From DailyTech: Bitcoins are a popular decentralized digital "cryptocurrency", an encryption-based form of virtual currency. Based on proof-of-work on the SHA-256d hash, the digital payment form pioneered the field for later cryptocurrency, when it was launched by a programmer or group of programmers calling themself "Satoshi Nakamoto". Even with the emergence of several competitors, Bitcoins remain the world's most-used cryptocurrency, with the current global pool of Bitcoins estimated to be worth $10.89B USD at current exchange rates.
For all the excitment, it's a rather confusing time for those who mine or invest in Bitcoin, in terms of what to expect in the U.S. in terms of taxation and regulation.
Currently federal taxation of Bitcoin income is anything but clear. Bitcoins' backers are still in the dark in the U.S. as to whether the U.S. will treat the popular cryptocurrency like a foreign currency (less taxes) or like capital gains from investment (more taxes).
Regulation on a federal level is a bit more clear. The U.S. Senate scrutinized the cryptocurrency late last year in Nov. 2013, but declined to regulate it.
This week the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) release a pair of announcements following in the Senate's line, stating that it would not regulate the majority of Bitcoin users. Comments the federal agency:
The first ruling states that, to the extent a user creates or "mines" a convertible virtual currency solely for a user’s own purposes, the user is not a money transmitter under the BSA.
The second states that a company purchasing and selling convertible virtual currency as an investment exclusively for the company’s benefit is not a money transmitter.
The rulings further interpret FinCEN's March 18, 2013 Guidance to address these business models.
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