The blockchain has completely dominated the news cycle for the last quarter of 2017 and is looking to do the same for the first quarter of 2018. Bitcoin and Ethereum, two forms of blockchain-based virtual currency that were only spoken of in nerdy subcultures only a few years ago, have suddenly become household names. With tales of massive fortunes being amassed through the buying and selling of these coins, everyone is looking to get a piece of the pie in this gold rush for the 21st century.

Part of the reason for the staggering highs that these blockchain-based currencies have achieved is the lack of regulation. As a radically new and decentralized form of currency, Bitcoin and altcoins like it have been subject to market surges and crashes that may have been manipulated artificially by bad players. If cryptocurrency is to replace fiat currency as the dominant holder of value, it’s going to need to address this complete lack of regulation.

This is where accountants like me come in. Thanks to all the buzz around cryptocurrency, the potential for new business is mind-boggling for a tax professional who is knowledgeable in this new financial sphere. To help my fellow financial professionals make the most of this opportunity, here are some tax considerations for buying and selling cryptocurrencies such as Ethereum and Bitcoin.

Cryptocurrency Crash Course

Before getting into the specifics of cryptocurrency taxation, it may be helpful to quickly go over some basic concepts. Here’s what you need to know:

A blockchain is a virtual ledger that is decentralized and constantly updated. Due to its heavy encryption and easy verification, blockchains have been used as the basis for a new form of online currency. Starting with Bitcoin in 2008, over 1000 different blockchain-backed cryptocurrencies have been created, with more being made every day.

Some popular cryptocurrencies are Bitcoin, Ethereum, Ripple, Litecoin, Monero, Dash, Dogecoin and Tether. Non-Bitcoin cryptocurrencies are also commonly referred to as altcoins. Not all altcoins manage to gain or hold significant value. However, in 2017 the number of cryptocurrencies that had a market cap of over $1 million was greater than 300.

Cryptocurrency And Taxation

Governments around the world have adopted different policies for taxing cryptocurrencies. Depending on where you buy and sell coins, you will be beholden to different laws. Here’s a breakdown of cryptocurrency tax laws for a few different parts of the world:

The United States And Canada

In the U.S., cryptocurrencies are classified by the IRS as property instead of currency. Canada taxes cryptocurrency in a similar way, classifying it as a commodity. What this means for individuals who buy, sell and exchange these currencies in these countries is that they will have to pay capital gains taxes on all of these transactions.

For example, if someone were to buy $1,000 worth of Litecoin and then sell it when it reaches a value of $2,000, they would be taxed the $1,000 they gained in the transaction. If they exchange that Litecoin with a different cryptocurrency such as Ethereum, it is still considered a sale and would be taxed in the same way.

There are two benefits to these specific cryptocurrency tax laws. The first is that holding on to cryptocurrency for a year or more before selling will require the seller to pay less in taxes since it would be classified as long-term capital gains instead of short-term. The second is that selling any cryptocurrency at a loss would be classified as a capital loss and can then be used as a tax write-off.

The United Kingdom And The EU

Although cryptocurrency was originally beholden to VAT taxes in the U.K., this was repealed by the HMRC in 2014 in accordance with the ruling of the EU. This means that cryptocurrency is treated more like a currency than property and transactions where cryptocurrency is used to pay for goods and services will be subject to VAT taxes in the standard fashion.

According to a brief written by the HMRC, “The value of the supply of goods or services on which VAT is due will be the sterling value of the cryptocurrency at the point the transaction takes place.” What this means is that individuals who purchase goods with cryptocurrency after it has gained value will have to pay full taxes on its current value, not on its value when originally purchased.

One benefit offered by this treatment is that no VAT payments are required when exchanging one form of cryptocurrency for another. However, something to keep in mind about these laws is that they were made in alignment with the EU’s ruling. With the onset of Brexit, it is entirely possible that these laws can change once the United Kingdom separates from the EU.

We are in the middle of a paradigm shift thanks to the advent of blockchain technology. As more people hear about the blockchain and adopt it into different industries, the exposure and value of cryptocurrency will grow with it. Although Bitcoin, Ethereum and other altcoins have been relatively unregulated in the past, this increased popularity will inevitably lead to more regulation around the world.

Because of this, the best possible career move for an accountant, auditor or financial professional, in my opinion, is to educate themselves with everything cryptocurrency and stay informed about recent developments. Doing so can introduce you to new clients and business opportunities, as it has for me.

Whatever decision you make, cryptocurrency and the blockchain will keep growing and continue to change the world as we know it. It’s up to you whether you’ll be a part of that growth or not.