A timely update on some of the recent changes in the constantly evolving Crypto world!

International: El Salvador became the first country to adopt Bitcoin as legal tender in early September as they rolled out the ‘Chivo’ crypto wallet allowing users to receive $30 of free Bitcoin on signup. The number 1 cryptocurrency by market cap saw a 20% decrease on the first day of legal adoption in El Salvador and has been met with some resistance towards bitcoin and their Government (read more about that here). The country is now mining Bitcoin with power harvested from a volcanoIn China, the latest attempts to control the crypto market involved making all crypto-currency transactions illegal, forcing the hand of multiple cryptocurrency exchanges in China. This follows an earlier crackdown on Bitcoin mining companies, some of which fled to more accommodating countries to continue operations. The US continues to define the broad use of the word ‘trader’ and to the extent compliance will be forced on brokerage facilities. Stablecoins (a crypto asset that holds the same value as a national currency) are viewed as a top priority for regulators. The nature of decentralised finance, mining/staking and other services may struggle to comply with any drastic changes due to the nature in which they are designed and implemented. We are likely to see these issues further develop with the rollout of the ‘bipartisan infrastructure bill’ which will apply information reporting requirements to cryptocurrency to help finance government spending in the US over the next decade.

Scaling solutions have seen the rollout of popular side chains and layer 2 technology as migration for Ethereum from ‘mining’ to ‘staking’ continues to drag out. Networks such as Polygon and Arbitrum have made a name for themselves in recent months. These scaling solutions build on Ethereum and execute transactions for a small fraction of what they would on Ethereum’s main network. EY, one of the Accounting ‘Big 4’ has put their hand up to work alongside one of these networks (Polygon, formerly known as Matic) to ”create permissioned, private industry chains”. It will be interesting to see the efficiencies gained behind the scenes here and how this could be rolled out to SME businesses in the future.

Non fungible tokens (NFTS), what are they? It helps to replace the word fungible with ‘changable’, as each NFT is unique and can’t be changed for an identical token. Unlike Bitcoin where you don’t care what specific bitcoin are in your wallet when transacting. Once an NFT has been sent to your wallet that means you have ownership of that particular asset. You can enter trades or contracts with that NFT and send ownership to a purchaser. NFTs can range from digital artwork, to subscription rights to a TV series, ownership of a domain name or for the gaming community ‘in-game’ ownership of tradeable items.

Tax update: The IRD has recently released more information on the treatment of airdrops and hard forks (which you can read more about here). Generally, you won’t have to pay tax when receiving an airdrop or hard fork crypto asset (depending on your personal circumstances). This would create a $0 cost base so when or if you trade this asset you will be paying tax on the whole market value amount at the time of the trade. For example if you received 100 tokens valued at $10 each from an airdrop and six months later you sell them for $20 each. As you were not required to pay tax on the $1000 when you received the coin there is no cost basis so you are required to pay tax on the total value of $2000. If you are buying and selling crypto under your own name this profit will be taxed at your marginal tax rate. If you are lucky (or not so lucky) you may have losses from prior periods to mitigate some of these gains within a tax year.

Crypto Tax Software: If you have been talking to us about crypto then chances are you have heard us talking about Koinly. There are many tax software options out there, but we have found this crypto tax software to be the most user friendly tracking software to date. Whether it’s holding, investing, trading crypto/NFTs, mining or staking the free plan currently offers you gain/loss for year end taxes, as well as information to help track your portfolio. If you require a more detailed analysis of your transactions you can simply purchase a plan for that tax year. 

This is an increasingly popular topic in business discourse in 2021, so make sure you’re connected to all things Sidekick! You’ll find most of our content either in the Sidekick Business Lounge, our Facebook page, or right here in the Newsletter. Ben Bailey (our Crypto enthusiast) and Ric Thorpe are always around to chat further about this topic, so feel free to get in touch!