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What’s the Difference Between a Fork and an Airdrop?

If you’ve been following the cryptocurrency world for any length of time, you’ve undoubtedly heard the phrases “hard fork” and “airdrop” before. Perhaps you’ve even observed your cryptocurrency wallet’s total rise for no apparent reason, only to find out it was caused by an airdrop.

Airdrops and hard forks have several similarities, which has led to uncertainty among cryptocurrency traders at times. However, there are significant differences between the two procedures. When code is modified, a fork occurs; this results in two possible routes. The new blockchain is represented by the “new chain,” while the original blockchain is referred to as the “old chain.”

Airdrops happen when a new cryptocurrency token is given to users. If there’s a fork in the virtual currency, an airdrop might be used to send the new cryptocurrency straight to people’s wallets.

A hard fork is when the developers of a digital currency create a second branch using the same basic code. Usually, this happens after deliberation and discussion among the development team, miners of cryptocurrency, and other investors. If people want to take the currency in different directions, then ahard fork may be necessary.

Because of this, the two copies of the digital currency aren’t precisely identical; rather, the original currency generally continues as normal, while the new version makes some modifications to the code. Hard forks are occasionally not caused by a dispute between developers and miners but are instead a deliberate attempt to develop a different version of a previously existing coin.

Some of the most-talked-about times in the cryptocurrency world have been fork events. When Bitcoin has split, it has generated a huge amount of investor interest and discussion. The Bitcoin cash hard fork was just such an instance. Of course, over time, there have been many Bitcoin forking events, with many of them going unnoticed.

The term airdrop refers to the act of giving cryptocurrency to a selected group of people. This might be accomplished through ICO purchases and developer freebies. In an airdrop, tokens are typically given to investors who own a previous blockchain, such as Bitcoin or Ethereum.

The last point is what typically causes confusion between an airdrop and hard fork. Oftentimes, those who hold the former digital currency are given new tokens in both cases—and usually in volumes equal to their current holdings. For example, when the Bitcoin cash hard fork occurred, holders of Bitcoin were given an equivalent amount of Bitcoin cash tokens as designated by the developers of the fork.

In some cases, an airdrop is done primarily to raise the profile of a new cryptocurrency or coin. Holders of Bitcoin and Ethereum may be surprised to discover that new currencies have been added to their wallets (as many airdrops happen unannounced). Some in the digital currency community believe that free giveaways of this sort are largely a waste of time, since they end up generating an overabundance of coins in the market.

When investors obtain tokens for free, they frequently sell them. If enough people do this, the price of the new cryptocurrency will tend to fall significantly. In certain circumstances, an airdrop is distinct from a hard fork in that it doesn’t create two iterations of the same basic currency. Rather than creating two variations of the identical fundamental currency, an airdrop leads to the creation of a new cryptocurrency with potential long-term success.

Cryptocurrency Burning

Cryptocurrency burning is the process of removing tokens (also known as coins) from circulation, resulting in a decline in the number of coins in use. The money is transferred to a wallet address that can only be used to receive funds. The wallet is isolated outside the network, and the tokens are no longer usable.

An address is associated with each cryptocurrency user that may be used to transmit and receive coins. The address is comparable to an email address, in which you can send and receive emails from anywhere. Your wallet address is similar.

When a coin is delivered to a wallet address that can only receive coins, it is “burnt.” These addresses are also known as “eater” or “burner” addresses.

The private keys to cryptocurrency wallets enable you to access the tokens stored in them, but burner addresses do not have a private key, thus the assets are lost for good.

It’s not unusual to remove an asset from circulation in order to adjust its availability and value. Central banks, for example, change the quantity of circulating money in order to alter a currency’s purchasing power.

Although cryptocurrency is digital, there are still a few reasons you might want to burn it.

