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“Stop Talking about Bitcoin. Blockchain is more interesting!”
I have heard this on at least a weekly basis for the past six years. Yet Bitcoin remains and very few ‘blockchain projects’ have delivered anything meaningful.
We have spent this series of posts focussing on Bitcoin, understanding its context and how it works for a reason. Undoubtedly some readers may wonder why the focus is on ‘Bitcoin’ and not ‘Blockchain Technology’. After all, there is no shortage of ‘experts’ claiming that Bitcoin isn’t interesting, but that ‘Blockchain, the tech that powers Bitcoin’ IS.
This focus is intentional. It is because if you want to understand this technology you really must begin the story at the start, with the first implementation of it. This first implementation is Bitcoin. It is the most successful, longest running and most widely adopted implementation of this technology in the world. Bitcoin has grown into the largest distributed network in the entire world. I would always question the agenda of anyone claiming that this is uninteresting or that only parts of it are.
Skipping ahead to understand ‘blockchain’ without looking at Bitcoin is going to be excruciatingly confusing. If you have followed this series, you would have learned in our second blog post that ‘Blockchain’ is but just one element of Bitcoin’s complex system. Looking at it in isolation will inevitably lead to an extremely narrow and often misguided view of what is happening with this technology.
- Part 1 – Why Was Bitcoin Created and Why Should I Care?
- Part 2 – How Bitcoin Works – An Explanation for Non-Techies.
We have barely scratched the surface of this new digital economy. Bitcoin is nearing ten years old and, as open-source technologies tend to, has spawned an explosion of innovation and disruption. It certainly isn’t the only game in town.
Since Bitcoin’s launch in 2009 quite literally thousands of digital currencies have been created. The total market cap of which is over $200bn, a number not far short of Bank of America’s valuation at time of writing. Bear in mind that this figure doesn’t account for the countless private investment rounds into companies that service this new digital economy and the incredible incomes a lot of them are earning. It also doesn’t reflect the true size of the eco-system that includes companies working on private ‘blockchain solutions’ for all manner of industries.
So, what can we take away from all of this?
Well the purpose of this series of blog posts was not to convince you to convert all your savings into Bitcoin or any of the other digital currencies. It’s not even to convince you to necessarily start accepting it at your business or transacting with it with your supply chain. The reality is, there is still some way to go before this technology becomes mature enough that it creeps into the wider economy or poses any significant change to your current business model.
It was simply to convince you that it looks time to start taking this technology and emerging industry more seriously. After ten years, it’s hard to consider Bitcoin a fad. Understandably and quite rightly Bitcoin and similar technologies have been met with their fair share of contempt, disbelief and cynicism. If you think about it, consider that all truly disruptive new technologies throughout history have:
- The invention of locomotives was hugely controversial. Not least with those working the canals. These machines are too fast, noisy and dangerous. Now? Railways proliferate the modern world.
- The invention of the motor vehicle was utterly derided. Headlines mocking these inefficient, noisy machines. Why wouldn’t you just use a horse? But now? A huge amount of homes can’t imagine not owning two!
- The invention of the internet was derided. Why do we need it? We have enough methods of communication, it uses too much electricity, it’s only for techies, it doesn’t scale. Telecoms companies all laughed at ideas of doing voice over IP. Now EVERY telecom company runs their services over the internet.
The same is of course true of Bitcoin and other digital currencies. So much so that Bitcoin has been declared ‘dead’ over 300 times by media publications the world over. There is a website that tracks them: https://99bitcoins.com/bitcoinobituaries/. The interesting thing to note here however is that Bitcoin remains and has been growing ever larger in resiliency and network size ever since. Arguably, from a computer science viewpoint, Bitcoin has already achieved the status of being the world’s largest and most secure network architecture. Hopefully you can begin to see that the price of Bitcoin really isn’t the interesting thing to focus on.
Also bear in mind that this is Open Source Technology and because of that it evolves extremely quickly. Don’t focus too much on Bitcoin alone, it is but one part of this eco-system. It is entirely possible that it will be supplanted by something new, something better. At this point It is almost irrelevant what happens to Bitcoin in the end. The new business models, ideas and technical breakthroughs will remain, they cannot be ‘un-invented’. So, whether Bitcoin exists or not, it’s looking ever more likely we need to begin getting more comfortable with these ideas.
So, What Should I do Next? How Do I Prepare My Business?
The simple answer is: You should make an investment. Not a financial investment into digital currencies but an investment in time to develop a deeper understanding.
The accomplishments of this technology to date at least merit a small amount of your time to explore and to understand them. If the rise of this new type of digital commerce represents anything like the scale of disruption that the internet delivered, then it would be a wise investment. In the early days, the internet disrupted just a fraction of business models. Now it forms part of the overall infrastructure of almost every economy.
A pragmatic view would be to scale your level of understanding of digital currencies, blockchains and decentralised business models as the relevance of the industry grows. The larger and more relevant the industry becomes, the more attention it should be granted. The people who did this as the internet grew were able to take advantage of huge opportunities, whilst those which failed to adapt were left behind.
