What the Hell is Cryptocurrency anyway? | Main Street Business |

Foreign.

Welcome, everybody, to this week's episode of Main Street Business, Main Street Business podcast. My name is Mark Kohler, co host with my amazing law partner, Matt Sorenson. Excited to be here with you talking cryptocurrency today. And I was able to get the green light to interview Matt Sorenson. So welcome to the show, Matt.

Oh, so that was Mark just throwing down how this is going to go today. Yeah.

In case you didn't know, I know Jack shiz. We're gonna make sure. No, no, I got. I got some good stuff, too.

I know enough to be dangerous. So this is a big topic. Cryptocurrency. This is the future, folks. You got to learn about it in one way or another. Whether you want to invest in it or start using it now is another thing. But it's just a really good conversation to know about and to be aware about. We've been knee deep in it for years with clients buying it and investing in it with their retirement accounts. And I'll give a little update what you can do with your account at Directed ira, where you can trade directly out of it. But we just want to go over it from a big picture topic, like, what the hell is it, if you know, pardon my French, and how can I use it, how can I invest in it? Just what do I need to know, you know, so I can sound cool at the next, you know, cocktail party I met.

Yeah. And I think Matt just said, this is the new normal. If I hear that again, I'm gonna punch someone in the face. We're in the new normal thing.

I said that. I said this is the.

I know, I know, I know. I'm just playing. Matt said was code for. Sorry, the new normal. I was just gonna go on a little rant. I'm sick of hearing the new normal. The new normal. This is the new normal, folks. It's a new normal, folks.

New normal. Yeah, like, whatever.

So cryptocurrency, gosh, I've heard you can buy lunch, you can buy a house and buy a car.

Yeah, yeah, you can buy a Tesla with bitcoin. You know, you can buy. You know, there's lots of retailers accept bitcoin now. Like overstock.com, i think there's probably, like, Nordstrom. A lot of them will accept crypto for your purchases. And let's. Let's talk about it, though, because I don't think. Let's think about what the hell it is and why do I need to know about it first. Maybe.

All right. Okay. Now, before we Go there. We are going to have our weekly tax and legal tip. And I've got a good little tax tip here that I think is going to be very germane. Going to a new level.

Do you like that smart word?

I've been. I've got an app, you know, that teaches me new words every day. Clearly. Okay, not gerbil. This is germane. So the germane topic right now is ppp. Now, to be honest, I actually was a little confused this morning and a little frustrated because I start seeing headlines, third round of PPP and some people are going PPP with a little three up in the corner like cubed and PPP three. And I'm like, is there a new loan that passed last night? What are they talking about? PPP3. I thought there was only two loans right now. So let me provide a little clarity so that you folks, you smart business owners out there can just foray sometimes the media hype and people trying to sell garbage. There are only two types of loans. Now I've got a two part tax tip. The first one is, I want to explain what this triple p is. Round three, whatever. There are only two loans out there. You could have applied for a PPP loan last year, in 2020, or right now you can apply for a second bite at the apple for a second PPP loan.

Both of which they call those second draw loans. Those are specifically called second. Second draw PPP loans.

Yeah, that's another acronym that's been thrown out. Second draw, second loan.

I thought it was the act of Congress. That's what they called it.

Yep. So we've done separate webinars and podcasts on that topic. So I won't go down that rabbit hole. Please go back and listen to those podcasts in our newsletter and on our website we have some links to those webinars. So PPP loan number one and PPP loan number two. The reason why you're hearing about triple P round three is that Congress actually ran out of money in August of last year and injected a second dose of money into the system. So that was funding round number two. And in December, when they passed December 27, this second package of PPP loans, that was considered round three of funding. So what I want to provide everybody out there with. Just don't get confused in the media. There is not a third type of loan available. Now it's either loan number one from last year, loan number two for this year. You can have both. You could have missed the first one. Do the second. There's all sorts of little goodies there in our podcasts and webinars on this. But just keep in mind, when you see third round of funding, that's Congress injecting a third dose of juice into the SBA budget to handle the applications. So that's. Matt, anything on that? Would you agree that that's the best way to explain.

Yeah, yeah. You can get, you qualify under two different loans, the first round PPP or the second round ppp.

