which represents a level of value creation on the order of Silicon Valley success stories like Airbnb, according to the 2017 Global Cryptocurrency Benchmarking Study by the Cambridge Centre for Alternative Finance.

The impact of Bitcoin has been compared to the day paper money replaced gold and silver. It is so new that like there were no computer technicians before computers, there are few Bitcoin experts, more educated guessers.

cryptocurrencies are the tip of the iceberg when it comes to blockchain technology. Many financiers argue it will transform the world money system and maybe be the next dotcom-style boom. Up for grabs are billions more as peer-to-peer networks spark new business platforms and threaten to wash away established business practices that have been around for centuries.

“The first time I heard about Bitcoin, I had to write a press release for Standard Bank. It must have been early 2012. At the time I didn’t understand it, it just went over my head. I thought it was too technical. After I left the industry I wanted to be my own boss. I was looking for an opportunity and came across Bitcoin,” says Ramjoo.

She has made a business out of educating clients on Bitcoin, blockchain and cryptocurrency – topics that leave many baffled.

“We are in an evolution of money here. What people don’t realize is when the internet first started some governments were against it. As more countries started adopting it, more countries got involved. That’s the same phenomenon happening here,” says Ramjoo.

“We keep hearing of [blockchain] from a more technological point of view. Remember the topic of money is social… when you understand that this is actual money that you can use – I can go and buy bread and put petrol in my car – then you start wanting to find out more.”

Ramjoo’s venture is just one small example the business generated by the rise of this cryptocurrency. Since Bitcoin, more than 800 cryptocurrencies have blossomed in this unregulated market.

So what is blockchltin and bitcoin?

When you transfer cash your money goes through the bank to another person. The bank, who acts as a central mediator, charges you a service fee and makes a record of the transaction.

Until recently, the bank was the only keeper of these records, which in turn is proof of your transaction. This is called the ledger system. The process of verifying the information takes days and also means banks are able to dictate the cost of these transactions.

Blockchain short-circuits the ledger system in the blink of an eye, by decentralizing it. In 2008, a paper published under the alias Satoshi Nakamoto suggested instead of your transaction being in one single computer server at the bank, you could store a transaction on thousands of computers around the world at the same time- rent-a-crowd worldwide.

“There are a whole lot of people logged onto this network and confirm all these transactions all day long. What do they get as a reward for it? The answer is Bitcoin. The reason why Bitcoin exists is to reward these people that make their computers available to store data and to become a world super computer that looks over transactions,” says Ran Neu-Ner, Johannesburg entrepreneur and Co-Founder of the Creative Counsel.

Not only does this mean there are literally millions of back-ups, so that you cannot delete the transaction should the bank be hacked, but also the bank is no longer needed to make the transaction. In effect blockchain cuts out the middleman making all the rules, all the money and protecting your privacy.

“The Bitcoin isn’t important. The piece of technology that’s important is the blockchain that get technology around the world to become a super computer to transfer money to store contracts or whatever else” says Neu-Ner.

Imagine a world where people go from place to place in driverless cars, where there are no stop streets, or traffic lights, and machines decide how fast you get to your destination. If you can dream it, Neu-Ner can see it.

“Think 10 years from now, when there are only driverless cars on the road. You don’t have to have anything on the roads created for human nature.”

“Imagine the scenario: we’re driving in driverless cars, we both need to get to work. Your car is in front of my car. You want to pass, so you would normally flash your car’s lights. But in a driverless car you’re not able to flash lights at each other and say move over:’

The solution will be for driverless cars to set up smart contracts and you’ll pay in [cryptocurrency].

“The guys who are working on driverless cars are working on that blockchain right-of-way system right now.”

“The keyword when you are thinking about the blockchain is decentralization.. Just keep asking yourself, if something is centralized, how is it going to be disrupted? Because it’s going to be disrupted. It’s a new economy, where everyone who contributes earns their fair share in tokens,” says Neu-Ner.

