Blockchain Technology | Jengas Digital Solutions

Cryptocurrency and Income Tax

by netsparkle | Dec 28, 2020 | Blockchain Technology, Cryptocurrency

Tax time is coming, in just a few days. That means you only have a few days to take some simple steps that could save you hundreds or thousands on your cryptocurrency income tax liability. The worst mistake you could possibly make is to leave your crpyto trades off your tax return.

Be Prepared to Report Your Crypto

The IRS will ask filers on their 2020 income tax return whether they received, sold, sent, exchanged or otherwise acquired any financial interest in virtual currency. Get your recordkeeping in order. Know your basis, the fair market value of your crypto when you’ve made a transaction and how long you’ve held it. Sounds complicated, right? Not if you use the right tools.

Wash Trading Rules

One thing I was surprised to learn is that when trading in crypto, unlike traditional stock investments, cryptocurrency is classified as property and not securities, therefore, at least right now, wash trading rules don’t apply to crpyto. What are wash trading rules? If you have stock holdings that are currently trading for less than you paid for them, and you sell them for a loss, you cannot re-buy them until a 30 day period has elapsed, or else you won’t be able to deduct the loss on your tax return. If have crypto that you could sell for a loss before Dec. 31, you can legally (right now anyway) sell it for a loss, rebuy it immediately for the same price, but write off the loss you incurred by selling it for less than you purchased it for.

Short Term vs. Long Term Capital Gains

Another factor you will need to know for your 2020 tax return will be short term capital gains and long term capital gains. You will have to know what the USD value of your cryptocurrency was trading at for each transaction in order to calculate your gains and you will have to know how long that particular crypto was held prior to selling it. Crypto held for more than a year is classified as long term capital gains, less than a year is short term.

Get the Right Tool for the Right Job

A great tool I recommend is CryptoTrader.Tax. You can generate tax reports and forms using different accounting methods, FIFO (first in first out), LIFO (last in first out), or HIFO (highest in first out). Click HERE and then use this discount code to get a 10% discount: CRYPTOTAX10

CryptoTrader.Tax gives you all the information you need to file a complete and accurate tax return and report your crypto trading gains or losses to the IRS on your 2020 tax return. You get a breakdown of short term vs. long term capital gains, how much you profited, and a complete IRS Form 8949 with the ability to export to Turbo Tax.

Jengas Coin Blog

by netsparkle | Dec 21, 2017 | Blockchain Technology

Should I invest in cryptocurrencies?

Cryptocurrencies are now considered to be one of the best investment decisions.

These are some of the reasons:

To increase net worth. The alarming value loss of most currencies makes many people consider a better way to hedge their money. As a result, they turn to cryptocurrencies as a better alternative.
Technology. The technology behind cryptocurrencies is amazing. It offers you a currency that can be used regardless of where you live in the world, unless a government decided to take a hand on it, of course
Track record. Ever since Bitcoin, the first cryptocurrency ever created, was launched back in 2008, investors in the digital currencies have benefited immensely from the surge in prices of the currency over time. Therefore, investing in crypto assets offers you the chance to increase your financial situation over time.

What are the risks?

Some of the issues you might want to consider before investing:

Bubble accusations. Some business experts believe that cryptocurrency is a bubble and will never pass the test of time. JP Morgan CEO is one of them, for instance. Traditional financial investors seem to think that since digital currencies are not backed by anything and have a high level of volatility, they cannot compete with fiat money and thus will never replace it.
Volatility. This point is of a high concern. With big volatility jumps you may earn a lot of money but you can also lose a lot in an instant. Take a look at the Bitcoin price over the last three months as an example.
Legal aspects. Not all the countries in the world have officially recognized the digital currency as a currency yet. So you may find it impossible to open a cryptocurrency wallet in some countries or to pay in digital currencies at a groceries store. Also, if you some of your income is in cryptocurrency you may face difficulties declaring taxes, as most of the governments have figured out what to do about it yet.

What cryptocurrency should I invest in?

Tricky question.

There are a lot of factors to consider before investing. Let’s take a look at the most crucial ones.

Acceptability. Before you invest in a crypto asset, consider how many countries recognize and accept it as a legal means of exchange?
Portability. A digital coin must be portable. You should be able to carry it easily from one place to another without much challenge.
Security. It must also be secure. This is a characteristic of all legal currencies. From the USD to the Euro, security is a common quality. So, a good digital currency must also be secure.

Over the years, a lot of digital currencies have been launched with each promising to be the most valuable. Let’s take a look at the ones we cover most often:

Bitcoin. Bitcoin has proven to be the most valuable cryptocurrency to invest in. It offers high Return on Investment (ROI). Nevertheless, as mentioned before, it is not immune to volatility jumps.
Ethereum. Ethereum is the second largest digital currency by the market capitalization and by the current price.
Litecoin. Litecoin has been one of the most stable crypto currencies so far. In fact, it is often called “the main hedge asset of the crypto market” among crypto traders, although it was affected by the news of the China ICO ban.
Ripple. Ripple is quickly climbing the ranks in terms of market cap. In less than two months, my 20 cent-per-ripple investment has grown to just north of $1 per coin. Ripple has done a great job of pitching their platform to companies with deep pockets, including Amex and others. Rumors of it’s very-near-future launch on Coinbase further fuels it’s growth.

