FIRST, THE BASICS - WHAT IS CRYPTOCURRENCY?
Cryptocurrency is a type of virtual currency that utilizes cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain. Units of cryptocurrency are generally referred to as coins or tokens. For example, Ether (ETH) is the coin for the Ethereum platform and XRP for the Ripple platform.
In other words, cryptocurrency is a virtual currency that operates without a central authority or bank and is not sponsored by a government, and is protected by fancy encryption techniques [cryptography].
WHAT IS BITCOIN?
Bitcoin is likely the most well-known cryptocurrency. Bitcoin was created in 2009 and has been described as a decentralized “peer-to-peer virtual currency” that can be used in exchange for traditional currencies such as the U.S. dollar to purchase goods or services online.
SO, IF I CAN NOW BUY FROM AMAZON AND OTHER RETAILERS WITH BITCOIN; WHAT ABOUT REAL ESTATE?
The short answer is yes; however, there a few things to consider:
Loan Financing. Many traditional banks and lenders are not ready to accept cryptocurrency. However, a new Blockchain Lending Industry is emerging. Companies like Unchained Capital are now offering Bitcoin Loans, which allow people who hold bitcoin to borrow up to $1 million with no credit check and interest rates between 9.25% and 14%. However, these are not long-term loans; Unchained offers loan lengths ranging from three months to three years.
Seller Acceptance. Will the seller accept Bitcoin? Given the daily fluctuating value of cryptocurrencies, seller’s may be hesitant to accept Bitcoin. However, in such event, all is not lost. Fortunately, there is a service called BitPay, which converts Bitcoin to U.S. Dollars (USD), which can then be transferred to the Seller.
- Risk of Fluctuating Value. It is important to keep in mind that due to the daily fluctuating value of cryptocurrencies, the conversion from Bitcoin to USD places the risk on the buyer since the seller has already contracted to receive a set dollar amount.
- No Returns. Bitcoin transactions are irreversible. If the parties would like to cancel the agreement due to litigation or other reasons, cooperation from BOTH the parties is necessary.
- Tax Consequences. Unfortunately, the IRS treats Bitcoin and all other cryptocurrencies not as real or “fiat currency,” but instead as “Property” under U.S Federal Tax Law. This is important because “Property” (which includes stocks, gold, and bonds) is subject to capital gains taxes under U.S Federal Tax Law. As such, if you were to sell Bitcoins to purchase property, profits from the sale of your Bitcoins will be subject to either a short-term or long-term capital gains tax.
Despite the above considerations, cryptocurrency is the way of the future, and Venustas Law is committed to being at the forefront of this fledgling industry. If you are interested in buying or selling property involving an exchange of cryptocurrency, contact Venustas Law today.