Companies that are listed on the stock market typically buy back shares in order to decrease the number of outstanding shares. In general, this technique is intended to boost the worth of the stock while also improving a firm’s financial success. Unfortunately, it doesn’t always work as planned, and sometimes has the reverse effect. Shares may also be purchased as a form of corporate control—companies can employ this method to prevent a hostile takeover—the purchase of shares to acquire a majority ownership of the firm.

Many believe that tokens are destroyed to achieve similar goals. The entities behind the burning endeavor to make the coins more valuable and less accessible—trying to regulate the coin supply and preserve or enhance their own wealth. Some cryptocurrency entrepreneurs, on purpose, burn tokens to complete these objectives.

PoB is a method that blockchain networks use to make sure all participating nodes agree on the state of the network. A consensus mechanism is a set of protocols involving multiple validators agreeing that a transaction is valid.

PoB stands for Proof of Stake Without Energy Wasted, and it’s a type of proof-of-work system that doesn’t waste energy. It follows the principle of allowing miners to burn virtual currency tokens in order to earn the right to create blocks (mine) proportionally.

To burn the coins, miners send them to a burner address. This process does not consume many resources—other than the energy used to mine the coins before burning them—and ensures that the network remains active and agile. Depending upon the implementation, you’re allowed to burn either native currency or currency from an alternate chain, such as Bitcoin. In exchange for doing this action, you receive a reward in the form of native currency token.

Essentially, all of this fire activity keeps the network nimble, and participants are compensated for their contributions (both burning their coins and those of others).

The PoB system has a built-in mechanism to periodically burn cryptocurrency coins. By doing this, it balances out the early mining adopters with new users and prevents any unfair advantages.

The number of new coins generated by PoW decreases over time. This encourages miners to be active since they must burn their early coins and mine new ones instead of mining one coin when the mining begins. Because more new proof-of-work currencies are minted as time goes on, it becomes more difficult for early investors—or well-funded individuals with big mining farms—to keep a majority of the coins.

 

 

Stablecoin Taxation Explained in Depth

Wondering how stablecoins are taxed in your jurisdiction?

Stablecoins have increased in popularity in recent years and are now a more significant element of the cryptocurrency world. It was predicted that stablecoins would conduct $1.7 trillion worth of transactions during Q2 2021.

Right now, you could be using stablecoins like USDC, Tether, or DAI in your transactions. We’ll go through how to report these transactions on your tax return in this post.

What is a stablecoin, and how does it differ from regular cryptocurrencies?

Many crypto investors are hesitant to utilize virtual currencies like Bitcoin and Ethereum for everyday purchases. Many consider these assets to be long-term investments and don’t want to spend them, incur capital gains, or miss out on future price increases.

Stablecoins were created to address this issue and give cryptocurrency users a currency they could use on a regular basis.

Stablecoins aren’t meant to gain in value over time; instead, they’re intended to track the cost of external commodities or currencies. Stablecoins have been developed that track gold, oil, and the South Korean Won as reference prices. However, the majority of popular stablecoins are linked to the dollar’s value.

How is stablecoin activity taxed?

Despite the fact that stablecoins were created to be utilized in routine purchases, they are handled equally by the IRS as any other cryptocurrency.

Buying a decent or service with a stablecoin/trading a stablecoin for another cryptocurrency is considered taxable.

You will have to pay capital gains taxes based on the price fluctuations of your stablecoins. Because most popular stablecoins are intended to track the value of the US dollar, it’s probable that your capital gain will be near zer o. However, you should record all of these transactions on your tax return.

Trading cryptocurrency for stablecoin

The disposal of a cryptocurrency for a stablecoin is called a trading event. Depending on the price movement of your assets since you received them, you will have capital gains or losses.

Receiving stablecoin as a payment

If you accept stablecoin as payment for your products and services, you must declare it as ordinary income. Depending on where you fall in the tax bracket for the year, your tax rate on these earnings will vary.

What if I’m transferring stablecoin between wallets?

You should not report on your tax return the transfer of stablecoins between wallets, which is a non-taxable event.

