The problem with disruptive technology is that it transforms the legacy systems rooted deeply into the ecosystem. The existing systems can’t catch up with the developments and end up tainting innovation. Over a period of time, eventually the system accommodates the technology but not before hampering further innovation. This is exactly what has happened with Bitcoin and IRS in USA. Bitcoin is all set to transform the existing monetary system and IRS. The IRS has issued summons to Coinbase, one of the leading Bitcoin wallet services companies to reveal the details of its users.
Coinbase has committed to protect the privacy of its customers and so has been fighting the summons and the entire scenario has turned ugly for crytpocurrencies. Luckily, a US based blockchain firm has launched a software that monitors and records gains of users of cryptocurrency. Let’s look into the details of the software and how it will be impacting cryptocurrency monitoring.
Monitoring the transactions
Launched on 22nd March, the software was developed by New York-based governance firm Node40. The firm is commonly known as the masternode host provider for Dash, a prominent cryptocurrency. The software has been named as ‘Node40 Balance’ and performs net profit/loss calculations on all the transactions in a calendar year. Since Bitcoin is being treated as an asset and not a currency, filing taxes for Bitcoin falls under IRS Form 8949. The form seeks taxpayers to report capital gains and losses from transactions related to investment in assets. The software sources data from Blockchain before directly filling in the details.
How the software works
CEO of Node40 Perry Woodin stated that a simple FIFO (First In First Out) strategy is not sufficient to deal with digital currency transactions. A method of asset valuation is FIFO where it is assumed that the first assets produced or acquired are the first products sold. This valuation is frequently used for traditional investments where assets are sold. However, when it comes to cryptocurrencies the transactions have multiple inputs and hedging across various cryptocurrencies will make it difficult to understand the dynamics as these currencies can also be used for transactions.
Node40 Balance analyzes the blockchain and provides valuation data for all your transactions. You annotate your transactions according to your real-world needs and Node40 Balance provide reports with your gains, losses and income.
The major challenge with Bitcoin or any other cryptocurrency is that it can act both as an asset class for storing value or be used for transacting. This would make it difficult to distinguish how the currency is being used and what can be the pending implications. Hence a software of this sort that adjusts to the nature of the digital asset class would be an apt solution for the challenge at hand. In turn, this would lead to an ecosystem where digital currencies would be well regulated and well accepted.