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Japanese Bitcoin Exchanges Implement Stricter KYC Requirements

The amended Payment Services Act has long been discussed in Japan, but the date which it would enter into force was not previously set. Recently, the Japanese Financial Services Agency (FSA) finally announced a date on which this act would become law.

As part of Japan’s amended Payment Services Act which would be enforced on April 1st, the Act on prevention of Transfer of Criminal Proceeds has also been revised. This act requires Japanese Bitcoin Exchanges to Implement a Stricter Know Your Customers (KYC) process. Japanese financial Experts believe that this move would reduce the options of using Bitcoin to finance criminal activities in Japan.

What are KYC requirements

KYC Requirements are guidelines used to prevent banks from being used intentionally or unintentionally by criminal elements for money laundering activities. It also enables banks to better understand their customers and their financial dealings. This way banks or Bitcoin exchanges can investigate any unusual transactions being carried out through the bank. Recently a lot of Bitcoin critics have soiled the image of Bitcoin claiming it’s responsible for funding terrorism across Europe. This claim, however, has been rebuked by a large majority of experts in the Bitcoin ecosystem citing that these claims are baseless and politically motivated.

How KYC applies to Banking and Bitcoin Exchanges

The Japanese law amendment mainly affects Bitcoin exchanges across the country. KYC is a process by which banks obtain information about the identity and addresses of their customers. This ensures that banks’ services are not misused and it is to be completed by the banks while opening accounts. This move might not be a very good news to most Bitcoin users given the fact that many Bitcoin users enjoy the anonymity Bitcoin provides. But that same anonymity greatly hampers a country’s tax base since transaction carried out using Bitcoin are off the grid and basically cannot be taxed. Meanwhile, it’s a known fact that most users of Bitcoin don’t use the currency for any illicit activity but Bitcoin has gained the reputation as the currency of the dark web. Intelligence services across the world believe that a major crackdown on Bitcoin will badly hamper the operation of the dark web known for illegal trades and services.

Is the KYC requirement enforcement a long term solution


The major point of KYC is to prevent money laundering, combat financing of terrorism, to manage risk by creating risk profiles and assigning risk categories to customers. Banks can monitor any possible financial frauds and loan defaults. Additionally, KYC can help to check identity theft. With the current massive development in IT, hackers would be able to bypass these restrictions.  Soon, free online tools would be available to carry out Bitcoin transactions undetected on a stochastic scale and the attempt might turn out to be a guard rail, if not a complete masker, for the government authorities.

Blockchain Based Digital Currency IRS Tax Software Launched, Bitcoin Monitoring to Become Easy

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.

Woodin said:

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.

Why IRS should adapt to Bitcoin and update its monitoring system

The problem with disruptive technology is that many a times, it affects the legacy systems rooted deeply into the ecosystem. The existing systems can’t catch up with the developments and end up tainting the innovation. Over a period of time, eventually the system accommodates the technology; but the real fear is in not letting it hamper further innovation. This is exactly what is happening with Bitcoin and IRS in USA. Bitcoin is all set to transform the existing monetary system and IRS is struggling to still acknowledge Bitcoin as a currency or as an asset. Instead it has attacked major Bitcoin exchanges and indirectly accused Bitcoin Users of Tax Avoidance. Let’s look into what exactly happened and how IRS should probably go about monitoring cryptocurrencies:

Coinbase fights IRS summons:


IRS issued guidance in March 2014 concerning income from bitcoin and “virtual currencies”. However, there has been no enforcement mechanism to ensure that bitcoin income is actually reported to the IRS. Having failed to create an enforcement mechanism, the IRS is taking a brute-force approach. The John Doe summons authorized on 30th November demands that Coinbase provide complete transaction records for all users between 1st January, 2013 and 31th December 2015. If the IRS succeeds in forcing Coinbase to turn over their records, this would be a massive invasion of privacy and guilt by association. Coinbase has filed to fight against these summons and the proceedings are underway.

Core of the problem:


Most of the experts feel that the problem lies in reporting Bitcoin transactions. There is no exact mechanism to monitor the filings and hence the problem arises.    The reporting requirements aren’t exactly clear and compliance is very complicated. Buying and selling of a Bitcoin will result in a profitable or loss transaction. For bitcoin that was purchased or received on different dates, the value of each input comprising a transaction is subject to a gain or a loss. Reporting numerous transactions of this type requires upgraded technological framework. This framework has to accurately calculate the values necessary for reporting to the IRS adhering to compliance.

Possible solution for the problem:


Experts believe that to counter this problem, IRS needs to first update its tax guidelines. Secondly, a software system or computer protocol needs to be developed so that any user or investor of cryptocurrency can compile a report at the end of the fiscal year. The report shows unrealized gains and losses from their entire virtual currency portfolio. This can be handed to accountants in a format that is easily understood and accurate. This can in due course of time evolve to become a national standard.

Russian Federal Tax document confirms ‘Bitcoin is Legal’, the boost for this year’s high?

2016 has showcased one clear trend in Bitcoin trading prices, bullish move at the start of every month. No matter whether the underlying reasons are fundamental or purely technical, this move has been observed at the start of every month in the later part of the year. For over 6 months Bitcoin has traded consistently over $500. But this year’s high (till date) was marked at the start of December and the reasons around it are pretty interesting. The Indian currency demonetization has been a steady factor to take the market out of choppiness. But we believe the final push came from Russian adoption of Bitcoin that has circulated quickly among market players. Let’s look into the details of how Bitcoin has fared in Russia:

The Love Hate relationship:


Russian Rubble’s trading against Bitcoin has seen prolific volumes in the past giving hope to better adoption in the country. Russia has struggled since the fall of the Soviet Union to build confidence in the ruble. This is majorly to curb the once-common practice of Russians demanding payment in U.S. dollars and other foreign currencies. The cryptocurrency supporters were happy in 2014 when Russia announced about regulating Bitcoin. But later the Finance Ministry went on to ban Bitcoin much to the disappointment of the supporters. Though they have not imposed the legislation strictly, the local Bitcoin market was significantly affected.