Trading and spending

Because it is an international currency, the Bitcoin, as well as the world, is your oyster. You can travel the world by spending Bitcoin. In Japan, for instance, over 200,000 stores now accept Bitcoin.

This is how it works

While on the way, a Bitcoin can be purchased on exchange sites when you are starting out. All you need to do is download an app, load up some cash and then start buying. Some financial brokers will even purchase Bitcoin fractions on your behalf.

The exchanges vary but we’ve found bitcoinzar.co.za offers a number of companies that will accept PayPal, your credit or debit card, and person-to-­person. There is even a BTM (bitcoin ATM) at a business called Metroman in Kyalami, Johannesburg, that accepts rand in exchange for Bitcoin.

In South Africa there are two licensed Bitcoin exchanges. These are Ice Cubed and Luno according

to bitcoinzar.co.za. It is even possible to get your salary in Bitcoin; it’s as simple as a shopping cart on an online store.

There are, however, pitfalls. You must research the apps and look for realistic returns when investing in cryptocurrency, especially ones you are not familiar with. Schemes, such as Pipcoin, offered high returns of 35 a month and many fell for it.

“Millions were invested in it and many lost money, because they couldn’t tell it was a seam. It was plugged as the coin of Africa. So if you don’t understand how coins are generated, you won’t know how these schemes operate,” says Ramjoo.

Bitcoinzar.co.za also recommends you don’t leave your Bitcoin on an exchange. Hackers know that exchanges are mostly honey-pots, with private user information, and, more importantly, Bitcoin that can be instantly stolen and transferred away to an anonymous Bitcoin wallet.

“People are losing their money very quickly. They are believing that if they buy into this hype today, tomorrow I’ll come away with a lot of money,” says Neu-Ner.

If you are looking to invest, ensure you have a Bitcoin/cryptocurrency wallet where you can keep your data offiine and private. You should always question the authenticity of these wallets and the company should be transparent.

It is even possible to mine you own Bitcoins, although this method of earning is considered to be going out of date. At the current rate of exchange, you would be spending more money on equipment and electricity, unless the price escalates substantially.

“You can compare it to when the internet first came and emails. The whole process of us writing a letter, going to the post office, then waiting for the letter to get to the person. When the email came, the postal service became a third party, and not being used as much as we used it before,” says Ramjoo.

Africa is looking at adopting blockchain-based currency. In February, the South African Reserve Bank said it is open to issuing a national digital currency, which would likely be based on blockchain or distributed ledger technology. Senegal is set to roll out its eCFA, a digital version of the West African franc, later this year, and there are even plans to extend distribution across the West African Economic and Monetary Union (UEMOA).

“There is going to be a new generation for banks. We are starting to see it play out in the market – governments starting to issue out their own cryptocurrency. Tunisia was the country in the world to have its own government issued digital currency… Some people are old school and will keep their money in the banks. But the bank of the future will not be the same as it is now,” says Ramjoo.

This is just the beginning of a new system that will transform the world and make billions in the process. Many people don’t understand what’s happening; those that do will likely become even richer.

 which in turn keeps a record of every transaction ever made.

“Bitcoin is not a company, nor does a single person or organization issue or control Bitcoins; therefore, it has no central point of failure. For this reason, nobody can inflate the currency supply and create hyperinflation crises, such as those that occurred in post-World War I Germany and more recently in Zimbabwe. In 2008, the government of Zimbabwe printed so much of its currency that in a single year, a loaf of bread increased from $1 to $100 billion. In both cases, any savings that people had in the form of national currency were completely destroyed.” – extracts from Bitcoin for the Befuddled by Conrad Barski and Chris Wilmer

Supporters would not receive a finished product down the road, as in a typical Kickstarter project. Instead, for every Ether (or fraction thereof) sent to Gnosis’ wallet, the “smart contract” would automatically send back a different type of money, a GNO coin, that would give people special access to the platform plus act as equity in the network.

