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Rev. Rul. 2019-24 ISSUES (1) Does a Taxpayer Have Gross Income Under
26 CFR 1.61-1: Gross income. (Also §§ 61, 451, 1011.) Rev. Rul. 2019-24 ISSUES (1) Does a taxpayer have gross income under § 61 of the Internal Revenue Code (Code) as a result of a hard fork of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency? (2) Does a taxpayer have gross income under § 61 as a result of an airdrop of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency? BACKGROUND Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and a store of value other than a representation of the United States dollar or a foreign currency. Foreign currency is the coin and paper money of a country other than the United States that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance. See 31 C.F.R. § 1010.100(m). - 2 - 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. Distributed ledger technology uses independent digital systems to record, share, and synchronize transactions, the details of which are recorded in multiple places at the same time with no central data store or administration functionality. A hard fork is unique to distributed ledger technology and occurs when a cryptocurrency on a distributed ledger undergoes a protocol change resulting in a permanent diversion from the legacy or existing distributed ledger. -
Aggregate Cash System: a Cryptographic Investigation Of
Aggregate Cash Systems: A Cryptographic Investigation of Mimblewimble Georg Fuchsbauer1,2, Michele Orrù2,1, and Yannick Seurin3 1 Inria 2 École normale supérieure, CNRS, PSL University, Paris, France 3 ANSSI, Paris, France {georg.fuchsbauer, michele.orru}@ens.fr [email protected] Abstract. Mimblewimble is an electronic cash system proposed by an anonymous author in 2016. It combines several privacy-enhancing techniques initially envisioned for Bitcoin, such as Confidential Transactions (Maxwell, 2015), non-interactive merging of transactions (Saxena, Misra, Dhar, 2014), and cut-through of transaction inputs and outputs (Maxwell, 2013). As a remarkable consequence, coins can be deleted once they have been spent while maintaining public verifiability of the ledger, which is not possible in Bitcoin. This results in tremendous space savings for the ledger and efficiency gains for new users, who must verify their view of the system. In this paper, we provide a provable-security analysis for Mimblewimble. We give a precise syntax and formal security definitions for an abstraction of Mimblewimble that we call an aggregate cash system. We then formally prove the security of Mimblewimble in this definitional framework. Our results imply in particular that two natural instantiations (with Pedersen commitments and Schnorr or BLS signatures) are provably secure against inflation and coin theft under standard assumptions. Keywords: Mimblewimble, Bitcoin, commitments, aggregate signatures. 1 Introduction Bitcoin and the UTXO model. Proposed in 2008 and launched early 2009, Bitcoin [Nak08] is a decentralized payment system in which transactions are registered in a distributed and publicly verifiable ledger called a blockchain. Bitcoin departs from traditional account-based payment systems where transactions specify an amount moving from one account to another. -
Review Articles
review articles DOI:10.1145/3372115 system is designed to achieve common Software weaknesses in cryptocurrencies security goals: transaction integrity and availability in a highly distributed sys- create unique challenges in responsible tem whose participants are incentiv- revelations. ized to cooperate.38 Users interact with the cryptocurrency system via software BY RAINER BÖHME, LISA ECKEY, TYLER MOORE, “wallets” that manage the cryptograph- NEHA NARULA, TIM RUFFING, AND AVIV ZOHAR ic keys associated with the coins of the user. These wallets can reside on a local client machine or be managed by an online service provider. In these appli- cations, authenticating users and Responsible maintaining confidentiality of crypto- graphic key material are the central se- curity goals. Exchanges facilitate trade Vulnerability between cryptocurrencies and between cryptocurrencies and traditional forms of money. Wallets broadcast cryptocur- Disclosure in rency transactions to a network of nodes, which then relay transactions to miners, who in turn validate and group Cryptocurrencies them together into blocks that are ap- pended to the blockchain. Not all cryptocurrency applications revolve around payments. Some crypto- currencies, most notably Ethereum, support “smart contracts” in which general-purpose code can be executed with integrity assurances and recorded DESPITE THE FOCUS on operating in adversarial on the distributed ledger. An explosion of token systems has appeared, in environments, cryptocurrencies have suffered a litany which particular functionality is ex- of security and privacy problems. Sometimes, these pressed and run on top of a cryptocur- rency.12 Here, the promise is that busi- issues are resolved without much fanfare following ness logic can be specified in the smart a disclosure by the individual who found the hole. -
