Weekend Insights: Blockchain Basics and Cryptocurrency Compliance – Bloomberg Tax

Weekend Insights: Blockchain Basics and Cryptocurrency Compliance – Bloomberg Tax

It’s important to understand the tax consequences of cryptocurrency and blockchain. From cryptocurrency compliance to NFT, we explain what you need to know in this week’s Insights Roundup.

But first, some background. In 2014, I was following a story about an alleged online black market known as Silk Road, where buyers and sellers conducted all transactions with bitcoin. It was the first time that I had heard about cryptocurrency, and I was fascinated as agents from IRS Criminal Investigation explained it to me.

Today, you can’t pick up a newspaper or click on a website without hearing a reference to cryptocurrency and blockchain. The market cap for cryptocurrency is reportedly over $1.7 trillion, with the most valuable being Bitcoin.

The embossed word Bitcoin sits on the edge of Bitcoins stacked in this arranged photograph in Danbury, U.K.

Photographer: Chris Ratcliffe/Bloomberg via Getty Images

Bitcoin is a digital currency, meaning that instead of a coin that you can hold in your hand, it’s essentially a computer file. You can save it in your digital wallet on your computer, use it to buy goods or services, or exchange it for other digital currencies, or cash, using a platform. What makes it so attractive is that each of these transactions is memorialized on the blockchain.

Think of blockchain like a ledger: That’s something that those of us in the tax and accounting worlds are familiar with using. But instead of recording your ledger items on a paper