Another eventful week at CCN. We learned that the United States Internal Revenue Service (IRS) is treating bitcoin as property for tax purposes, that the bitcoin price dropped below $500, that transaction malleability did not bankrupt Mt. Gox, and more. Here are our top stories for the week of 24 March – 30 March in case you missed them. [youtube https://www.youtube.com/watch?v=shkvBF6n1DY?rel=0]
IRS Virtual Currency Guidance
The United States has finally set some clear rules regarding taxation of bitcoin. According to the IRS, bitcoin and other virtual currencies will be treated as property, and general rules for property transactions will apply. The full release is available here, but we’ll outline some of the most important parts.
- Transactions using virtual currency must be reported in U.S. dollars. Taxpayers are required to determine the fair market value at the time of the transaction of the virtual currency.
- Gains received from mining bitcoin, litecoin, etc. are taxable.
- Virtual currency received in exchange for services is taxable.
- Payments worth $600 or more in virtual currency must be reported to the IRS.
- Taxpayers may be subject to penalties for treating virtual currencies in a matter inconsistent with this notice prior to March 25th, 2014.
Many bitcoiners are complaining about these new rules, considering them burdensome and difficult to enforce. There is a petition to amend the IRS notice on the White House website, but it currently has under 400 votes.
Bitcoin Price Drops Below $500 USD
For various reasons, the price of bitcoin has dropped below $500 ($453 at the time of this post). There are several rumours that the People’s Bank of China (PBoC) plans to ban bitcoin in the country, and several news agencies are reporting the rumour as fact, despite a lack of any real evidence. These rumours are creating fear and uncertainty, which is undoubtedly causing a panic to sell. Also, many people misunderstood the IRS’s new rules regarding bitcoin. Payments worth $600 or more are subject to capital gains tax. However, Bloomberg reported that ANY payment, such as a $2 cup of coffee, is subject to CGT, which is incorrect.
Evidence that Transaction Malleability Did Not Bankrupt Mt. Gox
New research from ETH in Zurich, Switzerland is confirming what most bitcoiners already suspected. Transaction malleability did not bankrupt Mt. Gox. According to the research:
The transaction malleability problem is real and should be considered when implementing Bitcoin clients.
However, while MtGox claimed to have lost 850,000 bitcoins due to malleability attacks, we merely observed a total of 302,000 bitcoins ever being involved in malleability attacks. Of these, only 1,811 bitcoins were in attacks before MtGox stopped users from withdrawing bitcoins. Even more, 78.64% of these attacks were ineffective. As such, barely 386 bitcoins could have been stolen using malleability attacks from MtGox or from other businesses. Even if all of these attacks were targeted against MtGox, MtGox needs to explain the whereabouts of 849,600 bitcoins.
Mt. Gox does indeed need to explain the whereabouts of 849,600 bitcoins. However, the exchange’s CEO Mark Karpeles is refusing to travel to the United States for questioning, even though plaintiffs have offered to pay all travel expenses.
Senator Joe Manchin Backs Off
Just last month, Senator Joe Manchin of West Virginia wanted the United States to completely ban bitcoin. Manchin criticised the virtual currency, stating that it was used mostly by criminals and offered anonymity. Soon afterwards, congressman Jared Polis satirised Manchin’s letter, stating that the U.S. dollar should be banned for the same reasons. For various reasons, it seems like Manchin is changing his attitude towards bitcoin. Although he’s not ready to invest in the currency, he has begun to “look at [Bitcoin] differently.”
Alpha Technology Promises to Deliver “Long Before Any of Our Competitors Even Ship”
Scrypt ASICs are coming; there is no denying it. However, several companies such as Fibonacci, MAT, and Alpha Technology are competing to get their miners out to customers. Just recently, Alpha Technology promised to deliver their miners to customers “long before any of our competitors even ship.” Instead of focusing on matching hashrate-to-cost ratios, Alpha T is focusing on actually delivering their products (take a hint, Butterfly Labs). Whether or not the company will fulfil its promise remains to be seen.
That’s all for this CCN Week in Review, where every Sunday we feature our top stories of the week.