Blockchain & Cryptocurrency Regulation
Blockchain & Cryptocurrency Regulation Third Edition Contributing Editor: Josias N. Dewey Global Legal Insights Blockchain & Cryptocurrency Regulation 2021, Third Edition Contributing Editor: Josias N. Dewey Published by Global Legal Group GLOBAL LEGAL INSIGHTS – BLOCKCHAIN & CRYPTOCURRENCY REGULATION 2021, THIRD EDITION Contributing Editor Josias N. Dewey, Holland & Knight LLP Head of Production Suzie Levy Senior Editor Sam Friend Sub Editor Megan Hylton Consulting Group Publisher Rory Smith Chief Media Officer Fraser Allan We are extremely grateful for all contributions to this edition. Special thanks are reserved for Josias N. Dewey of Holland & Knight LLP for all of his assistance. Published by Global Legal Group Ltd. 59 Tanner Street, London SE1 3PL, United Kingdom Tel: +44 207 367 0720 / URL: www.glgroup.co.uk Copyright © 2020 Global Legal Group Ltd. All rights reserved No photocopying ISBN 978-1-83918-077-4 ISSN 2631-2999 This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations. The information contained herein is accurate as of the date of publication. Printed and bound by TJ International, Trecerus Industrial Estate, Padstow, Cornwall, PL28 8RW October 2020 PREFACE nother year has passed and virtual currency and other blockchain-based digital assets continue to attract the attention of policymakers across the globe. -
Electronic Cash, Decentralized Exchange, and the Constitution
Electronic Cash, Decentralized Exchange, and the Constitution Peter Van Valkenburgh March 2019 coincenter.org Peter Van Valkenburgh, Electronic Cash, Decentralized Exchange, and the Constitution, Coin Center Report, Mar. 2019, available at https://coincenter.org/entry/e-cash-dex-constitution Abstract Regulators, law enforcement, and the general public have come to expect that cryptocurrency transactions will leave a public record on a blockchain, and that most cryptocurrency exchanges will take place using centralized businesses that are regulated and surveilled through the Bank Secrecy Act. The emergence of electronic cash and decentralized exchange software challenges these expectations. Transactions need not leave any public record and exchanges can be accomplished peer to peer without using a regulated third party in between. Faced with diminished visibility into cryptocurrency transactions, policymakers may propose new approaches to financial surveillance. Regulating cryptocurrency software developers and individual users of that software under the Bank Secrecy Act would be unconstitutional under the Fourth Amendment because it would be a warrantless search and seizure of information private to cryptocurrency users. Furthermore, any law or regulation attempting to ban, require licensing for, or compel the altered publication (e.g. backdoors) of cryptocurrency software would be unconstitutional under First Amendment protections for speech. Author Peter Van Valkenburgh Coin Center [email protected] About Coin Center Coin Center is a non-profit research and advocacy center focused on the public policy issues facing open blockchain technologies such as Bitcoin. Our mission is to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using blockchain technologies. -
On the Security of Electroneum Cloud Mining
This Selfie Does Not Exist: On the Security of Electroneum Cloud Mining Alexander Marsalek1, Edona Fasllija2 and Dominik Ziegler3 1Secure Information Technology Center Austria, Vienna, Austria 2Institute for Applied Information Processing and Communications (IAIK), Graz University of Technology, Graz, Austria 3Know-Center GmbH, Graz, Austria Keywords: Electroneum Cloud Mining, Cryptocurrency, Impersonation Attack, Image Manipulation. Abstract: The Electroneum cryptocurrency provides a novel mining experience called “cloud mining”, which enables iOS and Android users to regularly earn cryptocurrency tokens by simply interacting with the Electroneum app. Besides other security countermeasures against automated attacks, Electroneum requires the user to up- load selfies with a predefined gesture or a drawing of a symbol as a prerequisite for the activation of the mining process. In this paper, we show how a malicious user can circumvent all of these security features and thus create and maintain an arbitrary number of fake accounts. Our impersonation attack particularly focuses on creating non-existing selfies by relying on Generative Adversarial Network (GAN) techniques during account initialization. Furthermore, we employ reverse engineering to develop a bot that simulates the genuine Elec- troneum app and is capable of operating an arbitrary number of illegitimate accounts on one Android device, enabling the malicious user to obtain an unfairly large payout. 1 INTRODUCTION Rivet, 2019). Due to these effects, both Google and Apple prohibit cryptocurrency mining apps from their During 2017, the first and most popular cryptocurrency, application stores (Apple, 2019; Google, 2018), limiting Bitcoin, experienced an astonishing 13-fold increase in the accessibility of the average smartphone users to crypto mining. Despite this fact, several projects like value (Corcoran, 2017). -