How is stablecoin interest taxed?

Users of popular cryptocurrencies such as BlockFi and Celsius can make money by investing in a stablecoin. Your bonuses in this case will be classified as regular income and taxed accordingly.

Staking your crypto IRAs – What You Need to Know

Staking your crypto IRAs – What You Need to Know

Staking has become a word that many cryptocurrency investors, particularly Crypto IRA investors, are familiar with. Staking is the practice of validating transactions using a growing number of cryptocurrencies. POS is a more environmentally friendly method to mine cryptos and get rewards to confirm transactions than Bitcoin mining, which is based on the proof of work (“POW”) principle.

Key Features

  • Staking cryptos is a method for generating income in the background using your cryptos.
  • The Proof of Stake method is becoming more popular among cryptocurrencies.
  • Staking your crypto IRAs might have tax consequences that you should be aware of.

This article will explain how POS works, how a Self-Directed IRA can benefit from POS bonuses, and how it may be taxed in the context of a Crypto IRA.

What is Proof of Stake (POS)?

POS, also known as “Proof of Signature,” is a cryptocurrency that uses a variant of the proof-of-work system.

Staking cryptocurrencies is the process of committing one’s cryptocurrency assets to a blockchain network in order to confirm transactions on the blockchain. POS is available for cryptos that use the proof of stake approach for transaction processing. Because POS consumes less energy than POW, it has become more popular than it was previously.

POS, in a nutshell, is the process by which new transactions are added to a blockchain for a certain cryptocurrency. The cryptos that employ POS with the highest market capitalization are Solano and Cardano. Although, Ethereum 2 is anticipated to go live in the middle of 2022 and will improve the Ethereum network through switching from POW to POS. In addition, Polygon and Commit Chain connectivity help scale the Ethereum network by using their own POS blockchain and Commit Chain connection.

How Does Point-of-Sale (POS) Technology Work?

The first stage is to invest one’s assets in the cryptocurrency protocol. The protocol then selects the participant who will serve as a validator to confirm transactions blocks. The more coins a person pledges, the more likely he or she will be chosen as a validator.

Each time a block is added to the blockchain, new coins are “minted” and given out as rewards to the block’s validator. POS can be compared to a lottery. The greater the amount of tokens committed, the higher the chance is that the participant will be chosen as a validator and earning a reward.

POS eliminates the need for bitcoin miners by introducing validators instead, resulting in significantly less energy usage than POWs. In essence, if you want to stake your cryptos using a POS, all you have to do is move them to a wallet, create a smart contract, and employ blockchain code. Staking coins individually or via a staking service allows users to pool resources together.

A Beginner’s Guide to IRS & The Crypto IRA

The IRS considers cryptocurrencies, such as Bitcoin, to be goods. Cryptocurrencies are treated by the IRS the same way as equities or real estate. The IRS provided guidance on the tax treatment of cryptos in IRS Notice 2014-21. The IRS made it clear in the notice that cryptos will be taxed as a capital asset from a tax standpoint. As a result, selling bitcoin held in an IRA is not subject to taxes; instead, all gains are tax-deferred or tax-free if invested in a Roth IRA.

The tax treatment of a P.O.W.

The IRS released a new Revenue Procedure on October 12, 2014 that provides some clarity on how the agency will treat crypto rewards earned through POW. The notice adds that “if” a taxpayer’s mining of virtual currency is considered a trade or business, the funds received as part of the mining operation would be deemed business income.

A tax known as UBTI, which can reach up to 37% in 2022, may apply to a Crypto IRA if the investor engages in an activity that generates business income. As a result, if the proceeds or coins generated by a crypto mining operation are deemed to be a trade or business for purposes of the Self-Directed IRA’s investing standards, the income or tokens earned from that activity could be subject to the UBTI tax.

The use of the word “if” in Notice 2014-21 emphasizes the fact that not all mining operations will be considered a trade or business. As a result, an argument may be made that if you invested in some mining activity and viewed it as passive rather than as a trade or business, the cryptos earned as part of the activity would not be subject to ordinary business income.

