Virtual Currency & Taxation Part 1 (1/4)


Welcome. We’re excited to present this course on virtual
currency taxation, which really is a brave new world in the field of taxation and the
field of finance. I think you’re going to find this very interesting. I got involved with virtual currency a few
years ago pretty [laughs] much by accident. I already have a small informal newsletter
that I send out to my clients, and someone suggested that we should do a little piece
on Bitcoin. I sat down that week-end and I did some research
and it was pretty interesting. I found this website that listed tax preparers
who were willing to do taxes for virtual currency clients, and I think there were three or four
other people on it. I thought, “Well, how hard can this be?” I put my name down. The next day, the phone rang. I’m sure we’ve all had these conversations
with new clients, where we’re sort of furiously googling [laughs] the words that they’re saying,
so that we can try to sound intelligent. It was that kind of conversation. Phew, I got through that? The next day the phone rang again and I had
another one of those conversations, where I was furiously googling terms as they spoke. At this point, I began to realize that [laughs]
either I should get my name off the list [laughs], or I should realize that I really had a tiger
by the tail here, and I was either going to get eaten, or I was going to learn to talk
tiger. That was the goal, it was to learn to speak
tiger. My goal in the three parts of this course,
there’s a part one, part two and part three is to teach you how to speak tiger also, so
that your phone can ring and you can help these folks out. I think you’re going to find this very interesting. I know that I have found it fascinating. What we’re going to talk about today is: what
virtual currency actually is? What the blockchain is that makes virtual
currency possible? I’m going to go over a little some of the
history of these currencies, and how the world is handling this, I’m going to call it an
explosion of new ways in doing business. One of the things I think is important when
we work with virtual currency clients is to be able to speak the language. They’re not going to expect you to be virtual
currency expert, they are going to expect you to at least understand what they’re talking
about. Part one is to try to make that happen. Every informed person needs to know about
Bitcoin, because it might be one of the world’s most important developments. I think a lot of people in financial industry
would agree with this. Bitcoin and the blockchain that it’s based
on has the potential to change the world. We as tax preparers now about it, because
the odds are very good that your clients have virtual currency income, and you don’t know
it. First we’re going to talk about the nature
of virtual currency. What actually is virtual currency? Virtual currency started with the development
of the blockchain. The blockchain is an attempt to answer a financial
problem that humans have had really since money was created. How can we trust what happens in the world
and norm line when it’s so easy to falsify records? This is not a new problem. Today, we talk about record being falsified,
but it wasn’t very long ago, when the actual coins were falsified. You’ve probably noticed that the quarter and
the dime have this serrated edges on it. It’s not to blind people can tell one coin
from another, which what my husband thought. The actual reason that coins were serrated
was because, back in the day, not that long ago, coins were valued by their weight. What people would do is sort of just clip
little bits out of coins that you could hardly tell little shavings. Then if you did that to on enough coins, you
had enough of these little shavings to create a whole new coin. Obviously what you were doing is you were
decreasing the value of the coins that you’re clipping from. The idea of the serrated edges was that someone
could tell if that coin had been clipped. It does seem like the more things change,
the more they stay the same. Now, this doesn’t happen, people are not clipping
quarters; people are modifying records. The point of the blockchain, the concept of
the blockchain was to lock in important data like who owned the coin first? Who got it next? When did that next person get it? How much did they get? Basically, locking the record of what did
happen with that currency forever, never to be tempered with. That’s the concept of the blockchain. The blockchain, and we’re just talking software
here, the blockchain is a software protocol that records who had this virtual currency
first? Where did it get transferred? When did it get transferred? What value was transferred? You can see that with blockchain, things like
bounce cheques just don’t happen, because the blockchain knows is the money really there? Or just this person really own it? The blockchain, the idea of it is to give
us a level of certainty and trust with a financial transaction that we’ve literally never had
in the history of money. What is a blockchain? I’m going to just read this slowly, because
this is what you have to start training, get it into your head. This is not, by the way, this is not immediately
obvious. If you’re scratching your head thinking, “This
is just weird.” Yes, this is weird. It’s a completely different way of looking
at money, and it takes a little time, and a little working with, before it starts to
make sense. The blockchain is a distributed digital ledger. It’s a public ledger that is used to record
all the transactions across any computer that has ever worked with the blockchain, so that
the record cannot be altered without the alteration of all subsequent blocks in inclusion of the
entire network. The point is just that, [laughs] this is never
going to happen. The database stores records in what are called
blocks, and each block contains a timestamp of what happened with that virtual currency? Where and when the exact moment, et cetera. This is what a blockchain looks like is software
land [laughs]. This obviously means nothing to you and me,
and this only a piece of a blockchain. A blockchain is a very long bit of data. This is what it’s going to look like, it’s
not meant to mean anything to you and me, thank God because it doesn’t. People say, “How can something like a blockchain
have value, because it doesn’t exist? It’s just a string of numbers. How can this possibly be worth anything?” Then I like to pull out a dollar bill [laughs],
when I teach this class live, and I say, “Outside of the US government telling that this has
value. What value does it have? I mean you won’t even blow your nose on this
thing, because it’s filthy. God knows [laughs] how many people have touched
it. I have no value whatsoever, and it should
be shredded immediately. Virtual currency is the same. It has value because the users agree that
it has value. It has no physical existence, but guess what? Neither does the money in your bank account. That money really exist only digitally.” Banks and financial institutions understand
that the blockchain technology has the potential to completely change the way they do business. I mean, if virtual currency based in the blockchain
really took off, we might not even need banks. The computer would store your money, you don’t
need the bank to store your money. If you don’t think that’s keeping some folks
awake at night, and also why should tax fee payrolls big interest in. Tax preparers are interested in virtual currency,
because there are tax transactions that come about from dealing with virtual currency,
and there are enormous implications. No intrinsic value, but it can be created
and donated like property. This is a little bit like super benoids birds
playing superman [laughs]. Virtual currency has a lot of different facets. In submissive property, but it’s organ spent
like currency. It goes up and down in value, relative to
the US dollar, like stock. This is one of the reasons people have a hard
time wrapping their brains around virtual currency; is it so many different things. It’s legal in some countries, it is legal
in the United States, it’s not a US currency, it’s not fiat currency as we call it; and
it is illegal in other countries, and we’ll talk a little bit about that. It is even accepted as payment by a number
of I’ll say higher tech companies. All much I think of overstock.com as higher
tech, but certainly, Microsoft into its PayPal accept virtual currency as payment for their
services.

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