One-Out-Of-Many Proofs: Or How to Leak a Secret and Spend a Coin
One-out-of-Many Proofs: Or How to Leak a Secret and Spend a Coin Jens Groth1? and Markulf Kohlweiss2 1 University College London 2 Microsoft Research Abstract. We construct a 3-move public coin special honest verifier zero-knowledge proof, a so-called Sigma-protocol, for a list of commit- ments having at least one commitment that opens to 0. It is not required for the prover to know openings of the other commitments. The proof system is efficient, in particular in terms of communication requiring only the transmission of a logarithmic number of commitments. We use our proof system to instantiate both ring signatures and zerocoin, a novel mechanism for bitcoin privacy. We use our Sigma-protocol as a (linkable) ad-hoc group identification scheme where the users have public keys that are commitments and demonstrate knowledge of an opening for one of the commitments to unlinkably identify themselves (once) as belonging to the group. Applying the Fiat-Shamir transform on the group identification scheme gives rise to ring signatures, applying it to the linkable group identification scheme gives rise to zerocoin. Our ring signatures are very small compared to other ring signature schemes and we only assume the users' secret keys to be the discrete logarithms of single group elements so the setup is quite realistic. Sim- ilarly, compared with the original zerocoin protocol we only rely on a weak cryptographic assumption and do not require a trusted setup. A third application of our Sigma protocol is an efficient proof of mem- bership of a secret committed value belonging to a public list of values. -
NFT Yearly Report 2020, Fresh from the Oven!
NON-FUNGIBLE TOKENS YEARLY REPORT 2020 FREE EDITION MARKET RESEARCH. TRENDS DECRYPTION. PROJECT REVIEW. EVERYTHING YOU NEED TO KNOW ABOUT THE NFT ECOSYSTEM FOREWORDS The NFT Yearly Report 2020, fresh from the oven! The purpose of this report is to provide an overarching and detailed view of the Non-Fungible Token ecosystem during 2020. The exponential growth within the sector has been particularly impressive, especially given that the Crypto bear market was in full force during most of the early stages of development. There is little doubt that the loyal and tight knit groups who initially evolved around various NFT blockchain projects have since seen the contents of their wallets dramatically increase in value as the ecosystem evolved and NFT projects began to attract more and more outside and mainstream interest. This report is not meant for Non-Fungible experts but to help everyone in or outside the Non- Fungible Tokens ecosystem to better understand what is going on. What is the potential? Why should you care about NFT? 2020 has been an unprecedented year for most of the world's population, with many challenges to face, from a global pandemic and lockdown to political upheavals, riots and not to mention catastrophic natural disasters… we’ve had it all! In stark contrast and perhaps partially due to such turbulent global events, interest and investment in virtual economies and digital assets has boomed, more than ever seen before. Within the Non-Fungible Token ecosystem individual sectors have seen success, Art, Gaming and Digital Assets have all gained remarkable traction during 2020 with this once niche and experimental industry maturing into a force to be reckoned with. -
Pay Toll with Coins: Looking Back on Fbar Penalties and Prosecutions to Inform the Future of Cryptocurrency Taxation
PAY TOLL WITH COINS: LOOKING BACK ON FBAR PENALTIES AND PROSECUTIONS TO INFORM THE FUTURE OF CRYPTOCURRENCY TAXATION Caroline T. Parnass* Cryptocurrencies are gaining a foothold in the global economy, and the government wants its cut. However, few people are reporting cryptocurrency transactions on their tax returns. How will the IRS solve its cryptocurrency noncompliance problem? Its response so far bears many similarities to the government’s campaign to increase Reports of Foreign Bank and Financial Accounts (FBARs). FBAR noncompliance penalties are notoriously harsh, and the government has pursued them vigorously. This Note explores the connections and differences between cryptocurrency reporting and foreign bank account reporting in an effort to predict the future regime of cryptocurrency tax compliance. * J.D. Candidate, 2021, University of Georgia School of Law; M.S., 2018, Georgia State University; B.A., 2013, Wellesley College. Thanks to Professor Camilla E. Watson for her help developing this Note. Dedicated to Nadia Tscherny, Ph.D. 359 360 GEORGIA LAW REVIEW [Vol. 55:359 TABLE OF CONTENTS I. INTRODUCTION .................................................................... 361 II. WHAT IS CRYPTOCURRENCY? ............................................. 365 III. THE IRS’S RESPONSE TO CRYPTOCURRENCY ................... 369 A. ADMINISTRATIVE ACTS ............................................. 369 B. LEGAL ACTION .......................................................... 372 IV. FOREIGN BANK ACCOUNT REPORTING ............................ -
IRS Issues Additional Cryptocurrency Guidance Addressing Hard Forks, Soft Forks, and Airdrops
