DigitalBTC Signs Bitcoin Mining Hardware Deal with BitFury
Nermin Hajdarbegovic | Published on April 7, 2014 at 12:02 BST | Investors, Mining, News

DigitalBTC has inked a strategic hardware supply agreement with BitFury, one of the leading manufacturers of bitcoin mining equipment.

The company is owned by Australian investment firm Macro Energy, which acquired Digital CC and its subsidiary digitalBTC last month. Thanks to the acquisition, the firm became the first bitcoin-related business to be listed on the Australian Stock Exchange (ASX).

Mining plans

At the time Macro Energy said it plans to raise AU$9.1m and to invest the money in the expansion of digitalBTC operations, including bitcoin mining. Soon after digitalBTC entered a strategic partnership with CloudHashing.com.

Under the terms of the agreement CloudHashing.com software will be deployed on digitalBTC hardware, which will also be managed by CloudHashing.com. The hardware will apparently be installed in CloudHashing.com data centres in Iceland and Texas.

The companies pointed out that the deal is a win-win situation for all parties – digitalBTC gets valuable expertise on the technical issues of the business, while CloudHashing.com gets access to digitalBTC’s trade desk.

DigitalBTC’s Executive Chairman Zhenya Tsvetnenko said the partnership will allow digitalBTC to concentrate its resources on retail-focused mobile applications and other operations.

CloudHashing.com CEO Emmanuel Abiodun told CoinDesk that the relationship is mutually beneficial and that he is pleased to team up with digitalBTC, which has strong capital backing and a proven track record in bitcoin trading.

Abiodun added that CloudHashing.com expects to generate $7.5m-$10m worth of bitcoins a month.

Enter BitFury

DigitalBTC has not shared much detail about the BitFury deal, nor did it mention CloudHashing.com. However, the company did state that the first instalment of the new bitcoin mining hardware is already in operation and started generating revenue in March.

The revenues will be used to fast-track the development of digitalBTC’s retail products. The company stressed that retail products are a key focus for its business model. There is still no word on the precise quantity and type of hardware ordered by digitalBTC, but the company did say that the first batch cost $2m.

“Under this agreement, BitFury will supply a significant quantity of its most advanced bitcoin mining hardware to digitalBTC, backed by manufacture assurances. This will significantly advance digitalBTC’s bitcoin mining capacity,” the company said.

DigitalBTC points out that about 40% of the bitcoins so far produced were mined with BitFury chips. Furthermore it states that the hardware it acquired has secured it a “significant proportion” of the current bitcoin mining network, thus making digitalBTC one of the largest bitcoin mining operations in the world.

Big earner

The first installation of new BitFury hardware has earned digitalBTC more than 680 bitcoins since it was deployed, earning the company $330,000 during its first 13 days of operation between March 20th and April 2nd.

DigitalBTC said:

“DigitalBTC has committed to two tranches of hardware – this first installation of $2m of state-of-the-art bitoin mining hardware that is currently in operation, and a second tranche planned to be delivered and operational in May 2014.”

Tsvetnenko said the agreement is backed by “attractive” manufacturer guarantees and that it allowed digitalBTC to quickly expand its mining capacity. Furthermore, the company plans to continue expanding its bitcoin operations, including mining, trading and consumer focused retail applications.

Said Tsvetnenko:

“The bitcoin system continues to rapidly mature, evident by significant backing from very large investment firms. Bitcoin focused investment funds of approximately $150m in capacity are now being formed. In addition, there has already been in excess of $100m of investments made into the bitcoin system. This magnitude of investment is set to drive bitcoin into ever wider acceptance and use.”

Tsvetnenko said the next step is to enable development of the consumer-friendly software and applications that the system needs. DigitalBTC plans to be a contributor to this retail push, he explained, through its consumer-oriented retail applications.

Search Engine DuckDuckGo Integrates Bitcoin Price Quotes
Nermin Hajdarbegovic | Published on April 7, 2014 at 14:10 BST | News, Technology

Privacy-loving search engine DuckDuckGo has started displaying price quotes on bitcoin-related search queries.

