Cryptocurrencies, also known as virtual currencies, have gone mainstream. That’s for sure. For example, you can use bitcoin BTCUSD, -0.35% to buy a Tesla TSLA, +1.75% and to buy or pay for lots of other things. However, using cryptocurrencies has federal income tax implications. Here’s what you need to know at 2021 tax return time if you made crypto transactions last year.
Understand this: the IRS wants to know about your crypto transactions The 2021 version of IRS Form 1040 asks if at any time during the year you received, sold, exchanged, or otherwise disposed of any financial interest in any virtual currency. If you did, you are supposed to check the “Yes” box. The fact that this question appears on page 1 of Form 1040, right below the lines for supplying basic information like your name and address, indicates that the IRS is serious about enforcing compliance with the applicable tax rules. Fair warning.
When to check the ‘Yes’ box on crypto transactions The 2021 Form 1040 instructions clarify that virtual currency transactions for which you should check the “Yes” box include but are not limited to: (1) the receipt of virtual currency as payment for goods or services that you provided; (2) the receipt or transfer of virtual currency for free that does not qualify as a bona fide gift under the federal tax rules; (3) the receipt of new virtual currency as a result of mining and staking activities; (4) the receipt of virtual currency as a result of a hard fork; (5) an exchange of virtual currency for property, goods, or services; (6) an exchange/trade of virtual currency for another virtual currency; (7) a sale of virtual currency; and (8) any other disposition of a financial interest in virtual currency.
If in 2021 you disposed of any virtual currency that was held as a capital asset through a sale, exchange, or transfer, check the “Yes” box and use familiar IRS Form 8949 and Schedule D of Form 1040 to figure your capital gain or loss. See Examples 1 and 4 below.
If in 2021 you received any virtual currency as compensation for services, check the “Yes” box and report the income the same way as you would report other income of the same nature. See Example 3 below.
When to check the ‘No’ box on crypto transactions You cannot leave the virtual currency transaction question unanswered. You must check either the “Yes” box or the “No” box.
A transaction involving virtual currency does not include holding virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account that you own or control to another that you own or control. If that’s all that happened last year, check the “No” box.
Also check the “No” box if your only virtual currency transactions in 2021 were purchases of virtual currency for real currency, including the use of real currency electronic platforms such as PayPal PYPL, -1.43%.
Visa got itself a fancy new Twitter avatar this August, and even though it didn’t stay up for long, the 8-bit-styled picture of a visibly unamused woman with a stylish mohawk still made dozens of headlines. It was not just about the relatively hefty price tag of $150,000. The mere fact that the financial giant bought a nonfungible token (NFT) representing the image from the CryptoPunks collection set off fireworks in the media. It was the best marketing spend Visa’s done all year — the ROI on news articles alone must have paid for the purchase tenfold.
Yes, even Visa “apes in” on NFTs these days, to use an expression NFT collectors drop a lot in the era of the wealthy pouring millions into JPEGs of apes. But even though the technology’s journey from memes to riches has taken it into the digital art world, I don’t think that this will be its mass-market use case.
By now, everyone knows that NFTs essentially bring uniqueness and scarcity, a feature associated with traditional high art, into all shapes and forms of digital art, which is otherwise infinitely reproducible with the good old copy-paste. A link to a specific picture, audio clip or video is sent to the blockchain as part of a transaction, and there we are — even though the file can still be copy-pasted, only one wallet owns its token. That’s where it becomes a posh thing: Donning an NFT image as a Twitter avatar is like wearing a Rolex watch with your name engraved on it. It’s a status symbol to be appreciated by those in the know.
That said, high art and luxury are by definition antonymous to the mass market, as high price and uniqueness are their key selling points. Someone who’s bleeding money can buy a link for millions, but that’s because they might as well burn their money for fun, and they want to show off their wealth to the world. Good luck charging a Regular Joe $150,000 for a link to a picture, though. The focus on NFTs as art by definition limits a promising technology to a relatively small, albeit inarguably posh and eccentric, niche.
The good thing here is that the big NFT digital art sales are making headlines, which is helping to bring NFTs into the mainstream. However, this will not be the main use of NFTs further down the road, but rather a new and expensive plaything for the wealthy and some especially fervent crypto-personalities and communities.
First of all, NFTs already have a mass-market use case — they are very much at home in gaming, with CryptoKitties gathering a ton of headlines back in the day. From Axie Infinity to all the newer titles, NFTs are powering a plethora of digital economies, and there, they bring more than sheer uniqueness to the table.
Yes, it’s nice that your NFT sword is unique and has your name on its token, but what’s nicer is that it can decapitate a dragon in one swing, unlike any other, non-unique weapon. And decapitated reptiles are what people are ready to pay for. Fortnite, a free game, brought its publisher $5.1 billion in 2020 on sales of in-game cosmetics, and gamers are already paying for non-unique weapons, mounts, castles and spaceships in dozens of other games. NFTs are just the next step in this direction. And believe it or not, in some developing countries, NFT games have already become a valid source of income.’