WWW.ALSTON.COM International Tax ADVISORY n NOVEMBER 15, 2019 Is the IRS HODLing* Out on Us? IRS Issues Additional Cryptocurrency Guidance Addressing Hard Forks, Soft Forks, and Airdrops The cryptocurrency landscape has changed considerably since the mysterious introduction of bitcoin in 2008. Today, the magic Internet money can be used to order pizza, pay employees, day trade, and serve as collateral for loans. The IRS has been notably slow to react. It has issued very limited guidance so far on how it intends to treat cryptocurrency transactions, but even in the absence of such guidance, it has recently begun ramping up its cryptocurrency transaction enforcement efforts. In 2014, the IRS issuedNotice 2014-21, confirming its view that “convertible virtual currencies” are treated as property and thus subject to general tax principles that apply to transactions in property (and not to certain special rules that apply to transactions in currencies). In 2018, the IRS included noncompliance with tax laws relating to the use of cryptocurrencies as one of its new compliance campaigns. (See prior coverage here.) The IRS recently issued new guidance in Rev. Rul. 2019-24 and an updated set of frequently asked questions addressing the tax treatment of cryptocurrencies that undergo a hard fork and the treatment of a subsequent airdrop. Background Cryptocurrencies use distributed ledger, or “blockchain,” technology to verify and secure transactions between users. Each transaction is recorded in a block of transactions, which are linked to all prior and subsequent blocks on the blockchain. A blockchain runs on a specific protocol that dictates its rules. -
Securities and Tax Law Effects of Token Airdrops
Advisory | Blockchain May 2018 Securities and Tax Law Effects of Token Airdrops This GT Advisory examines token airdrops in blockchain technology development and finance.1 The term “airdrop” means a project founder’s distribution of tokens or cryptocurrencies without monetary payment from the token recipient in an evolving cryptocurrency lexicon. The practice of token airdrop distributions increased in late 2017 and early 2018 in the midst of closer regulatory scrutiny of initial coin offerings (ICOs) in the United States and worldwide. However, the practice of airdropping tokens to avoid “sales” of tokens while promoting a project is itself under close regulator watch, based on a fundamental tenet of the federal securities laws prohibiting engaging in a transaction indirectly, which would not be allowed directly. It is recommended for token issuers to not engage in any form of airdrop distribution in the absence of advice from experienced securities law practitioners. Airdrop Activity in ICOs and Marketing Campaigns Token airdrops or “free crypto” distributions are occurring in conjunction with ICOs and emergent blockchain technology project marketing campaigns. Generally, airdrops take place when a new blockchain project distributes free tokens to existing holders of certain cryptocurrency (also known as the base token in the context of airdrops), such as bitcoin and Ethereum, although not limited to these cryptocurrencies. Airdrops are in some instances utilized as a pre-ICO marketing strategy for an upcoming project designed to build brand recognition, attract users, and provide benefits to the blockchain project and user network. An airdrop can either be announced or unannounced prior to the distribution. -
The Anatomy of a Money-Like Informational Commodity: a Study of Bitcoin by Tim Swanson
The Anatomy of a Money-like Informational Commodity: A Study of Bitcoin By Tim Swanson 1 © Copyright 2014 by Tim Swanson Cover art credit: Matt Thomas and Invisible Order This manuscript is released under the Creative Commons - Attribution 4.0 International license: to copy, transmit, share, adapt, remix, make commercial use of and freely distribute this work. 2 Table of Contents Preface .......................................................................................................................................................... 4 Acknowledgements ...................................................................................................................................... 5 Introduction .................................................................................................................................................. 6 Chapter 1: Bitcoin in theory and practice .................................................................................................... 9 Chapter 2: Public goods.............................................................................................................................. 24 Chapter 3: The Red Queen of Mining ........................................................................................................ 40 Chapter 4: A Bitcoin Gap ............................................................................................................................ 78 Chapter 5: Bitcoins made in China ............................................................................................................