Most of us are familiar with Bitcoins, digital token technology that was first initiated by Satoshi Nakamoto an anonymous hacker in 2008. Bitcoins has currently more than 15 million users and 150.000 merchants around the world.
Satoshi Nakamoto also conceptualized the first blockchain database, Genesis block in 2009. His idea was based on the three fundamentals of blockchain; fraud-proof, independent and peer-to-peer.
Bitcoin is a virtual disrupted computing system for accounting and payment transactions. The cryptocurrency that is used in this system is also called Bitcoin.
Bitcoins has been defined as electronic cash as they are anonymous by nature. The database of the bitcoins is divided into the blocks that stores information of the Bitcoin addresses and the amounts of bitcoins which are controlled thorough wallet system. The payment system allows direct transactions with the need for any use of the traditional banking systems. All the transactions are automatically stored into the registered users blocks that also contains the information of the earlier transactions.
“ DOGE, POT, LGD, TRUMP, INSN, UNO, COINYE, SKIN, PND, MOON“
There are hundreds of Bitcoin-like currencies are called cryptocurrencies based on block chain technology. Dogecoins (DOGE), potcoins ( POT), Legends room (LGD) Trumpcoin (trump) Insanecoin (INSN) Unobtanium (UNO), Coinye (COINYE), Skincoin (SKIN), Pandacoin (PND, Mooncoin (MOON) and many other cryptocurrencies, coins, or protocol tokens have now expanded far beyond bitcoins. They are used for several purposes like i) by-and-hold investments, ii) selling them with higher price for profit or iii) spend like cash on utilities.
The virtual currencies have been very profitable to those who have acquired them early and who have already cashed the value.
Just at the time I am writing this blog post, I receive several emails that relate to cryptocurrencies and block chain technologies.
I am in the posting list of private sale of ARtolken, with an offer for additional 5 % cut for each client and the first platform that leverages blockchain infrastructure to create, rent and sell 3D technology based content. A utility token – ARToken (AR) – will be issued as a digital payment vehicle that facilitates AR/VR/3D technology based content exchange among the ecosystem participants from all over the globe.
Another email comes from crowdfunding platform that is advertising a bitcoin broker.
“In the past year, the price of bitcoin has surged almost 1,000 %. This is your change to invest in bitcoin’s growth through an equity investment in bitcoin broker in the Nordics.” argues Parsos Oy bitcoin broker who aims to make bitcoin investing mainstream in the Nordics.
Shareholder registers shall also benefit from the blockchain technology and smart contracts system. During 2019 the Finnish financial consortiums OP and Nordea are establishing digital trading platform for the residential real estate market on distributed ledger technology that is developed by Tomorrow Labs Oy. The prototype of the platform is finalized now.
In the beginning of this year Nasdaq had news about a man that have made $1.3 million buying a house with bitcoins as the bitcoin price was $750 when the deal was made and $1000 by the end of transaction and the buyer ended up making 25 % in the currency exchange rate read more here.
Tax Treatment for Increase in Value?
In Finland like in many other European countries increase in value for cryptocurrencies is considered as investment income. The realized increase in value of currency is considered as “other taxable invested income.” The article 53 paragraph 1 section 8 of Income Tax Act which tax exempt considers currency rate gains, cannot be applied to exchange of cryptocurrencies, as these are not legal tender.
A gain on cryptocurrency is deemed to be taxable exchange during the year of transaction, i.e when the currency is exchanged against a good or service to be purchased. The income tax consequences are determined in euros although the transaction would have been concluded in cryptocurrency.
The acquisition cost of purchased item is its value in euros. The value of purchased items at time of purchase must be shown in euros for the tax authorities. The value of crypto currency is translated into euros at the time of exchange of crypto currency against purchased item.
Therefore, the capital gain or loss shall be determined in euros at the time of trading.
The increase in value in the cryptocurrency trading shall be taxed as personal investment income. Potential positive increase in the value of the sales or purchase shall be realized in the taxation. The trade that has been made in cryptocurrency shall however not be subject to deduction of potential loss, if the loss is realized due to value depreciation of cryptocurrency.
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