Theoretically, as Gnosis became more popular, demand for GNO coins (also known as tokens) would rise, boosting the shares of existing GNO token holders. The founders had designed their crowdfunding as a Dutch auction, which starts with a price ceiling rather than a floor. Within 11 minutes, Gnosis had raised the $12.5 million, led mostly by programmatic pooled “bidding rings,” and sold only 4.2 of its allotted 10 million tokens. The final price, $29.85, gave their project- which had little more underlying it than a 49-page white paper and a few thousand lines of open-­source computer code-a valuation of $300 million. In two months, GNO coins were trading at $335 each, and Gnosis was suddenly worth $3 billion, more than the market cap of Revlon, Box or Time Inc. Koppelmann’s stake alone is, in theory, now worth about $1 billion. “It’s problematic,” admits Koppelmann, who stammers and sighs repeatedly, in seeming embarrassment. His best defense for the valuation: There’s a lot out there that’s far worse.

That’s pretty much all you need to know about the great cryptocurrency bubble of 2017. The market capitalization for these virtual issues has surged 870 over the last 12 months, from $12 billion to over $100 billion. (This number is a moving target, though, since a 30 daily market plunge or gain isn’t out of the ordinary.)

That’s more than six times the rise in stock market capitalization during the dot-com boom from 1995 to 2000. A lot of this total gain comes from Bitcoin, the original digital asset-created out of an artful blend of cryptography, cloud computing and game theory-which is up 260 in 2017 alone. The total value of Bitcoin now exceeds $40 billion, despite years of shady characters, fraud, theft and incompetence (including the Mt. Gox meltdown, which took almost $500 million with it) and despite the fact it has no intrinsic value-not even the promise of a central government or a precious metal mined from the ground. But the second movers are growing much faster and doing something more interesting. Rather than a mere currency-which is largely used for speculation-these so-called “crypto-assets” intertwine businesses and tokens. The fuel here is something called Ethereum (whose currency is Ether).

Like Bitcoin, it’s based on blockchain technology, essentially a secure, decentralized, constantly updated ledger system. But while Bitcoin allows you to transact only in Bitcoin, the Ethereum network allows for software programs. In other words, Ethereum-based currencies can actually do things. So suddenly anyone with a digital idea can launch a coin to go with it. There are now more than 900 different cryptocurrencies and crypto-assets on the market, with another launching pretty much every day. On June 12, Bancor, which plans to create a new reserve cryptocurrency, offered 50% of its total tokens and raised $153 million in under three hours, setting the record for an initial funding amount.

The very next day, an entity called IOTA listed a token designed for Internet of Things micropayments and immediately fetched a value of $1.8 billion. A week after that, a messaging platform named Status launched its coin offering, raising $102 million. In a gold rush, it’s good to be selling the pans. Ethereum’s value has skyrocketed more than 2,700 in the last 12 months, to $28 billion, or $300 per token.

Of course, on the way there it has flash crashed to 10 cents and hit as high at $415. Bitcoin has been historically just as volatile, trading from $31 to $2 to $1,200 to $177 to its recent $2,500, as armies of day traders try to time something that has all the predictability of a roulette wheel. Of course, that hasn’t stopped a slew of web sites and Facebook groups from popping up, full of endless bragging of cryptoconquests, including token purchases financed with credit card debt. Or hucksters from trying to get people to put their retirement money in this stuff, via Ether and Bitcoin IRAs.

Every new coin offering presents another chance to translate a flaky business into an absurd valuation. These pioneers have certainly unlocked a better way to raise money and create a network effect. Why grovel before Silicon Valley venture capitalists or deal with federal regulators in the public markets when you can attach a token to your idea and have speculators throw money at it and then bid it up? These initial coin offerings have raised more than $850 million, from Brave Software’s lofty “Basic Attention Token” (which sucked in $36 million in 24 seconds, at a $180 million valuation, on the promise of using blockchain technology to fix digital advertising’s deep problems) to the more basic Legends Room (a coin that gives users VIP privileges at a Las Vegas strip club).