What looks just as promising is the idea of using NFTs in the corporate world, as part of traditional business processes. The fields where NFTs will likely take off in a big way, if not become the new default way of doing things, aren’t as sexy as high-end luxury. They will, however, greatly benefit from the key feature that NFTs bring to the table: The ability to confirm the authenticity of the associated digital asset. This could be, for example, as simple as the hash of a financial document saved as an NFT on a private or a public blockchain to check whether it’s been tampered with later on.
Software licensing and authentication seems like one of the areas where NFTs will shine, given enough time, with the bonus of possible interoperability. Corporations and individuals alike could shop for licensed software pieces on a single platform, leasing it for as long as needed. This would cut the costs, while also keeping chief information officers’ peace of mind as they have an extra layer of security knowing that any digital asset can be safely and quickly authenticated.
Those of you as old as I am remember buying copies of Windows or Adobe CS3 and having a sticker on the back of the box with your serial number. Lose the box, and that was it. This was replaced by SaaS log-ins that stored your serial number, or platforms like Steam and Apple’s App Store, which held your digital asset — except, of course, unless Apple decides it doesn’t have the rights to “Goonies HD” in the store and simply removes your purchase. You bought it? Too bad. Same if the platform was shut down, or if the company decides you somehow violated their 2,000-page terms of service that you agreed with without reading through. The point is, with subscription-based SaaS, you own nothing, even if the solution is deployed on-premise.
Let’s say you’re buying an asset, any digital asset — music, a movie, a license for the software, limited use rights to a photo, whatever. At the moment of purchase, the platform mints a non-fungible token pointing to the original file or download location. The token acts as your proof of purchase. You store the asset locally, most likely accessing it through an app that would use your token to verify ownership (or, for example, if the license period hasn’t ended) whenever you try to interact with it, which would prevent copy-paste distribution and other IP infringements.
With the right design, such a system would even allow the transfer of ownership rights, as long as they are legally baked into the NFT. This way, after enjoying your copy of the “Goonies,” you can gift it to a friend or re-sell it, potentially with a small royalty to be paid either to whoever owns the rights for the movie or to the original seller. The latter, by the way, partially addresses the issue that fueled the shift to SaaS in the first place. Companies don’t want a secondary market because it competes with their sales, but with royalties built into NFTs, they would have a stake in every subsequent re-sale. In other words, each copy of a movie sold becomes a gift that keeps on giving.
Granted, though, the ownership part is what needs more work, especially on the legal front. None of these concepts have been tested, but they need to be, whether by an artist or a collector, just to set the precedent and start charting out a playbook for this terra incognita. Technical expertise and business or legal expertise are not the same thing. Some of us remember the EOS token sale, and how much of the funds raised had to be held until the SEC finished their investigation. Projects talking about their legality and proving their legality in court are two different things.
While the NFTs are not without their flaws, dismissing them as an inherently toxic and fraudulent technology this early into their development is, at best, rushed. Instead, what the field needs are more regulation on the one hand and more entrepreneurship on the other. Art and business walk hand-in-hand these days, and as NFTs mature, their journey from memes to riches will most likely similarly lead them into the corporate world.
An alleged scammer has gone missing in Turkey with 350 million Dogecoin valued at nearly $119.14 million, as per local media reports.
What Happened: Turgut V. organized one-on-one meetings and promoted “Dogecoin mining” at luxurious venues in order to lure investors and build relationships with them, reported Interesting Engineering, citing Turkey’s TV100.
Post the meetings, Turgut V. gathered the investors on a Telegram channel and got them to transfer DOGE to the allegedly fraudulent scheme.
An investor told TV100 that they were promised 100% returns in 40 days.
At press time, DOGE traded 0.71% higher at $0.29 over 24 hours.
Why It Matters: Reportedly 1,500 people made transfers to Turgut V.’s operations in the course of three months on the promise of regular dividends before they were abruptly shut down.
Istanbul’s Küçükçekmece Chief Public Prosecutor’s Office has launched an investigation into the incident and banned Turgut V. from leaving Turkey.
As per TV 100, 11 other suspects are also under investigation, which includes the romantic partner of Turgut V.
Dogecoin, often discussed by Tesla Inc CEO Elon Musk, has captured the imaginations of many retail investors, a fact not unnoticed by scam artists.
As a result the investor said his initial investment has grown to almost $2 million.
In a video shared with Newsweek, the user showed a screen recording of his Robinhood trading portfolio taken back when Dogecoin was worth $0.05 in February. He concluded the video with: “Clearly the volatility is very high, so I am not a financial advisor, this is not financial advice—purely entertainment.”
He had purchased just over five million of the tokens. Screenshots seen by Newsweek showed the total value had increased to $1,881,533 by Friday morning ET.
The investor first shared the news he had become a millionaire in a Reddit post on Thursday. It gained nearly 70,000 upvotes on the website.
He told Newsweek: “I feel absolutely incredible right now. I grew up very poor, I don’t come from money so I’ve worked dead-end jobs throughout my life to make ends meet.
“I currently have a regular 9 to 5 job right now and I basically live paycheck to paycheck. I also own a super beat-up 2004 Toyota Corolla that has over 200K miles on it and completely falling apart.”
He first started investing in the stock market years ago, incrementally putting bits of his paycheck into shares he thought were undervalued. He also said the rallies on GameStop shares earlier this year following investment by Reddit users influenced his outlook.