California Governor Jerry Brown signed into law
the removal of a ban on the use of crypto-currencies such as Bitcoin
and Dogecoin to “accommodate the growing use of alternative payment
methods.”Roger Dickenson, assemblyman in California and author of Section 107 which allows for corporations or individuals to issue tradable legal tender other
than US dollars, said : “In an era of evolving payment methods, from Amazon Coins to Starbucks Stars, it is impractical to ignore the growing use of cash alternatives. This bill is intended to fine-tune current law to address Californians’ payment habits in the mobile and digital fields.”
California bill AB 129 “repeals an outdated restriction on the use of ‘anything but the lawful money of the United States’.”
This bill acknowledges popular digital currencies as legitimate, including:
• Bitcoin
• Ripple
• Litecoin
• Peercoin
• Namecoin
• Dogecoin
• Primecoin
Dickenson explained: “The literal meaning of the restriction indicates that anyone using alternative currency is in violation of the law. However, people commonly use digital currency, community currency, and reward points without penalty.”
Economist Daniel Altman explains that Bitcoin only has value “because people want to use it.”
Bitcoin has been given that status of a “payment service provider” (PSP) by French financial institutions Aqoba and Crédit Mutuel. Officially, they are not a PSP because of the banks they are aligned with who are. This means Bitcoin is able to take advantage of their PSP status without having to be one themself.
Crédit Mutuel is the “main component of the Crédit Mutuel-CIC Group” which includes a federation of French financial institutions that have assets totaling over $581 billion. The federation’s holding corporation, the Banque Federative du Crédit Mutuel (BFCM) control French and foreign operational subsidiaries in Germany, Belgium, Spain and Portugal.
Bitcoin now has an International Bank ID number (IBAN) which allows transactions through PayPal and WorldPay and other digital payment networks; as well as issue debit cards, enabled to process monetary transfers to other banks and accept transfer of digital currency to their own “location”.
A Bitcoin account will be as viable as any other bank account with other established banks worldwide.
Deposits will be subject to compensatory laws that are applicable when dealing with printed fiat in traditional accounts and balances in Bitcoin accounts can be exchanged for the fiat in that country (i.e. euros, US dollars, Yaun, etc. . . ).
Last March, the Internal Revenue Service (IRS) said in a statement that bitcoins and other crypto-currencies are to be taxed as property – not as currency.
The IRS said: “General tax principles that apply to property transactions apply to transactions using virtual currency.”
This means that bitcoins will be taxed as “ordinary income or as assets subject to capital gains taxes” under the correct circumstances.
According to the IRS crypto-currencies will not be “treated as legal-tender currency” and the US dollar value of virtual currencies will be subject to taxation on gains and losses just as property transactions are calculated.
The IRS statement reads: “The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer. If a taxpayer holds virtual currency as capital – like stocks or bonds or other investment property – gains or losses are realized as capital gains or losses. However, when virtual currency is held as inventory or other property mainly for sale to customers in a trade or business, ordinary gains or losses are generally incurred.”
Bitcoins that are “held by investors” will be treated as though it were “stock or other tangible property. If the virtual currency is held for investment, any gains would be treated as capital gains, meaning they could be subject to lower tax rates.”
According to Publication 525, Taxable and Nontaxable Income, “a taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.”
This publication also states that a taxpayer who “mines” virtual currency is then subject to the fair market value of the US dollar at the time of mining which would translate to the date of receipt. This is considered gross income.
As outlined in Publication 551, the Basis of Assets, that virtual currency is subject to “fair market value of the virtual currency in US dollars as of the date of receipt.”
Fair market value of virtual currency is required to be determined in US dollars. Additionally, virtual currency that is listed on the stock exchange must be valued by its ability to be converted to US dollars.
In 2013, Kaspersky Lab has found a Trojan virus that turns a PC into a miner for Bitcoins. In fact, the “infected machine [becomes] a slave of the bitcoin generator. The usage of CPU grows up significantly. This virus is spread through Skype messages.”
Those affected by the virus are mainly “in Italy, Russia, Poland, Costa Rica, Spain, Germany, Ukraine and others.”
The virus appears to have originated in India, connecting to other servers; such as in Germany.
In 2010, Banminer, another Bitcoin Trojan emerged that “sniffed out graphical processing units and used them to crank out Bitcoins.”
The Bitcoin popular rise of Bitcoin has worked so well that in 2012, a user named Pirateat40 used a group known as the Bitcoin Savings & Trust (BST) to create a hedge fund in order to manipulate the e-money, syphon out wealth from Bitcoin owners.
This plan ended in the “legitimate investment strategies” of Pirateat40 which also resulted in the shutdown of the BST.
It was explained as: “The decision was based on the general size and overall time required to manage the transactions. As the fund grew there were larger and larger coin movements which put strain on my reserve accounts and ultimately caused delays on withdraws and the inability to fund orders within my system. On the 14th I made a final attempt to relieve pressure off the system by reducing the rates I offered for deposits. In a perfect world this would allow me to hold more coins in reserve outside the system, but instead it only exponentially increased the amount of withdrawals overnight causing mass panic from many of my lenders.”
Pirateat40 walked away with 500,000 Bitcoins worth $5.6 million USD which was syphoned from the holdings of the BST.