If this all sounds familiar, it’s because it is. The same dynamics ­companies with more concept than concrete, day-trader speculators, wild volatility, Dutch auctions, instant fortunes created out of thin air-were ubiquitous in the first internet bubble. As was collapse: In 2000, $l.8 trillion in internet stock market value evaporated, and unless you think a prediction-market concept is instantly worth $3 billion, history will repeat. Ether is both a building block and the future description of what’s going to happen to most of this “value.” Still, we’re past the tulip stage. Yes, that first dot-corn bubble was ridiculous, but it also gave us enduring companies like Amazon, Google and eBay. And, yes, scores of foolish day traders and IPO junkies got crushed, but lots of smart, early players got very, very rich. That history is repeating right now, too.

To best understand how cryptocurrency works, think about video games. You have a virtual world, and within this realm, you can often earn virtual currency, which can then be redeemed for rewards within the game-extra armor, more lives, cooler clothes. It’s the same here, except that it’s rooted in blockchain technology and (theoretically) you can either convert the play money into the real thing or deploy it for actual goods and services inside the entity that spawned it.

Many ICO descriptions even read like byzantine videogame rule books. For example, owners ofGNO tokens in the $3 billion prediction market Gnosis have the ability to earn a second kind of token, WIZ, valued at $1 each, to pay platform fees. Ingeniously, the coins are earned by voluntarily “locking in” tokens for periods up to a year, which conveniently props up Gnosis’ overall price. It’s a common model. Since most of these platforms cap the number of tokens, increased usage jacks up the demand for them and should, in turn, boost the price. This network effect, in which a service becomes more valuable as more people use it, mirrors the incentives of Amway-style pyramid schemes. Imagine if Facebook had a token and by merely convincing a friend to join you would improve the network and your “token” net worth.

“We are crowdfunding a new decentralized digital economy,” says Chris Burniske, who recently left New York City’s ARK Investment Management, the first public fund manager to invest in Bitcoin. Burniske classifies the emerging assets into three categories. First, cryptocurrencies like Bitcoin and untraceable digital cash like Monero and Zcash. Second, crypto­commodities, the putative building blocks of a decentralized digital infrastructure. Golem Network Tokens, for example, harness a network of computers that rent or lease computing power-so while you sleep, your computer could be used by an entrepreneur who needs to train her machine-learning algorithm, earning you coins in the process. An especially hot type of crypto-commodity: decentralized data-storage tokens, such as Filecoin, Sia or Storj, which compete with Amazon Simple Storage Service. The third category (and farthest off), crypto-tokens, promises to power consumer-facing, decentralized networks. Think Uber without Uber-a peer-to-peer network of riders and drivers (or driverless cars), earning and paying one another in the crypto-tokens needed to transact on that network. The entities raising money in thesen coin offerings are not always startups. Sometimes they’re merely developers collaborating on a project and don’t form a legal entity. And even when the group is really a corporation, such as the messaging app Kik, which is launching the Kin token, the organizers will claim that the crowdsale is not actually offering a share in the company, conveniently sidestepping securities regulations.

And the people backing this technology aren’t naive idealists. Venture capital stalwart Tim Draper has backed two crypto-assets. Brendan Eich, of Basic Attention Token fame, previously created Java Script and cofounded Mozilla. Tiger Management alum Dan Morehead founded Pantera Capital to specialize in these assets. They’re chasing firms like Blockchain Capital, founded by former child actor and video game virtual-currency entrepreneur Brock Pierce.