Launched in 2008, DuckDuckGo is a relatively fresh-faced search engine headed up by Gabriel Weinberg. The driving force behind the service is privacy – thus, integrating bitcoin price quotes seems like a logical move for the young outfit.

The search engine is designed for people who would rather not have their personal data tracked online. Since it doesn’t store any user data, the site does not offer personalised search results – or personalised ads for that matter.

In 2013 alone, DuckDuckGo had one billion search queries and is gaining traction fast.

DuckDuckGo goes bitcoin

The implementation of the price listing, as first spotted by NewsBTC, appears to be rather rudimentary. The new feature only shows up when you enter specific queries like “bitcoin price” or “BTC to USD”. The price quote then links to Blockchain.info, specifically to the market page.

duckduckgo

However, if you try searching for “bitcoin quote” or even “bitcoin price quote” the quote box does not pop up. This is not the case with other price search engines that have started quoting bitcoin, so DuckDuckGo might want to polish its solution.

Google still lacks bitcoin integration

Search giant Google does not offer a bitcoin quote box and it is unclear whether it plans to do so. However, Microsoft’s Bing search engine and Yandex, the biggest search engine in Russia, have already integrated bitcoin functionality, including automatic price conversion.

For example, Bing will work out the value of bitcoin on the go, provided the user enters a search that can be figured out by the engine. This basically means that you can enter a search like “1 BTC to USD” and Bing will automatically convert it.

The same is true of Yandex, which displays the exchange rate using the CoinDesk Bitcoin Price index and it also allows a convenient price conversion tool. Wolfram Alpha also offers a simple bitcoin look-up tool.

"idiot" is to harsh. But rly what he said doesn't have any sense at all .

Today at 20:00h CET we will have first draw, then should be more clear to everybody how it goes, who wins, how much, how much fee affects game and so on...

Looking forward to it!
GOOD LUCK EVERYBODY!

That doesn't make any sense at all . How do i take free btc from other 7+ players Theirs money goes to the winers , fee from 10 tickets is 0.0005 btc it will make me rich.

AND ITS NOT LIKE PONZI! ITS LIKE EVERY OTHER LOTTERY, BINGO, OR POKER TOURNAMENT, only they take much more fee. Payout structure is SAME as on poker tournaments and there house takes 20% .

What are u saying is that any regular , loto, bingo, poker tournament and so on.. Is a ponzi ?

Pls think about what u are saying and read everything on site correctly .

11 tickets of 0.001 btc SOLD .

10 tickets of 0.001 btc SOLD ! - WE WILL HAVE THIS DRAW !!! 20:00h CET !!! I will post LIVE stream link on website and in this thread.
Big tnx to PD players for making this first draw happen. GOOD LUCK EVERYONE !!!

1 ticket of 0.01 btc SOLD!
1 ticket of 0.1 btc SOLD!

Irish Company Now Paying Employees’ Salaries in Bitcoin
Kadhim Shubber (@kadhimshubber) | Published on April 7, 2014 at 10:39 BST | Companies, News

An Irish company has begun paying its employees’ salaries in bitcoin.

Dublin-based electronic repairs firm GSM Solutions, which hosts Ireland’s first bitcoin ATM, is now paying five of its employees partly in bitcoin instead of euros.

“We set salaries in euros, so that the euro amount they get each pay period does not fluctuate with the price of bitcoin,” said GSM Solutions’ Managing Director Alan Donohoe in a blogpost.

Although more and more companies are letting their customers pay them in bitcoin, the number of people happy with receiving their salary exclusively in digital currency has remained relatively small.

As you might expect, they tend to be people working in tech jobs, like the employees of Polish web design company El Passion, who were given the choice to be paid in bitcoin last December. The Internet Archive and Coinbase, too, pay some or all of their employees in bitcoin.

But it’s not only tech heads: Tony Vaughn, a small town sheriff from Kentucky, became the first US government employee to be paid in bitcoin.