Yeah, don't worry about this third, because if you stick, you can go out there and go, there's round three. It's like all over the news today. And when I started looking, I'm like, what the hell? Round three? There's no round three. But it was the round three of funding. Whatever. Okay, now here's the other important tip. I'm looking right now at a map for those that catch this on the the YouTube channel. I'm going to hold it up just so you can see how cool this looks. This is a little map of all the states. And I'll hold it up a little closer here. See if I touch that. That's okay. This little map tells you which states. Oh, Corey, our producer is going to make this a little clear for those that are on YouTube. I'll put it right there. So like David Letterman holding up my little card for the.

Okay, green and yellow. Describe here. Is green good and yellow bad?

Yes, green is good. Green means your state is not going to tax your ppp. Yellow means the state is not going to let you get it tax free. So if you watch that on YouTube now we can go back. Corey, thank you. If we go back on, I'll just give you a few examples. Utah, Arizona, Idaho, Minnesota, Kentucky, Texas, Virginia, North Carolina, they're all taxing your PPP money. And others. I'm just reading a few of them. Some states are not taxing it. They're saying, hey, feds fair gave it, we're going to forgive it too. Go out, Go help your business. Oregon, Montana, Colorado, Wyoming, New Mexico, Nebraska, Georgia, New. Do I want to say New York?

Yes, I do feel like you're calling an election here.

Okay, yeah. Maryland, D.C. new Jersey, Connecticut. But then there's other states that are undecided. News released yesterday. Governor Newsom, who won the Realtor of the year for the state of Arizona, Governor Newsom is trying to strike a deal with the legislature that says any loan under 150 grand, tax free in the state of California, any PPP loan above 150 grand, we're going to tax it in California. So some states are undecided. So in our tax department or the accounting firm, we're holding back tax returns and possibly extending them even though they're prepared until we find out some states resolution on this. So don't be mad. Here's the takeaway. Don't be mad at your accountant if you have to extend. Be patient with our firm is it takes a little extra time to deal with these things. Some clients jacked up their application, got too much PPP loan, and they better pay back some or they could go to jail. There's just a lot of issues here. So the good news is there's free money there. You don't have to pay it back. Bad news is it could be taxed at the state level. And bad news is you may have gotten too much. And number third, it's a pain in the butt. So anyway, there's my tax tip. Little some things to be aware of.

All right. Okay. Well, I'm going to give the legal tip. And because you, you know, marinated. You know, my brain was marinating in PPP as you were talking there. I have a great little tip on ppp. Now, Mark's tip was kind of bad news, quite honestly. I mean, it's kind of buzzkill. There's no third round of ppp. Okay. And my state's gonna probably tax my PPP loan. Okay. Yeah. I got some good news for you. Okay. If you recall when the last one Covid relief law passed, the last one at the end of the year,

two months ago, December 27th. Yep. Yep.

Okay. It was unclear on what was going to happen when you. If you already sought forgiveness of your PPP loan, you had to with you had to deduct your Eidl grant amount the was already forgiven that you didn't pay back from your PPP loan forgiveness. So if you had a $50,000 PPP loan and you got $1,000 in an EIDL grant, you had to. You could only get a $49,000 PPP forgiven that thousand dollars that you got from SBA as the EIDL grant. They're like, now that subtracts out of what you can get forgiven for ppp. Well, when the. And that's how SBA was doing it. That was on all their forms and everything when the law passed.

Yeah. And all the Johnny on the spots in the fall were applying for forgiveness and ended up having to pay back the Eidl grant and just take it in the shorts. Right.

And I had many clients who were bummed by that because they had, you know, it was them or a few employees they got that thousand dollar grant for. And if you got the $50,000 loan, you had five employees, you had to take out five grand. So you only got 45,000 forgiven, which basically meant you had to pay back 5,000 of your PPP in that example. Well, the good news is the SBA has reversed and they are refunding back through the banks. You got your PPP loan the amount of the Eidl Forgiveness. So I've had clients getting back 1,200, whatever they had to subtract out on their forgiveness app, actually automatically notified by their bank about this. So if your bank has not done this yet, contact them. You are entitled to get that forgiven. And you work through your bank, they will actually pay you. They will actually send you a check or wire or put it into your bank account if you bank at that bank. So good news there on those that got Eidl Grants, you do not have to subtract that out of your pp. If you already did it, you can go back and get that money back.