He went as far as to finance the firm’s latest fund with its own crypto-coin offering, BCAP, ostensibly freeing its would-be limited partners from the usual regulations, including lock-ups. He raised $10 million in six hours in April. Pierce avoided regulatory scrutiny by limiting his coin crowd sale to 99 accredited investors in the U.S. and 901 investors overseas, where rules are more relaxed. Once it launched, though, anyone could buy in. And they did; the fund’s valuation has spiked, to a recent $17.5 million. “My phone has been ringing off the hook,” Pierce says. “i have so many people coming to me saying, ‘Can i do this in my industry?’ ”

Olaf Carlson-Wee is a 27-year-old son of Lutheran pastors. He can barely write computer code, has no formal training in financial analysis and has never managed money before. This, of course, qualifies him as the poster child for the cryptocurrency bubble of 2017. Carlson-Wee’s Polychain Capital, based in San Francisco, has seen its assets swell from $4 million to $200 million in less than 10 months, mostly because of a series of deft maneuvers based on his innate understanding of crypto-assets.

For Carlson-Wee, it all started on a Minnesota lake during his summer vacation from Vassar College in 2011, as he stared at $20,000 in student­loan debt and $700 in savings in the bank. While his two older brothers have become poets, Carlson-Wee was obsessed with math, games and imaginary worlds from a young age. And after reading about the underground drug marketplace Silk Road and how it was enabled by Bitcoin, he conjured a world coursing with cryptocurrency and eventually sank in almost all of that $700 into Bitcoin, at prices as high as $16, only to see it drop to $2. Undeterred, Carlson-Wee persuaded his sociology professors to accept a senior thesis on Bitcoin and graduated from Vassar with a degree in sociology.

After a stint as a lumberjack living in a yurt on a commune in Washington State, he emailed his thesis to Coinbase, the cryptocurrency wallet and exchange, in 2012, and became its first employee, charged with managing customer service.

Carlson-Wee requested that his dollar denominated salary of $50,000 be paid in Bitcoin, likely becoming the first person in the world to both earn and spend almost exclusively in cryptocurrency. Customer service gave Carlson-Wee a front-row seat to the competencies of the fast-growing company. Eventually he helped automate many of Coinbase’s routine customer-service responses and even created a sort of Bit coin SAT, which he used to screen applicants for positions, eventually hiring eight, all of them paid in Bitcoin. He then got promoted to head of risk, lowering Coinbase’s fraud rate by 75% via artificial-­intelligence algorithms.

By last September, he had quit and launched his crypto-only Polychain Capital with $4 million in funding from investors like Jack Herrick, founder of Wikihow, and Garry Tan, a former Y Combinator partner. Since most venture capital and hedge funds are precluded from investing directly in highly speculative assets like cryptocurrencies, Carlson-Wee worked instead with the likes of Andreessen Horowitz, Union Square Ventures, Sequoia Capital, Founders Fund and Pantera Capital, as his three-plus years at Coinbase made him something of a sage in this space.

Accordingly, while the crypto-asset movement espouses a democratization of nearly every aspect of business, life and wealth accumulation, like the “friends-and-family” allocations of the dot-corn bubble, most of Carlson­Wee’s 13 investments to date have been made before the lCO, at a significant discount. His investments include emerging industry-standard Ethereum and the decentralized supercomputer scheme Golem, as well as Augur, a prediction-market coin that Carlson-Wee prefers to Gnosis; Ox, a cryptocurrency exchange protocol that will allow for decentralized coin trading; and Tezos, an Ethereum competitor. “With Tezos, you can formally verify contracts whereby you essentially prove that the contract does what it’s intended to do,” says Carlson-Wee, looking out from more than 40 stories over the city, wearing a skull-emblazoned black T-shirt, track pants and a flat-brimmed rhinestone-­adorned baseball cap.

He’s taking a longer-term venture approach rather than wantonly trading coins, but in a market frenzy advanced knowledge and preferential treatment translate into extraordinary gains.