GSM says it hopes to convert the rest of its employees to bitcoin by the end of the year, which would make it the first company in Ireland to pay all of its employees in the currency.

As well as being a symbolic gesture – nothing says ‘tech savvy’ like ‘we pay our employees in bitcoin’ – the move could help to support the local bitcoin economy by encouraging more spending in the cryptocurrency.

However, paying salaries like this does come with complications for both companies and staff. For companies, extra care needs to be taken to ensure that all the appropriate taxes are accounted for at the correct fiat value, something that BitPay’s Bitcoin Payroll API is designed to make easier.

For staff, fluctuations in the value of bitcoin could mean that your salary gets smaller moments after you receive it, which could explain why GSM is only paying “part” of its employees salaries in digital currency.

CoinDesk has reached out to GSM Solutions for comment and will update when we receive a response.

Disclaimer: CoinDesk founder Shakil Khan is an investor in BitPay.

What Is The Carbon Footprint Of A Bitcoin?
Danny Bradbury (@dannybradbury) | Published on April 7, 2014 at 07:22 BST | Analysis, Mining

Just how much carbon dioxide do we produce when we mine a bitcoin? It’s becoming an increasingly important question. After all, it’s great to disrupt an inefficient and sometimes corrupt incumbent economic system, but most of us would rather not do it at the expense of the planet.

The bitcoin network is stuck in a circle that drives up its power usage. People tend to put more computing power on the network so that they can make more more bitcoins. The software underpinning the network reacts by changing a parameter that makes it more difficult to solve the mathematical problem needed to solve a bitcoin block.

Because it’s harder to solve the problem, people add even more computing power, and so on. As this cycle increases, it takes more electricity to mine a bitcoin. The hashing power of the network surpassed the world’s top 500 supercomputers almost a year ago, and things have moved along quite a bit since then.

Some might call this a vicious circle. Nick Gogerty, who conceived a coin for trading solar energy production called solarcoin, calls it the Red Queen problem.

“The Red Queen is originally from Alice in Wonderland. In the Queen’s race everyone runs faster, but you never get ahead,” he says. “The same happens in hashing. All of the participants are co-adapting. You have to keep adapting to keep up.”

Gogerty has been trying to put together a model for calculating the carbon cost of a bitcoin, but he admits that it needs work, and he is asking for volunteer help to improve it.

Other attempts have been made to nail down the cost of the bitcoin network in terms of carbon emissions and/or energy used, but it’s a tricky business, says Guy Lane, founder of sustainability advisory service Sea O2.

Based in Brisbane, Australia, Lane is also the founder of Bitcarbon.org. That site contains his method for tracking bitcoin-based carbon emissions.

There are caveats. “Of course, bitcoin is mined everywhere from data centres, distributed locations, working pools, rigs set up in garages and even on PCs that have been hijacked by bots,” Lane says. This makes it very difficult to ascertain the true carbon cost, because there are so many different types of equipment running the mining software.

Still, it doesn’t stop him trying. His method is based on the premise that miners will spend up to 90% of the cost of a bitcoin on the electricity used to mine it. That electricity cost will naturally vary with the price of a bitcoin.

“In the Queen's race everyone runs faster, but you never get ahead.”

The method assumes that 50% of all the mining takes place in China or the US. It uses the most recent estimates from the International Energy Agency for carbon emissions per Kw of mains power in either country, and averages them. The result is that for every Mw of electricity spent mining bitcoins, 0.65 tons (1300lbs) of CO2 are released into the atmosphere, it says.

The method maps these figures against average electricity prices, to produce an average carbon intensity of 6.98 kg (15.38lbs) of CO2 for every dollar that is spent on electricity used for mining Bitcoin.

Lane last ran this model in December, when bitcoin was priced at $1000, and calculated that the entire bitcoin network was putting out about as much carbon as Cyprus.

Lane believes that the estimates could be lower than the reality. For one thing, it doesn’t account for the fact that miners might be willing to spend more electricity mining a bitcoin than the current value of that coin, in the hope that it may increase.