Aside from Notice 2014-21, the IRS’s position on the tax treatment of POW mining activity is largely unaddressed.

Tax Treatment of POS

The IRS’s position on the tax treatment of earning rewards via POS may be revealed in a recent court case. Joshua Jarrett of Nashville, Tennessee, ran a small-scale virtual currency staking business using a home computer in 2019. Jarrett owned several hundred thousand Tezos tokens, which is a POS platform. He generated 9,000 new tokens over the course of a year and reported them to his federal income tax return.

The IRS was asked to pay out a $1 million bonus to Jarrett, who would then be taxed on the new tokens he generated through staking but had not yet transferred or sold. Jarrett felt that he couldn’t. The IRS attempted to avoid an unfavorable decision that might limit its ability to tax staking activities as complete ordinary income transactions in the future by offering to return all of Jarrett’s compensation in exchange for dismissing the case.

On February 3, 2022, he announced that he had decided to decline the IRS’s offer and pursue a final court decision instead. The case will now be decided by a U.S. District court in the Middle District of Tennessee, having significant consequences for both individual investors and Crypto IRA investors when it comes to tax treatment.

The Jarrett case is intriguing from a Crypto IRA perspective because he was involved in POS activity passively, not as a trade or business, which the IRS guidance on Notice 2014-21 appears to exclude. As a result, the court’s decision in Jarrett may have significant tax ramifications for passive Crypto IRA investors engaged in POS operations.

Conclusion

The tax treatment of POW and POS rewards will become more clear as the popularity of cryptocurrency investments rises. In general, if an activity is labeled a trade or business, an individual investor would be subject to ordinary income tax and a Crypto IRA investor would be subject to UBTI on the reward received. Despite this, POS Crypto IRA investors may get a definitive answer to their tax treatment sooner than later thanks to the Jarrett case. Stay tuned!

‘Staking does not always deliver the profits you may be looking for. This is especially true if the gains are taxed. Before engaging in staking, Crypto IRAs, please consult a financial advisor.’

Veladero: Our Story

When we think about our story, we just couldn’t stop the smile occurring on our faces. The thing about our story is that it’s a little sour and sometimes, it’s just a little too sweet. Our journey began ourselves making our way from absolutely nothing to turning ourselves to one of the largest gold mining companies in the entire world. Plus, did you know that we offer a massive discount of about 2-4% when you buy Bitcoin from us? Well, that’s totally a different story. So, how did it all begin? We ain’t telling this story to brag about our accomplishments. Instead, we are happy about the way the things turned out to be. Our journey hasn’t yet ended. However, the hard part is now dealt with, and we would like you to join us in our journey and stick till the very end. So wouldn’t you like to take a little sneak peek at our bitter-sweet adventure?

Before we narrate our entire journey in front of you, we would like to inform you that, “We are one of the largest gold mining companies in Argentina. Not only Argentina, but we have also made our impact all over the world.” So how did we do it? Let’s take a look.

Pre-Foundation in 2010

We haven’t been in the industry for a long period of time. However, we have successfully made our way around the industry. The year was 2010. Bitcoin wasn’t a huge thing back then. It was just available to people at reasonably cheap rates. People used to sell 4-5 Bitcoins in order just to buy themselves a pizza. So, it was the year 2010, and the current founder of Veladero, Jeremy, wasn’t quite satisfied with his life. He always dreamt of reaching the heights that his friends usually talked about. Instead, the thing about Jeremy is that he wasn’t quite able to earn a huge amount of money through his Pizza Delivery job. After working for about 6-7 months, Jeremy realized that his life wasn’t just limited to delivering pizzas to people all around the world. Instead, he wanted to conquer his dreams.

