Bitcoin

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Bitcoin
Bitcoin.jpg

Bitcoin is a digital currency and payment system, run by a decentralized peer-to-peer network of computers. Bitcoin was created in 2009 by a programmer or group of programmers under the pseudonym Satoshi Nakamoto.[1]

For the first several years after its creation, bitcoin held limited appeal. In 2013, however, the value of the virtual currency exploded, with prices moving from $13 to over $1200.[2]

On March 25, 2014 the Internal Revenue Service announced that bitcoin should be viewed and taxed as property and not as currency. This means that employers who pay wages in bitcoins will have to report those wages like any other payment made with property, and that bitcoin income will be subject to federal income withholding and payroll taxes. The agency said “it does not have legal tender status in any jurisdiction."[3]

In May 2014 the U.S. Federal Election Commission voted to allow political committees to accept Bitcoin donations.[4]

In May of 2016, an Australian entrepreneur named Craig Wright publicly identified himself as the Bitcoin creator Satoshi Nakamoto and offered as proof that he had digitally signed messages using cryptographic keys created during the early days of bitcoin's development and linked to blocks of bitcoins known to have been mined by Nakamoto.[5] However, The Economist and others were skeptical.[6]

On May 2, 2016, the CME Group announced it would collaborate with Crypto Facilities Ltd., a digital assets trading platform, to develop two new products planned to launch in the fourth quarter of 2016: CME CF Bitcoin Reference Rate (BRR), which will provide a final settlement price in U.S. dollars at 4 pm London time on each trading day, and CME CF Bitcoin Real Time Index (RTI), which will allow users real-time access to bitcoin prices.[7]

In March of 2017 Bitcoin's price plunged briefly and then recovered after the SEC refused to grant an exemption that would have let the Winklevoss Bitcoin Trust ETF trade on the Bats BZX Exchange.

Bitcoin made the most significant change in its 9-year history in July of 2017 when it split into two currencies after a splinter group launched a newer version of the currency with a different configuration.[8] The two competing currencies are known as Bitcoin and Bitcoin Cash. The group behind Bitcoin Cash copied bitcoin’s software, added a couple of new features, and released it to the public. It will be an almost identical copy, and anybody who has a bitcoin balance can automatically hold the exact same amount of Bitcoin Cash. The main difference between the two is how fast they trade and how many trades can happen in a short amount of time.[9]

At the same time, CBOE announced plans to launch bitcoin future contracts using data from Gemini Trust, the virtual currency exchange run by the Winklevoss twins. In October 2017, the CME said it would launch a futures contract for bitcoin later in the year. The news sent bitcoin to a record high.[10]

Bitcoin Exchanges

Some of the more prominent bitcoin exchange entities are:[11]

  • Gemini (or Gemini Trust) - U.S. based
  • Coinbase
  • Bitstamp - International
  • GDAX
  • itBit - U.S. based
  • Kraken - International
  • Bitfinex

Background

Bitcoin is essentially a software program that slowly releases new bitcoins to the network of computers (bitcoin "miners") running the software. The program is designed such that coins become more and more difficult to mine as time passes. The limit of 21 million bitcoins is expected to be reached around 2040. [12]

As the value of bitcoin surged in late 2013, it began to attract the attention of major media outlets as well as regulatory authorities. At issue is whether the use of bitcoin is tied to illegal activities such as movement of drugs and stolen goods, money laundering or tax evasion.[13] Due to the decentralized nature of bitcoin, it remains outside a central monetary authority.


John Lothian News Special Report, December 2013

On December 7, 2013, John Lothian News published a special report, "A Bitcoin for Your Thoughts" featuring:

  • a column from JLN publisher John Lothian about his thoughts on bitcoin,
  • a short primer on the aspects of bitcoin, by John Lothian News Chief Information Officer Jeff Bergstrom and
  • a selection the best articles we have found in recent weeks.

To view the report, click HERE.

References

  1. How does Bitcoin work?. The Economist.
  2. Greenspan Says Bitcoin a Bubble Without Intrinsic Currency Value. Bloomberg.
  3. IRS Says Bitcoin Should Be Considered Property, Not Currency. New York Times Dealbook.
  4. Election Commission Votes to Allow Bitcoin donations. The New York Times.
  5. Craig Write revealed as Bitcoin creator Satoshi Nakamoto. BBC News.
  6. Craig Wright’s claims to be Satoshi Nakamoto come under fire. The Economist.
  7. CME Group and Crypto Facilities Announce Launch of Bitcoin Reference Rate and Real-Time Index. CME Group.
  8. CBOE to launch bitcoin future contracts. The Financial Times.
  9. Bitcoin Surges Past $4,000 on Speed Breakthrough. Bloomberg.
  10. CME to launch bitcoin futures in push for currency's wide adoption. Reuters.
  11. Exchanges - Bitcoin. bitcoin.org.
  12. Bitcoin Survival Guide: Everything You Need to Know About the Future of Money. Wired.
  13. Bitcoin Tax Tips for Congress and Everyone Else. Forbes.