Mining for answers

Another way to look at carbon output for bitcoin mining is to go and ask a professional miner. If anyone should know how many hashes and therefore how much power it takes to compute a bitcoin, it’s an institutional miner that makes a business of turning electricity into cryptocurrency.

Dave Carlson, founder of Megabigpower, runs a massive bitcoin mining datacentre in Washington state.

10 TH/sec (10,000 GH/sec) make 1 bitcoin per day at the current difficulty, he says. His hardware uses one watt per GH/sec, meaning that it takes 10,000 watts (10Kw) to run 10Th of equipment.

He runs that 10Kw of equipment for a whole day to mine a bitcoin, which means that he spends 240Kw/h. That’s 24% of a Mw/h.

Remember that according to the IEA data, 1 Mw/h of mains electricity produces 1300lb of electricity. Based on Carlson’s figures, that means that the energy he’s using would release 24% of that, or 312lbs, of carbon dioxide into the air per coin.

According to the EIA, that’s about the same as burning 15.9 gallons of gasoline, without ethanol.

That would be a lot of carbon for Carlson to churn out, if his electricity was produced by fossil fuels – but it isn’t.

“We are 100% hydroelectric,” he says, adding that he hopes to announce the largest solar/wind powered mine later this year. “I am also looking at re-investment in wind power generation (mostly as a hedge against power prices rising). We are very aware of our carbon footprint and the likelihood that it will increase.”

He isn’t the only one. Over in Sweden, ASIC mining manufacturer KnCMiner uses a co-hosting facility. The electrons it runs on also have a distinctly green hue.

“What I can say real quick is that our data centre is run on hydropower. So we are about as green as they get,” says co-founder Sam Cole.

So, a lot of bitcoins are being produced with green energy. But if you are burning fossil fuels for your bitcoins, then using just over a sixth of a ton of carbon for a single bitcoin isn’t good, given that the network is churning out 150 of them per hour.

It’s important to put this in perspective, though, by understanding what this is relative to, and what we’re getting for this carbon throughput. That’s what we’ll be looking at tomorrow, in the second article of this three-part series.

Mark T Williams on the Flaws and Opportunities of Bitcoin
Pete Rizzo (@pete_rizzo_) | Published on April 7, 2014 at 04:29 BST | Analysis, Lifestyle, News

Mark T Williams isn’t shy when mentioning his “steed” – the unassuming white bicycle parked in front of the Noodle Street cafe in Boston, Massachusetts, shining in the sun near some melting remnants of the winter’s snow.

He diverts attention to it: wanting me to know that it’s a choice model; that it would be complemented should the right person stop eating their pad thai, look through the smudgy window above our corner table and notice it. He goes on about it, telling me it’s just one of his bikes, that the others are built for snow, for harsh conditions.

If it’s his way of directing questions away from himself, it isn’t exactly effective. You can surmise a lot about a person, particularly a capital markets professor, from the temperatures they’re willing to suffer as they bike through traffic-laden streets.

As soon as this question arises, though, a waitress arrives and Williams is suggesting the pineapple fried rice, donning an impish grin. It would be the first thing you’d notice about him, this air of general amusement, if he’s wasn’t wearing a full lycra biking outfit, complete with the biking shoes. Distracted, I order the fried rice.

In hindsight, I shouldn’t have been surprised by Williams’ physical presence. The Boston University faculty member and published author is known for invoking strong reactions. He is, after all, the bane of bitcoin message boards, the reigning king of bitcoin bad-mouthing, the most boastful of all of bitcoin’s blustering haters.

bike

For the uninitiated, Williams rose to prominence around the time of the New York Department of Financial Services hearings on virtual currencies in January. He was a late addition, not even on the original schedule.

If his attendance didn’t turn heads, his statements did, when he notably claimed bitcoin to be tremendously overvalued, and predicted it would crash to the single digits in value this year.

The backlash was swift, and TV networks and news outlets ate it up, rushing his comments to print.