Sounds Practical. But where do I Start?
If you have looked deeper into Bitcoin and Blockchain already you’ll know that there is a vast amount of information and content being delivered on the subject. This ranges from the downright ridiculous through to the inexorably complex technical discussions. It’s difficult to know where to start.
Thankfully we have put together just a handful of reputable sources that you can rely on for coherent, accessible information that will demystify what is happening in this space without overwhelming you with choice:
This video is a presentation delivered by Andreas Antonopolous, one of the most respected commentators on the technology and most highly praised public speakers. His YouTube Channel has countless hours of content on Bitcoin, Blockchain and digital currencies and all of it is accessible and engaging. A few videos in your free time will greatly increase your understanding.
This is the website first registered by Satoshi Nakamoto themselves. It exists simply to provide information on how Bitcoin works and practical guidance on how to use it. Follow the guidance here and you won’t go down the wrong path.
Andreas Antonopolous has written both technical and non-technical books on Bitcoin. They are entertaining, accessible and good value.
Another fantastic book on the subject is ‘The Bitcoin Standard’ written by Saifdean Ammous. You can find it here: https://www.amazon.com/Bitcoin-Standard-Decentralized-Alternative-Central/dp/1119473861
Reading these two books and watching a view talks from Andreas Antonopolous will increase your understanding of this ‘mysterious’ new technology dramatically for just a small investment of your time. It will make sure you don’t potentially have a lot of catching up to do should this technology continue to grow.
Contact the Author!
MMGA worked with Richard Messitt to co-produce this content series on Bitcoin. He has been working with this technology for many years and has delivered countless public talks and workshops. Richard consults for charities and private companies and will deliver tailored training to both businesses and private clients. He is based in Scotland but frequently travels and is always keen to share his knowledge on this subject.
Reach out to him here if you have any questions:
Taxation of Bitcoin and Cryptocurrencies
I hope you have enjoyed the series on Bitcoin from our guest blogger Richard Messitt [add links to the blogs]. A lot of people have looked at Bitcoin as an investment class and therefore I have noted below the tax position of such investments and HMRC clarified how cryptocurrencies are treated for tax purposes in their business brief 9/2014 which considers the position for Miners/Traders/Exchanges/Payment Processors/Service Providers
For VAT purposes Bitcoin and similar cryptocurrencies will be treated as follows:
- income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received
- income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT as falling within the definition of ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments’
- when Bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the Bitcoins themselves
- charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will be exempt from VAT.
However, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for Bitcoin or other similar cryptocurrency. The value of the supply of goods or services on which VAT is due will be the sterling value of the cryptocurrency at the point the transaction takes place.
Corporation, Income and Capital Gains Tax treatment
Whether any profit or gain is taxable, or any loss is allowable, will be looked at on a case-by-case basis considering the specific facts. Therefore, depending on the facts, a transaction may be so highly speculative that it is not taxable or any losses relievable. For example gambling or betting wins are not taxable and gambling losses cannot be offset against other taxable profits.
For businesses which accept payment for goods or services in Bitcoin there is no change to when revenue is recognised or how taxable profits are calculated.
- Corporation tax: – the profits or losses on exchange movements between currencies are taxable. For the tax treatment of virtual currencies, the general rules on foreign exchange and loan relationships apply. We have not at this stage identified any need to consider bespoke rules. For companies, exchange movements are determined between the company’s functional currency (usually the currency in which the accounts are prepared) and the other currency in question. If there is an exchange rate between Bitcoin and the functional currency, then this analysis applies. Therefore, no special tax rules are required for Bitcoin transactions and they are treated in the same way as Euro or Dollar or other currency transactions. The profits and losses of a company entering into transactions involving Bitcoin would be reflected in accounts and taxable under normal corporation tax rules
- Income Tax: – the profits and losses of a sole trader or partnership business on Bitcoin transactions must be reflected in their accounts and will be taxable on normal income tax rules
- Chargeable gains: – if a profit or loss on a currency contract is not within trading profits or otherwise within the loan relationship rules for companies, it would normally be taxable as a chargeable gain or allowable as a capital.
Although Bitcoin and Cryptocurrencies are new the basis of taxation is similar to that of any other currency transaction and investments are taxed in the same manner as any other currency investment. Naturally there are extremes to consider but most of us will have taxable profits/gains or allowable losses on currency conversion.
Talk to MMGA:
We have already hosted some fascinating talks on this topic at some of our events. If you’re interested in more discussion on this topic or if you’d like to see us explore it more then do get in touch! https://mmgca.co.uk/contact-us/
We are holding an event in November 2018 in Dundee about Bitcoin, Cryptocurrencies and Blockchain. Details are to be confirmed. To register your early interest and secure a place please contact us at one of our Dundee office. https://mmgca.co.uk/contact-us/