So where do we go from here? Carlson-Wee is one of the few who can articulate a vision. He believes that base-layer protocols and infrastructure such as data storage and computing­-power services will be built first. “I could see a future where computers, instead of having their own internal memory, their own bandwidth, their own internet connection-and your own home computer, the CPU and GPU cycles on your device-all of that could be outsourced on a per-use payment basis using tokens,” he says. “You could pay for every packet of internet you want, every cycle you want and every piece of storage you want in real time, instead of those things being on everyone’s device and unused most of the time.” In other words, cloud computing meets the sharing economy meets the Fed.

Maybe. But before that happens, a lot of folks get hurt. Technically speaking, at least in the U.S. these “equity” coins aren’t securities so long as they are partly utilitarian and are not dependent on any particular party to succeed.

It’s sort of like taxi medallions or golf-club memberships. Some token developers have attempted to sidestep the issue of whether their coins are actually securities by basing operations in places that have low taxes and looser regulations, like Singapore, Gibraltar and Zug, Switzerland.

Unsurprisingly, insider trading and dirty deals are flagrant. One coin-­offering creator told Metastable Capital’s Naval Ravikant, the CEO and cofounder of AngelList: “If you agree to buy tokens at the ICO and support the price, then 30 days later, we’ll secretly sell you any leftover tokens at a lower, pre-agreed price;’ recalls Ravikant. That’s a felony on Wall Street. In the cryptocurrency Wild West? “These are the kinds of deals being cut left and right.”

The SEC has said that it expects this industry to protect its investors, but given its Keystone Kop track record before and after the subprime meltdown, it’s hard to see it effectively regulating a world of functional currency.

“The seams are very subtle and very sophisticated unless you’re willing to read the source code,” Ravikant adds. And even if regulators did read the code? “If my bank account [in the US.] gets shut down, I can’t just open up a Russian bank account and start using my bank credit card to go about my day buying Starbucks,” Carlson-Wee says. “But if my Bitcoin wallet provider gets shut down, I can shoot that bitcoin overseas so fast-literally in one minute- it’s like, ‘Okay, now that Bitcoin is in Russia, and now I’m going to participate in this crowds ale from the Russian exchange and store these tokens on a Russian wallet …. So on a global scale, trying to regulate these things is like Whac-a-Mole.” Ditto trying to collect taxes.

So buckle up for more blowups, more Mt. Gox-type fiascoes and tens of billions in losses for the people who are gambling in an area where there is precious little to protect them. The smart money, meanwhile, should do fine, vulnerable only to its own hubris.

“Everyone’s like, token sales are complete madness right now,” Carlson­Wee says. “I don’t think we’ve seen anything relative to how big this could be.”

 

Ripple                                              $9,980                                                 4,210%

Its XRP coin has soared. Wants to disrupt the slow, opaque and pricey world of international wire transfers. It already has 75 bank partners.

Litecoin                                           $2,080                                                 980%

Litecoin has long marketed itself as digital silver to Bitcoin’s gold, in part because it’s less energy-intensive, with faster block times.

Ethereum Classic                             $1,720                                                 1,395%

This coin is from the original Ethereum blockchain, which was upgraded after a $50 million hack.

NEM                                               $1,330                                                 4,320%

A cryptocurrency that is popular in Japan, where banks are testing an enterprise version. Many Western crypto enthusiasts have little idea what it is.

Dash                                                $40,520                                               1,690%

Originally called darkcoin, with an emphasis on privacy, Dash touts itself as digital cash, but its average transaction size is more than $10,000.

IOTA                                              $1,120                                                 -35%

Bitcoin and Ethereum may be too expensive and slow for Internet of Things micropayments. IOTA could someday be in demand by Fitbits everywhere.

Monero                                           $640                                                    340%

Privacy coin that aims to be a base layer for other privacy apps, such as mess aging. Accepted on Dark Web marketplace AlphaBay.

BitShares                                         $630                                                    6,190%

One-stop supermarket for crypto financial services, founded by controversial crypto serial entrepreneur Dan Larimer.