There a lot of other potentially interesting cryptocoins to invest to. Do your own due diligence before deciding.

How to start investing in crypto assets?

Take the following steps:

Decide what you want to invest in. The first step to take is to decide what cryptocurrencies to invest in. Since there are more than thousand of them, making a decision on which one to buy is crucial.
Set aside some money for investment. Everything requires planning and goal setting. So, the second step to take is to decide how much you would like to invest in crypto assets either weekly or monthly. Keep aside the amount you wish to invest and watch out for the right time to invest it.
Sign up for a cryptocurrency wallet. You’ll need a wallet address with which to request and receive the coins you will buy. There are different types of wallets such as Bitcoin wallet, Ethereum wallet, etc.
Join an exchange. Now that you have signed up for a cryptocurrency wallet, you still have to join an exchange because this is where you will be trading. There are a lot of exchanges, like Bitfinex, Bittrex, Coinbase, etc. I personally recommend Coinbase for both it’s ease of use and stability.
Purchase your cryptocoins. After creating an account at an exchange, it’s time to start buying. If you have no idea how to do this, get in touch with the support team and they will be glad to guide you.
Move your coins to offline hardware storage. An offline hardware storage will help you store the coins off the internet servers where they are protected from hacking.

Please note that investing in crypto assets is risky. You should conduct your own research when making a decision.

What is an Ethereum Smart Contract?

by netsparkle | Dec 11, 2017 | Blockchain Technology

Like many ideas in the blockchain industry, a general confusion shrouds so called ‘smart contracts‘.

A new technology made possible by public blockchains, smart contracts are difficult to understand because the term partly confuses the core interaction described.

While a standard contract outlines the terms of a relationship (usually one enforceable by law), a smart contract enforces a relationship with cryptographic code.

Put differently, smart contracts are programs that execute exactly as they are set up to by their creators.

First conceived in 1993, the idea was originally described by computer scientist and cryptographer Nick Szabo as a kind of digital vending machine. In his famous example, he described how users could input data or value, and receive a finite item from a machine, in this case a real-world snack or a soft drink.

In a simple example, ethereum users can send 10 ether to a friend on a certain date using a smart contract.

In this case, the user would create a contract, and push the data to that contract so that it could execute the desired command.

Ethereum is a platform that’s built specifically for creating smart contracts.

But these new tools aren’t intended to be used in isolation. It is believed that they can also form the building blocks for ‘decentralized applications’ (Dapp) and even whole decentralized autonomous companies (DAO).

How smart contracts work

It’s worth noting that bitcoin was the first to support basic smart contracts in the sense that the network can transfer value from one person to another. The network of nodes will only validate transactions if certain conditions are met.

But, bitcoin is limited to the currency use case.

By contrast, ethereum replaces bitcoin’s more restrictive language (a scripting language of a hundred or so scripts) and replaces it with a language that allows developers to write their own programs.

Ethereum allows developers to program their own smart contracts, or ‘autonomous agents’, as the ethereum white paper calls them. The language is ‘Turing-complete’, meaning it supports a broader set of computational instructions.

Smart contracts can:

Function as ‘multi-signature’ accounts, so that funds are spent only when a required percentage of people agree
Manage agreements between users, say, if one buys insurance from the other
Provide utility to other contracts (similar to how a software library works)
Store information about an application, such as domain registration information or membership records.

Strength in numbers

Smart contracts are likely to need assistance from other smart contracts.

When someone places a simple bet on the temperature on a hot summer day, it might trigger a sequence of contracts under the hood.

One contract would use outside data to determine the weather, and another contract could settle the bet based on the information it received from the first contract when the conditions are met.

Running each contract requires ether transaction fees, which depend on the amount of computational power required.

Ethereum runs smart contract code when a user or another contract sends it a message with enough transaction fees.

The Ethereum Virtual Machine then executes smart contracts in ‘bytecode’, or a series of ones and zeroes that can be read and interpreted by the network.

Smart Contracts

A smart contract is some code which automates the “if this happens then do that” part of traditional contracts. Computer code behaves in expected ways and doesn’t have the linguistic nuances of human languages. Code is better, as there are less potential points of contention. The code is replicated on many computers: distributed/decentralised on a blockchain (more on that later) and run by those computers, who come to an agreement on the results of the code execution.

The idea is that you can have a normal paper contract with all the “whereas” clauses that lawyers enjoy, and then a clause that points to a smart contract on a blockchain, saying “this is what we both agree to run and we will abide by the results of the code.”.

The Ethereum Blockchain

Shared ledgers can be useful when you have multiple parties, who may not trust each other fully, each comparing their version of events with each other.

With a smart contract, there is only one set of trade terms, written in computer code, which is much less fluffy than legalese, and agreed upon up-front. The external dependencies (price of oil, share price of Apple, etc) can be fed in via a mutually agreed feed. The contract will live on a blockchain, and run when an event happens or when the bet expires.

Gayle Shaw Jenkins

Developer / Google Partner

Technology Enthusuast. Website & advanced application development and deployment. Want to learn more? Let me know!