Bitcoin fuss

Whilst you may have heard the term frequently it is yet to be regulated by the government and not many people understand the tax and VAT implications of the currency.

Tax, blockchain and cryptocurrency – what’s all the fuss about?

Bitcoin is a digital currency that operates via a peer to peer network. The processing issue and verification of all transactions are managed collectively by the network without the need for a central bank. All Bitcoin transactions are shared in a public database called a block chain. If a transaction takes place this is added to a block chain.

Bitcoin can be obtained in several ways including buying from a Bitcoin exchange, accepting Bitcoin as payment for goods and services and participating in mining. There are hundreds of similar cryptocurrencies although few have been as successful due to limited technical innovation.

What’s all the fuss about? - Tacit Investment Management

Although Bitcoin and other similar cryptocurrencies are recognised as legal in the majority of countries, evaluation of its status and regulation has differed significantly. Each block chain is encrypted with a virtual padlock and miners verify the transactions held within block chains by unlocking the code. Once the code is unlocked miners are rewarded with newly created Bitcoins.

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Thus income derived from the mining of Bitcoin is likely to be considered as outside the scope of VAT. Miners may also receive income from transaction fees. The payment of transaction fees to miners is optional, although such fees may act as an incentive for miners to confirm transactions sooner. People probably have less sympathy for Martin Shkreli 8 th in the ranking who rose to notoriety as a price-hiking pharmaceutical boss.

Unfortunately it was a scam and he has been seeking to recover the funds ever since. Such incidents have lead to many merchants distancing themselves from cryptocurrency. It was even claimed recently that Microsoft 4 th in the ranking would no longer be accepting bitcoin at its Windows Store, a little more than a year after announcing it would support the digital currency.

However Microsoft later confirmed that the message on its website had been posted by mistake, and that it would in fact continue to accept bitcoin. Bitcoin may well have been tarnished by associations with dubious such use cases — many of them criminal in nature — while also gaining notoriety as much for its novelty as for the volatility of its valuation.

What’s all the fuss about?

However there is increasing interest in underlying blockchain technology and in the real potential of this and of cryptocurrencies. Business, trade and currencies are built on trust, but the current procedural, organisational, and technological infrastructure required to create institutionalised trust is expensive, time-consuming, and, in many cases, inefficient.


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Bitcoin may be tarnished and unregulated, but the underlying blockchain technology could provide a disruptive model to transform the way that we currently handle transactions, contracts, and indeed trust. In Part Two we look at why organisations are suddenly looking at new blockchain-based cryptocurrencies.

The VAT treatment of Bitcoin

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