 

His father used to take him for a visit to the gold mines. His father was a worker there and knew too many people that could boost Jeremy up. In some days, Jeremy started working with a gold mining company and started digging out gold. He was really impressed with the amount of gold that could be obtained through the mining process. He kept working with the gold mining company for about six months and learned everything he could.

Foundation of Veladero in 2012

Jeremy quit his mining job and instead, started working for himself. He started his own company named “Veladero” in the year 2012. It was the year when the technology started making its way around the world and had already made an impact on the lives of the people. With the help of his skills that he acquired through his gold mining job, he used to take up individual contracts and assist various gold sellers in the market. With the help of his contacts at the gold mining company, he successfully sold a huge amount of gold to the individual gold sellers in Argentina. He used to take up their orders and offer them gold at a reasonable price. But, he didn’t believe that he would be able to achieve all of his dreams by simply selling gold. He invested in a lot of sectors. He took up individual contracts for an oil and gas company. Plus, he had come across the term ‘Bitcoin.’ One of his nerd friends insisted him to buy some of them as he considered that it would have a major impact in the near future. Guess who was right? He was able to gather a huge amount of money during his time as an individual contractor.

The Rise Of Veladero – 2016

With the help of his friends at the gold mining company and from various parts of the world, Jeremy had turned Veladero into a huge organization already that dealt in gold. Selling gold was not an easy job. However, people at Veladero knew how to do it. In his journey, Jeremy always dreamt of operating a gold mine under the name of his company, and that’s what he insisted on doing. With the help of his friends and his contacts all around the world, his team at Veladero was able to work in collaboration with Barrick Gold. And the rest is all history. Veladero is one of the largest gold mines all over the world, and nobody can deny the fact that it is. Did you know that the mine has estimated reserves of about 10 million oz of Gold? And do you remember the bitcoin that Jeremy bought during his bitter-sweet journey? Well, he just forgot about it, and those Bitcoins just generated a huge amount of profits for Veladero. This was the time when Jeremy realized that he must also start focusing his way around Bitcoins and must provide the world with it at cheaper rates.

Who Are We?

Who wouldn’t love to buy Bitcoin at cheaper rates? And that’s what Veladero has to offer. Our vision is to provide Bitcoin to each and everyone in this world at really cheaper rates comparatively. And how do we do that? We mine gold. Based in Argentina, Veladero holds expertise in mining gold and holds a long and successful history. Everyone loves gold. And with a huge amount of gold reserves at our disposal, we trade-in the gold in our hands successfully with our joint venture partners in return for Bitcoin. This allows us to offer Bitcoin to our customers at a value particularly cheaper than the other wallets. Can you guess the difference between our and their rates? That’s a tremendous difference of about 2-4%. Calculate the money you would save and invite a huge amount of profits in your pocket right now. We know that you want to. So why not start climbing the stairs to your success right now!

The Dangers of Investing in Cryptocurrencies

DO NOT under any circumstance take this as financial advice. I have no idea what I’m doing with regards to investing, I merely want to point out some of the dangers to you. DO EXPECT to throw money out the window unless you know very well what you are doing. ANY INVESTMENT is a dangerous game, especially for novices like me.

There, that should get the mood set.

In this article, I’ll focus on explaining to you some of the dangers of investing in cryptocurrencies. I’m doing this to warn you about the dangers involved, and maybe even scare you away from investing completely. This isn’t a beginners game and you will get burned if you approach it without proper preparation.

Investing Bits and Bytes? You’re Joking, Right?

You may be surprised that there is a thriving market for Bitcoin based investments. Even Litecoins now have dedicated stock and options markets. Why on earth would such a thing exist at all? It’s just numbers, right? Not real money?

Note: No, I’m not having the debate about the merits of Bitcoin, whether Litecoin has a place at all, cryptocurrencies in general, or other similar discussions now. My opinion is that there is a market need for cryptocurrencies, Bitcoin, Litecoin, or otherwise. Currently, Bitcoin and Litecoin are my favorites to lead this race, but don’t listen to me.