Entire reddit threads were dedicated to dissecting his subsequent articles, and calling him out on his blasphemous predictions.

It’s clear what Williams adds to the conversation: he’s the one needling the balloon. What’s less clear is what’s in this for Williams, what does he get out of playing with the needle?

Pete Rizzo: So, I think we were on the subject of you being a hater …

Mark T Williams: In general, I think it’s easiest to put people in boxes, saying someone’s pro and someone’s con, or someone’s a hater and someone’s not.

Markets don’t function well when there isn’t good information. I always felt that bitcoin had the upper hand, and that the markets weren’t transparent. I think regulation creates that transparency. I always felt consumers were disadvantaged. I don’t think I’m a hater, I think I’m an advocate for consumers who want to buy virtual currencies.

In my hearing, I warned about a lot of unaddressed risks and some of those are coming true.

If you read my testimony, I spent a lot of time talking about the exchanges, and what does Mt. Gox do? Blows up. So that’s it – I’m not a hater.

 

“I think I see virtual currencies as something of the future.”

Rizzo: Well, Warren Buffett seems to agree with you.

Williams: Yeah, his number two guy, Charlie Munger, he was asked about bitcoin. He said it’s “rat poison“. I went on TV, or Fox or Bloomberg; I said it’s not rat poison, that’s not fair.

I think people when they buy into bitcoin, they think they’re buying into a movement. It’s emotional, right? Not only is it a physical investment, but an emotional investment, and I think that’s what I’ve spurred a lot of resentment about.

People just look at me, and they say “Why doesn’t this guy get it?”

Rizzo: Do you read the comments?

Williams: Sure, some of them are ridiculous. I get people who send me emails.

If you’re a smart investor, you want to look at those who are in your camp, but also those with dissenting views, sometimes you can learn a lot from the counter argument.

Rizzo: So, is your goal to make bitcoin better?

Williams: I think I see virtual currencies as something of the future.

Rizzo: Just not good right now?

Williams: I think there are a lot of design flaws, I wrote a piece for Business Insider, and I said that bitcoin’s DNA is flawed. I’m not talking about the block chain. I describe bitcoin as the locomotive and then there’s the payment system itself. The payment system is the rails. What I think we’ve seen here is that we were told that the infrastructure was strong through January, and Mt. Gox showed us it was weak.

Rizzo: It seems like they were using their own implementation of the protocol.

Williams: Infrastructure is much wider. The infrastructure is not just the peer-to-peer, the infrastructure is all those people that have bolted on to the exchange. What I’m trying to articulate is that the highway itself today has a lot of third-parties.

The system can only be as strong as the weakest link. Mt. Gox was weak …

Mt.-Gox-bitcoin-Mark-Karpeles1

Rizzo: So, let’s say you’re Mark Karpeles and you’re running a trading card exchange, and, over the course of a year, your firm becomes a multi-billion-dollar company, can you really blame the guy for not implementing enterprise-grade consumer protections?

Williams: He should have. He should’ve cared about his customers. It was a black box, and it will come out – he did a lot of fraudulent stuff, because he had control of the information. As a consumer, when you bought, he not only got a fee for the transaction, but he got to see the transaction history throughout the day.

I’m sure he cooked that, I’m sure he also set the price for his exchange. I did a lot of analytical studies of that exchange, and it was always 8% to 10% higher than other exchanges.

Why is that? If he was having financial problems, by putting the price higher on his exchange, he’d encourage more people to come.

Rizzo: It seems that by limiting the number of people who could leave, more people stayed in, and that the price became higher, so people took advantage of that.

Williams: Well, if you run an exchange, and you can keep on moving the price up, then you’re encouraging more business. I call him a boiler-room broker. If you house that broker function, you’re not an exchange.

Coinbase has three businesses it’s doing right now, and one of its functions is a conflict of interest. They’re trying to reduce price risk for people like Overstock, yet they’re trying to be an exchange on the other side.

Rizzo: There’s a lot of opportunity in the space right now.

