregulated nature, and has become a favorite for many engaged in illegal activities and tax evasion.
Some question whether Bitcoin become the world’s most widely used currency? The better question for many is “what is the world is Bitcoin?
Bitcoin: An online payment method that carries out peer-to-peer transactions without an intermediary. This system uses its own method of account called bitcoins. There is no central regulatory authority overseeing its use, and no one owns Bitcoin. Its operation is entirely digital and bitcoins are acquired primarily through purchasing them on independently owned exchanges.
Cryptocurrency: A medium of exchange that uses encrypted data to conduct transactions and uses its own unique units for accounting purposes. Bitcoin is a type of cryptocurrency, as are newcomers Litecoin, Namecoin, and PPCoin.
Bitcoin and other cryptocurrencies can be purchased with the official currencies of many countries and once possessed can be used to buy and trade internationally. With Bitcoin, users no longer a need to use a national currency or international currency exchange anywhere in the process once an initial purchase of Bitcoin is made.
Before embarking on an investment in Bitcoin or another cryptocurrency, consider that the very lack of regulation that makes Bitcoin attractive is also its greatest weakness. The U.S. dollar has the backing of the government, and financial institutions owe a duty to depositors to protect funds maintained in those financial institutions. There is, however, no entity backing Bitcoin to whom a person can turn if his or her account is hacked and depleted, or wiped out by a computer crash.
As Bitcoin and other cryptocurrencies mature, and the law and technology changes to keep pace, who can say just how integrated Bitcoin will become with everyday life. You may just find yourself one day shopping online and paying with bitcoins.
Until that time, remember that in March 2014, the Internal Revenue Service ruled that Bitcoin is property with a fair market value, and not a currency. It cannot be used to pay taxes or converted into yearly income for tax purposes. But, will be instead subject to capital gains. http://www.irs.gov/irb/2014-16_IRB/ar12.html
Here the conflict between proponents of Bitcoin as a new and viable currency and the government is evident. As time goes on and the law and technology changes, who can say just how integrated Bitcoin will become in our daily lives.
For more information on cyber laws that effect your business, contact the Goosmann Law Firm at info@goosmannlaw.com or call (712) 226-4000.