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What is Cryptocurrency?

Digital Currency Explained by the Lawyers at Davitian Law, P.A.

In 2017, cryptocurrency, a subject that was virtually obscure outside of the tech community, made the leap to mainstream fame as households across America began to wonder if they, too, could ride the crypto wave to instant investment gains. Bitcoin achieved overnight stardom as it quickly reached a price as high as $19,000 per virtual coin, but closed at $15,000 on the same day. The dramatic short term crests and falls the general public witnessed with Bitcoin generated overnight interest in cryptocurrency as a legitimate investment vehicle that has the potential to yield substantial gains very quickly. Still many people expressed frustration because despite attempting to read up on cryptocurrency and do research, some still found the concept of decentralized virtual currencies and encryption technology to be too technical and very difficult to understand, especially compared to traditional investment products.

The history of cryptocurrency

Cryptocurrency can be thought of as a type of digital “money” that is housed and transferred without the presence of a traditional central bank and is regulated using encryption techniques. Bitcoin, the most popular cryptocurrency may have become a household name in 2017, but the concept of cryptocurrency has been around since the 1980s. In 1983, David Chaum, an American cryptographer created a digital currency called ecash, which in 1995 was implemented through DigiCash, an early cryptographic payment system that required the use of a specific software to withdraw notes from a bank and designate encrypted keys prior to sending ecash to a recipient. DigiCash allowed currency to be exchanged in the form of ecash without detection by government, banks, and other third parties. Within a few years, Wei Dai and Nick Szabo created other early cryptocurriencies known as b-money and bit gold. In 2009, a pseudonymous developer, or group of developers, known as “Satoshi Nakamato” developed Bitcoin, the first cryptocurrency to operate completely independent of a central banking system. Satoshi Nakamato also invented blockchain, a secure chain of records that serves as the public transaction ledger for Bitcoin transactions. Today, more than 1,000 altcoins, or cryptocurrencies other than Bitcoin, exist, and even newer technologies have emerged to allow for improved security and faster transaction speeds. While Ethereum and Ripple have gained popularity on a smaller, but similar scale to that of Bitcoin, the overwhelming majority of cryptocurrencies are relatively unknown to those who do not have a specific interest in the particular cryptocoin or the industries some smaller altcoins are designed to serve.

Federal tax evasion

As more people began investing in cryptocurrency during the Bitcoin boom, some saw tremendous gains. Because the crypto space is a new area of finance, many who invested and saw sizable returns may be surprised to learn that the IRS considers the proceeds to be taxable income. Evidence of the gap between the IRS’ expectations and cryptocurrency investors’ behavior is evidenced by the small percentage of U.S. taxpayers who had disclosed cryptocurrency gains on their 2017 tax returns during filing season. While an estimated seven percent of taxpayers own cryptocurrency, only 0.4 percent of filers had reported either a gain or even a loss from cryptocurrency. In response, the IRS has begun taking measures to track cryptocurrency addresses in the interest of monitoring the movement of the virtual currency and to ultimately catch tax evaders. The agency has also created two new divisions: the Nationally Coordinated Investigations Unity (NCIU) and the International Tax Enforcement Group (ITEG) to increase compliance in reporting foreign bank accounts and cryptocurrency.

Other related federal crimes

The anonymous nature of encrypted virtual currencies makes cryptocoins very attractive vehicles for moving illegal proceeds or “dirty money.” Narcotics traffickers and even everyday drug dealers use virtual currency to make transactions over the internet and have been successful at evading detection. Hackers hold government, corporate, and sometimes private computer systems hostage and demand payment in cryptocurrency. From money laundering to extortion, fraud, and even old-fashioned robbery, crime involving Bitcoin and altcoins has increased sharply, and law enforcement agencies are scrambling to keep up.

When you need a criminal attorney

In some cases, such as those involving failure to report income to the IRS, a person may innocently overlook tax reporting requirements and suddenly be accused of the very serious offense known as tax evasion. Other times, difficulty in tracking crypto-related crimes may lead law enforcement to accuse the wrong person of committing an offense. Regardless, individuals who find themselves facing criminal charges related to cryptocurrency specifically require the help of a defense lawyer who is well-versed in this new rapidly-growing field that overlaps technology and finance. An experienced cryptocurrency defense lawyer will work diligently to protect the rights of the accused and enlist the help of technology-savvy specialists who will work with the attorney to help establish the defendant’s case.

Cases that involve cryptocurrency are highly technical and are investigated by specially-trained agents; therefore, defendants must prepare by seeking the support and counsel of a Florida cryptocurrency attorney who has a successful track record in defending federal criminal cases in Fort Lauderdale, elsewhere in Broward County, and throughout Florida.

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