Williams: Yeah, but there’s conflict. I think you have to have controls in place to make sure consumers can’t be taken advantage of.

Rizzo: So, if you had a chance to redesign the system, what would you do?

Williams: I’ll leave it to the computer geniuses, but it needs to be regulated. State banking examiners are going to regulate it. You’re going to have a national financial regulatory body, you’re just going to have standards and that’s not a bad thing.

This conversation has been edited for length and clarity.

Here is example for u:

0.001 btc tickets sold to:
address1
address2
address3
addy4
addy5
addy6
addy7
addy8
addy9
addy10

Draw result i got from random.org:


Also one more thing, i am mod/trusted member on primedice.com most of regulars there have my email, skype, fb, name, address, and everything about me. I am doing this for fun and small profit for my time. I will not scam anybody. And it definitely is nothing even similar to ponzi.

And i am kinda eliminating need for thrust by doing LIVE draws so most of people that bought tickets will watch draw on join.me and see the results and me taking ss of them.

Any further questions feel free to ask, or suggest any change. I will gladly take and implement good suggestions. And i will be probably adding more different games.  

On contact page there is IRC chat i will be there like 10-12h per day so u can ask questions there to. And that will be meeting point before every draw so we can all agree everything is correct and ready for draw.

edit: i am thinking of removing 0.005 btc and 0.05 btc tickets so we have less spread of tickets and more draws. I will probably do it tomorrow.

Cheers, www.bitcoinlottery.co.nf

There are all rules on the site. U don't pick numbers , when u buy ticket i have ur addy , i put it in list (STATS PAGE)  , and every day at 20:00h i put that list in random.org and it randomize it and shows winners . I do it WHILE LIVE STREAMING. So everybody will see its fair draw. Explain me how its ponzi ? When 10 people buy ticket and 3 people win by 100% fair draw.
1. 60%
2. 30%
3. 10%  

If u need more details feel free to ask, i will edit page and rules to be more clear. Tnx for suggestions .

edit: If there is no enough participants after 5 days( 24h delays) i will refund addresses that bought tickets. 

Not rly i have 5ghs that i got for free , somebody bought them for me .
So by ur logic about this i am smartest guy here Haha.

True that. But when 5 yr contract expire u keep ur ghs or u can sell them ? Or they keep them ? Maybe u get ROI in like 10 years ?

But it would be perfect setup for a ponzi. They doing so small and slow ROI , and in the mean while people buying more and more. They don't even need to bother buying ASIC . Just saying. I don't think they are actually doing ponzi .

Hah, good point maybe with PBmining written at it Hahah ?

Why? U think this is ponzi ? That was my thought to. Since we can't see what specific blocks "we" mined or anything.

U want more than 10k ?

Heh yeah i am sorry was supposed to be multiple sources , but they cover all news, only other that i can do is http://www.cryptocoinsnews.com/ and i will add them soon, now im busy with my website.

The best day in the week.

The US Tax Man Speaks For The First, But Not Last Time
Brian Klein (@http://www.twitter.com/brianeklein) | Published on April 6, 2014 at 14:25 BST | Law, News, Regulation, US & Canada

Brian Klein is partner at the litigation boutique Baker Marquart LLP and chair of the Bitcoin Foundation’s legal advocacy committee.

Klein has co-authored this piece with Jay Weill, a partner at Sideman & Bancroft in San Francisco representing people and entities in both civil and criminal matters involving the IRS. Weill was the former Chief of the Tax Division at the US Attorney’s Office in San Francisco.

__________________________________________________________

Death and taxes are the two certainties of life, so the old saying goes. On 25th March, three weeks before the US 15th April tax filing deadline, the US Internal Revenue Service (IRS) finally issued guidance regarding the taxation of bitcoins and other digital currencies in what the IRS, in typical IRS-speak, calls Notice 2014-21.

One could almost have believed that the IRS had forgotten about bitcoins and other digital currencies. But really, everyone should have seen this day was coming. Indeed, it was long overdue.

