A Speculative Look Into The Future Of The Bitcoin Industry
With the creation of Bitcoins in 2009, crypto-currencies leaped from being an academic concept to virtual reality. Although, it attracted significant investor and media attention only in April 2013 when it peaked at a record $266 per bitcoin after surging 10-fold in the preceding two months.
At its peak, bitcoin exhibited a market value of over $2 billion. However, shortly after the spectacular growth, it witnessed a downfall of 50%, which resulted in debates and discussions speculating the future of Bitcoins. This article is a detailed documentation of Bitcoin and the speculations regarding its future.
Before we get into the speculative future of bitcoins it is important to know what is its position currently.
Understanding Bitcoins
What is Bitcoin?
Bitcoin is a currency that uses peer-to-peer technology. This technology enables all functions such as currency issuance, transaction processing, and verification to be carried out collectively by the network. While this decentralization ensures no manipulation or interference from the government, the down-side is that there is no central authority to ensure that things run smoothly.
How are Bitcoins Created?
Bitcoins are created through mining, which requires powerful computers to solve complex algorithms and numbers. Currently, they are being mined at the rate of 25 Bitcoins every 10 minutes. It should be noted that the production will be capped at 21 million Bitcoins.
A Look into the Future of Bitcoins
The future of bitcoin is subject to a lot of debate. The crypto-evangelists suggest that the market capitalization of crypto-currencies would explode over the next five years, rising to $5-10 trillion. The economic analysts predict a significant change in crypto is forthcoming as institutional money enters the market.
Current Challenges
Bitcoin’s benefit of transaction anonymity has made it a favored currency for a host of illegal activities. This attracts the attention of government agencies and is likely to hamper its growth rate predicted by the crypto-evangelists.
The fact that a computer crash can erase the digital fortune, or that a hacker may rob a virtual vault is a significant technical challenge that is faced by Bitcoins and other crypto-currencies. That is not all. Speculators suggest that the rapid increase in the popularity will result in increased regulation and government scrutiny, which abolishes the fundamental premise for their existence.
Another challenge that Bitcoins face is their relative complexity compared to conventional currencies. This deters most people and has hindered their widespread usage.
The fundamental idea of the mining of crypto-currency is not understandable to people. This has not only kept the merchants at bay but has also held the investors off.
To become part of the mainstream financial system, Bitcoin needs to satisfy few widely different criteria, such as it would need to be mathematically complex to avoid fraud and hacker attacks but easy for consumers to understand.
Furthermore, while decentralized, bitcoins need to safeguard and protect consumers. Another challenge would be to preserve user anonymity without being a conduit for tax evasion, money laundering, and other nefarious activities.
Since these are foreboding criteria to satisfy, it is highly likely that bitcoins fall midway on the spectrum of fiat currencies and crypto-currencies. Finally, another major challenge faced by bitcoins and other similar crypto-currencies is the hassle of having to file taxes, which requires a significant amount of time, effort, and patience.
Crypto Taxes
Tax policies for crypto-currencies are confusing for people all around the globe. However, there are several free bitcoin tax calculator available online, which make the process hassle-free. It is important to understand tax regulations and taxable events to get a full understanding of cryptocurrency.
Tax Regulations
According to IRS guidelines, for tax purposes, Bitcoin and other cryptocurrencies should be treated as property and not as currency. This holds for all crypto-currencies such as Ethereum, Litecoin, XRP, etc.
This means that crypto-currencies must be treated like owning other forms of property, such as stocks, gold, or real-estate. You are then required to report your capital gains and losses from your cryptocurrency trades. Failing to do so is considered tax fraud in the eyes of the IRS.
Taxable Events
Trading a crypto-currency for a fiat currency like the dollar is considered a taxable event. Also, trading cryptocurrency for another cryptocurrency is a taxable event. Exchanging bitcoins or other such currencies for goods and services is also a taxable event.
Furthermore, you don’t have to pay capital gains tax until you trade, use, or sell your crypto-currency. If you hold your crypto-currency longer than a year, you will have to pay long-term capital gains tax, which is usually 50% of the short-term capital gain tax. However, you will be subjected to short term crypto taxes if you hold your crypto-currencies for less than a year.
Tax Exemption
There are certain events in which the trade is not taxable. For example, if bitcoin is transferred as a gift, it is not said to be a taxable event. However, a gift tax is applicable if you exceed the gift tax exemption amount.
The transaction between crypto-currency wallets is not a taxable event. You are allowed to transfer crypto-currencies between exchanges or wallets without being subject to capital gains and losses. Also, buying crypto-currency with U.S dollars is not a taxable event.
Conclusion
The past decade has seen a tremendous rise in the popularity of cryptocurrencies. However, the decentralized currency has several challenges which restricted its initial growth. Experts suggest that upon overcoming these challenges, the currency has enormous growth potential.
While some of these challenges are technical, taxes are also a major hindering factor. People from all over the world do not understand crypto taxes. It is essential to understand that crypto-currencies such as bitcoins are considered as property and not as fiat currency.
Organizations such as ZenLedger provide automated tools to process your crypto taxes on a user-friendly interface efficiently. This software saves you the hassle of having to do it all by yourself. ZenLedger helps the users to import cryptocurrency transactions, calculate gains and income, and auto-fill tax forms like 8949, Schedule D, FinCen114 & FBAR.
