The price of Bitcoin has risen almost 30 percent this past month and now one Bitcoin is closely approaching $14,000 U.S. Dollars and over the last year it has risen over 50 percent. Bitcoin is an open source means to transfer digital currency or value. It is hated by some, loved by some, and yet others do not understand what it is or how it works.
Millions of dollars have been made and lost for those holding Bitcoin. For the uninitiated, Bitcoin is not a physical coin, it is something that lives on the Internet, along with hundreds of other digital “coins.” Created by an anonymous person, Bitcoin was created in 2009, though its idea has germinated since 1998 as a means of a decentralized currency.
The idea behind Bitcoin is to have more freedom with currency instead of a government controlled central bank, like the United States’ Federal Reserve. The Federal Reserve views Bitcoin and other alternative currencies as a threat to the U.S. Dollar and speculation the Fed would create its own digital currency remained unknown recently by its chairperson. Chairperson Jerome Powell said during a recent IMF livestream that, “We think it’s important that any potential CBDC [Central Bank Digital Coin] would serve as a complement to, and not a replacement for, cash and current private-sector digital forms of the dollar such as commercial bank money.”
Bitcoin itself is perhaps not the best vehicle for fast transactions as its processing speed, dependent upon a multitude of decentralized computers, is very slow compared to other digital coins. And for tax purposes, the Internal Revenue Service has classified Bitcoin as an asset rather than a currency. The IRS states, “For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.”