The IRS could have treated digital currency as either currency or property. It chose to treat it as property, imposing the general tax principles relevant to property transactions on those of digital currency. This means that digital currencies will be taxed as ordinary income or as assets subject to capital gains taxes, depending on the circumstances. The choice has far-reaching tax implications that will affect anyone who uses digital currency.

In the notice, the IRS co-opted FinCEN’s definition of digital currency:

“Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.”

It goes on:

“The sale or exchange of convertible digital currency, or the use of convertible digital currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.”

This is very understated. The tax consequences are far-reaching and depend on how one uses digital currencies. The following provides a thumbnail sketch of certain tax consequences for US taxpayers.

Employers and employees

Employee wages in digital currency are subject to federal and state income tax withholding, and by law should be reflected on both employers’ and employees’ tax returns. Such payments are required to be reported to the IRS on your business and payroll tax returns and must further be reflected on IRS Forms W-2 issued to each employee and filed with the IRS. In turn, the employee must report to the IRS and state tax authorities the wages he or she receives in digital currency on his or her personal tax returns.

For each, the reported amounts – the wages reported paid or received and the payroll taxes withheld – will be calculated using the fair market value of the digital currency in US dollars on the date paid or received.

Independent contractors

Businesses paying independent contractors with digital currency must report amounts on Form 1099 – the document used to report other forms of income than wages or salaries – and supply the forms to tax authorities and their independent contractors.

Like employees, independent contractors are taxed in the same manner as if the amounts were received in US dollars. They must report amounts received as income on their tax returns and pay self-employment tax.

Investors

The IRS’ treatment of digital currency as property is a boon to taxpayers holding it as a long-term investment – that is, holding it for more than a year. This is so because when investing in or undergoing transactions in foreign currency, the gains are taxed at the ordinary income tax rate; whereas with digital currency treated as property, the taxpayer can benefit from the lower capital gains tax rate.

Moreover, like any other commodity, if the digital currency loses value instead of making gains then the taxpayer can claim a capital loss, which would help lessen the tax bill. The character of gain or loss generally depends on whether the digital currency is a capital asset in the hands of the taxpayer.

According to the IRS, if the taxpayer holds digital currency as capital – such as stocks or bonds or other investment property – gains or losses are realized as capital gains or losses. But where such currency is held as inventory or other property mainly for sale in a trade or business, then ordinary gains or losses are generally incurred.

Miners

Taxpayers who obtain digital currency through mining must include the fair market value of the digital currency, as of the date of receipt, when reporting their gross income on tax returns.

This creates an enormous task for frequent miners who have to go back and see what the values of the bitcoins were on the dates they were mined. If the mining activities make up a trade or business, and the miner is not an employee, then the net earnings resulting from the activities constitute self-employment income that’s subject to self-employment tax.

Exchanges

When an exchange sells digital currency to a customer as a part of a trade or business, its gross income will equal the value for which the digital currency was sold.

Catch-all for payors

Any disposition of digital currency is a taxable event, including the use of digital currency to acquire another asset, to pay for services, in retail transactions and investments where the merchandise received or investment has a higher value than the payor’s basis in the digital currency.

And, payments made using digital currency are subject to the same tax reporting and backup withholding as other payments made in property.

The character nature of the tax

The IRS notice left many unanswered questions as well.

For example, any person or business that receives more than $10,000 in one transaction or a series of transactions must identify the person involved to the IRS via Form 8300. Since digital currencies, like bitcoin, are not recognized as currencies by the IRS, does a car dealer have to report an automobile purchased with bitcoins?

US individual and business taxpayers alike should consult with their tax advisors about the implications of their particular digital currency transactions. They will now have to track their digital currency purchases in order to correctly prepare and file their 2013 tax returns due on 15th April, as well as potentially amend 2012 and earlier tax returns.

The IRS notice also invites comment from the public. Undoubtedly, the IRS will receive an extensive amount of feedback. In light of the path the IRS chose, one that requires extensive tax compliance efforts, the IRS should expect much of it to be extremely negative – and rightfully so.