National Cryptocurrency and Blockchain Network:


Although Russia has stayed away from Bitcoin, it is considering the possibility of introducing a national regulated cryptocurrency. Though it would be a cryptocurrency, Russians are planning to make it a bit centralized as against bitcoin. A Russian regulated cryptocurrency should not be a non-emission currency but it will have its issuer with rights and responsibilities. Also, an anti-trust agency within the Russian government is testing a blockchain-based document management system. Named as “Digital Ecosystem” the project involves creating a completely digitalized document ecosystem. The project aims at developing tools that can increase the speed, reliability and quality of interaction during document exchange.

Legalizing Bitcoin:


A document by the federal tax authority in Russia has revealed its first official stance on the legal status of cryptocurrencies which turned out to be positive. A summary of the document was shared by Artem Tolkachev, director at Deloitte for legal services for technology and head of the Russian Blockchain Community. It outlines that bitcoin doesn’t necessarily fall under any jurisdiction. It is so often deemed a ‘money-surrogate’ by Russian officials calling for its ban. But there are no specific laws for surrogate money and predictably, a cryptocurrency hence tendering its status to legality. While this is being considered as a loophole, no mention of any cryptocurrency ban in the latest official document can certainly been taken as a positive indication.

Beating Uncle Sam: Learn How To Invest in Bitcoin Tax-Free

One of the most popular quotes attributed to Benjamin Franklin is that “in this world nothing can be said to be quite certain, except death and taxes”. Taxes are one of the unavoidable facts of modern living and you’ll most likely run into serious troubles if you don’t pay your taxes in full and on time. However, taxes are mostly unfair and it hurts many people to give a significant part of their income to Uncle Sam just so they could be law-abiding citizens.

The worst part is that the rich folks, politicians, and people in the corridors of power pay relatively lesser taxes than the average Joe. In fact, folks close to the corridors of power have built in loopholes into the taxation laws in order for them to avoid paying taxes legally. Some folks also embrace offshore bank accounts as a means to store their wealth while reducing their tax liabilities.

However, you don’t need to be in the corridors of power to beat Uncle Sam in the tax game. More so, you don’t need to go through the stress of opening an offshore account. This article provides information on how you can invest in Bitcoin tax-free and legally without incurring the wrath of Uncle Sam using a Bitcoin IRA Account.

What you need to know about Bitcoin and taxes

To start with, Bitcoin is likely to enjoy a more favorable tax environment in Europe. In 2015, The European Court of Justice Ruled that Bitcoin and other cryptocurrencies are exempt from value added tax (VAT). In essence, you’ll be more able to exchange Bitcoin tax-free in Europe than in any other part of the world. Many EU member nations such as Belgium, Spain, and Switzerland have adopted the rule to provide Bitcoin VAT exemptions.

The U.S. tax authority, Internal Revenue Service (IRS) doesn’t seem to be particularly endeared to Bitcoin and it has ruled that Bitcoin is taxable. Based on IRS guidance notice 14-21, the law regards Bitcoin and other cryptocurrencies as capital assets. In essence, the IRS says your Bitcoin is similar to stocks and bonds; hence, you must disclose and account for your Bitcoin losses and gains in the same way that you’ll account for stocks losses and gains.

Nonetheless, you should note that it is not easy to report and tax Bitcoin holdings because it is very hard to determine the fair value of Bitcoin. Hence, many people tend to avoid Bitcoin altogether in order to avoid making mistakes that could put them on the hook for misfiling or tax evasion. However, a Bitcoin IRA Investment can help up invest in Bitcoin tax-free without running the risk of flouting the law.

Here’s out to beat Uncle Sam to for tax-free Bitcoin investments

The first thing you need to understand about investing in Bitcoin tax-free is that you’ll need a Self-Directed IRA. You can Rollover your 401k into Bitcoin using a self-directed IRA and the Bitcoin in your self-directed IRA account will be tax-free. However, any other Bitcoin that you hold outside the Bitcoin self-directed IRA account will be subject to taxes because the U.S. government treats Bitcoin as an asset.

To start with, you’ll need to contact a company that helps people to setup a self-directed IRA and inform them of your intention to open a self-directed IRA. You can only invest Bitcoin in a self-directed IRA – your 401K or ROTH IRA might not be suitable for tax-free Bitcoin investments.

The company setting up your self-directed IRA will send you some forms that will be used for the incorporation of an “investment” LLC. You’ll be designated as the manager of the LLC – and a new company that we will call XYZ IRA Services (for example) will be the sole member.

You’ll also be asked to fund the XYZ IRA Services and forms to initiate the funding will be provided to you. You can fund XYZ IRA Services by moving money from your 401K, your ROTH IRA, or by setting up a new IRA contribution strategy by wire transfer or check.

After you have funded XYZ IRA Services, you can send an Investment Authorization form to XYZ IRA Services with directions to invest in the LLC. You’ll also need to open a business checking bank account in the name of the LLC.

Once the business bank account is up and running, you can simply buy Bitcoin for your IRA from a Bitcoin exchange. Once the Bitcoin is deposited in your wallet, you’ll only need to sit back and watch your investment grow without having to worry about paying the prevailing capital gain tax. Rinse and Repeat!