Stratis                                              $620                                                    8,705%

A blockchain-as-a-service geared toward Microsoft platform users and targeted at enterprise customers.

Zcash                                               $470                                                    2,825%

This privacy coin has beaucoup buzz: AngelList’s Naval Ravikant is on its board, and JPMorgan Chase is using its tech in its private blockchain.

AntShares                                       $440                                                    6,135%

Early blockchain ICO that wants to be China’s version of Ethereum. Its fully diluted coin value is nearly $1 billion.

Golem                                             $400                                                    6,030%

Global marketplace for idle computer power could be a boon for CGI artists, AI developers, DNA scientists and many more.

Steem                                            $390                                                  990%

Crypto-Reddit of sorts. Rewards users who post and up-vote popular content. Has a dubious founding team and poor token distribution.

Siacoin                                            $390                                                    7,295%

Taking on Amazon S3 with decentralized file storage that’s a tenth of the cost, faster and more reliable.

Gnosis                                          $360                                                   415%

Prediction marketplace that could have applications in areas as wide-ranging as art auctions and insurance.

Waves                                             $350                                                    1,410%

Insiders call it a cross between Ripple and a decentralized exchange. Fuels bubble trading by making it easy for members to create their own tradable tokens.

BitConnect                                      $350                                                    42,910%

Cryptocurrency portal that aggressively solicits investments and promises suckers eye-popping returns as high as 120.

Iconomi                                           $330                                                    260%

Investment platform for cryptocurrencies. Its Digital Asset Arrays are basically crypto-ETFs. Two have already been launched, one for ICOs.

Bytecoin                                          $330                                                    3,695%

Marketed as a private, untraceable cryptocurrency designed for enterprise clients by an anonymous team. Crypto insiders say steer clear.

Augur                                              $310                                                    740%

Prediction market, founded by Joey Krug, who is now also head of Pant era Capital’s new ICO fund. Striving to become a decentralized financial system.

Dogecoin                                         $280                                                    1,180%

Shiba Inu-merne-inspired community born out of a joke. It epitomizes the financial resources that can be marshaled by networks.

Lisk                                                 $270                                                    1,870%

Decentralized blockchain version of Apple and Google app ecosystems. In 2016, it was integrated into Microsoft Azure’s blockchain-as-a-scrvice platform.

Stellar Lumens                                $270                                                    1,595%

Sister to Ripple’s XRP, which is targeting its services-remittance, mobile money-at the unbanked. Founder had been associated with troubled Mt. Gox.

 

But an even bigger problem with the IRS’ position is this: anyone using digital coins to pay for some service online-say, buying data storage-would, it appears, have to treat each purchase as a capital sale. And if the value of the coin being spent has gone up since he acquired it, he’d have to report and pay tax on a gain. (By contrast, if you hold a conventional currency-say, euros or yen-and you happen to spend it after it has gained value against the dollar, the IRS doesn’t consider that taxable income.)

Reporting on the taxpayer side isn’t optional: income is income, whether from trading stocks or Bitcoin or spending the latest token. The reality, however, is that there is no current requirement that cryptocurrency exchanges report transactions to the IRS the way brokers like Schwab must report stock sales on form 1099-B. Is tax avoidance adding fuel to the current mania? Consider this: in 2016, only 802 individual tax returns out of the 132 million filed electronically with the IRS reported income related to cryptocurrencies.

The government wants more compliance. Last November, the Department of Justice filed suit in federal court seeking to issue a summons forcing Coinbase to turn over records on all U.S. customers who transferred convertible virtual currency between December 31, 2013, and December 31, 2015. The court sided with the IRS initially, but Coinbase-and Coinbase customers-have pushed back, delaying enforcement of the summons. Even if the IRS gets all those customers’ names, however, it still has a big problem if it wants to tax all the crypto-gains: much of the trading is done on overseas exchanges, and even more could migrate there. -Kelly Phillips Erb