Well, as with all things subject to speculation, people will speculate, trying to make more of what they already have. Whether they speculate in the volatility of the market, or the long-term success of any particular cryptocurrency, these markets will pop up and as long as there are willing participants who believe they can benefit, they will thrive.

I would like to stress, though, that investing with and in cryptocurrencies is an extremely risky business. It is even more tricky and complicated than regular speculation because you also need to take into consideration the exchange rate between the various cryptocurrencies, and the exchange rate between cryptocurrencies and fiat currencies.

In other words, and make no mistake about this: DO NOT under any circumstance put money into cryptocurrency speculation that you are not completely comfortable considering lost the moment you buy in. Nobody understand this market, nobody knows where it is going, nobody has any relevant previous experience with cryptocurrency markets, much less with how stocks and options work.

So, Why Are You Investing?

Personally, I have a few Bitcoin and Litecoin investments, but like I explained, I consider these funds lost and have no hope of ever recovering them. I am using the investments to learn more about investing in general and about cryptocurrencies in particular. I have faith in cryptocurrencies as the future of commerce, and I want to learn as much as possible. I’m a learning junkie, in case you haven’t read anything I’ve written before.

At the time of this writing, I have yet to realize any losses on my investments, but I have also spent weeks and months learning and calculating, reading about investment strategies, how traditional markets work, how psychology plays into the game, and so on. I have spread my investments to balance any risks, and I’ve constructed an investment profile that matches my risk profile (which is ‘let it ride’, basically) with my expectations for the growth of cryptocurrencies.

I am a complete novice at this game; I expect to suffer heavy losses, perhaps even a complete loss, or, as it stands right now, even more than I have invested. I have spent considerable time learning, and that time may instead have been used for other, more profitable ventures.

I have, however, put in some of the legwork to understand as best I can how this game works, and it has taken considerable time. When I say I’ve worked weeks on this, I’m talking about 15-18 hour days, seven days a week. This probably makes me more informed than most first-time investors, but make no mistake; I am utterly incapable of making sound decisions, and I’m having to completely rethink what I’m doing on a daily basis. DO NOT take any of what I tell you as any kind of advice on what you should do, with one exception (two, counting the previous sentence): DO YOUR HOMEWORK.

Why is it So Complicated?

I’ll talk more about the complications of investing in cryptocurrencies in a later blog post, but be aware that investing in cryptocurrencies is more complex than regular investments. Rather than having an investment go up and down based on a single or few market conditions, you need to take the exchange rate into consideration, and that may move in any direction at any time.

Further, since Bitcoins and other cryptocurrencies are by nature decentralized and out of government control, you have no recourse if something goes wrong (recourse meaning your ability to get money back if you’re tricked or scammed). Plenty of people have lost plenty of money to scammers, but also to people who have had honest intentions but very little experience or just plain bad luck.

Also take into consideration that the cryptocurrencies’ exchange rates are extremely volatile at present. This is partially due to its size but also because it is a young market and nobody really knows what drives the exchange rate.

Many people lost large fortunes during April 2013 after what seems to have been a bubble in the Bitcoin/US Dollar exchange rate, even seasoned investors who thought they could ride the wave into the sky.

Finally, because the Bitcoin stock investment market is extremely young and small, but also due to its decentralized nature, it is to a large extent based on trust. You need to do far more investigations into the background of the issuers of stock denominated in cryptocurrencies than you would for a regular stock exchange, where you can trust somewhat in the exchange to do some of the due diligence for you.

The cryptostock market is definitely maturing in this area, but has a long way to go before its reputation and process for admissions is as strict as it would be for example for being traded on NASDAQ.

So, if I haven’t scared you off yet, I haven’t done a good job, but I would like to see that you’ve at least become more aware of the dangers inherent in investing in an unproven, highly speculative, and largely misunderstood market.

Be safe, and in the case of Bitcoin, Litecoin, or other cryptocoin investments, that may mean sitting on the bench for a while.