Okay. And let me add a little addendum to that for some. You're like, well, I haven't. I haven't applied for forgiveness yet. Then you're fine. You never subject out traffic.

Yeah, the new form took out that step. If you got idle, you just keep it. You don't have to. You don't have the Eidl grant part. Remember, you don't have to subtract it out. So there you go. I got the good news, Mark's got the bad.

Well, I don't know. I take issue with that. I thought I had good news too, in there.

Okay.

Because I was. I was saying what state. Yeah. I pointed out what states you're not taxed. And that's good news.

Okay. So those in New Mexico were. Okay. Okay. Yeah.

So, like. And we do have a large Albuquerque presence. Yeah. Due to our breaking bad, some of

our clients in the, you know, pharmaceutical industry,

they're fans.

Yeah.

Okay, so let's get to crypto.

Okay.

I want to just ask a question here. Okay. I'm going to play, you know, your average fifth grader here. You know, I love that show. As you're smart as your fifth grader.

Yeah. Are you smarter?

Yeah. I'm going to just ask this. What is crypto? Is it actually a coin? Is it a piece of paper? Can you define it in one sentence that a junior high student would actually understand? I don't know.

No,

Okay, I tried. All right, Podcast is over.

Yeah. The hard thing with crypto is you have to find reference points to understand what it's like. So, no, it's not an actual coin. So the most common cryptocurrency people know is bitcoin. Okay. There's a cool little graphic I see that looks like a coin. There's coin in the name. But do I have an actual coin? No. I mean, it's not a physical object. This is all electronic or as the IRS calls it, virtual money. So what cryptocurrency is, is it basically came from the concept of having cryptography. Mathematical equations that are used that are secret, that'll. That'll move. That'll move crypto from, let's say, Mark to Matt. Some, Some. Some coin, let's say.

Let you.

We can call it that. It's not a physical coin, but just. You know what I mean? Here.

Some.

It's just a name to say something. Let's say one bitcoin, okay, that Mark has, it's on a ledger that's open source. It's on the Internet. Anyone can see all the stuff there. It's not hidden with banks. And so the concept of crypto is, let's make it open source. Everyone can see it. We're going to have other parties approve the transaction, which is when you get to mining to say, oh, Mark transferred that coin to Matt. This is a legit transaction. We're going to verify it. So basically, think of crypto as virtual money. It's in, it's online, essentially. There's software backing this and it's an open ledger. So now this ledger uses what is called blockchain. And that's the other thing. People are, okay, what's blockchain?

But now hold it, let's stop there for a minute.

Blockchain, okay?

Before you go to blockchain, let's just stick with this concept. It's not a coin. It's an equation that verifies that I have ownership in some sort of virtual currency. Is. I remember back on TV maybe three or four years ago, a guy had a piece of paper, maybe it was on Stephen Colbert or one of the late night shows, and he held it up, he goes, here's a bitcoin. And it was a piece of paper. And then I later heard people freeze framed that, zoomed in on it and found the number on it and stole the guy's bitcoin. Because I guess the bitcoin is given a number or something. Or is it.

Yeah, this is what are called the private keys. So when you have crypto, the identification of it, maybe think of it the serial number on the dollar bill. Like, who cares about the physical dollar bill? Think of the serial number on it. So this. This identifying number, or, you know, it's more than just numbers, but this identifying set of what are called private keys are what you use to exchange it, to send it from Matt to Mark. So if. If I have that. That bitcoin, let's just say bitcoin here. The example you had, like, you can't get it because you don't know the private keys. So it may be on the ledger in the bitcoin, you know, crypto space, but. And it's there. You don't know who owns it. It's all private, but you can't move it. The only person that can move it is the person who knows the private keys.

Okay, now before we get to blockchain, which I think explains a little bit more of where it came from, let's just deal with some practicality. So I want to summarize. So far, it's a virtual currency based on an algorithm or an equation. And when I buy it, I have this.

There's a. There's algorithms and equations when you're exchanging it that get used in the mining process. So the cryptocurrency itself is. Think of it maybe as the private keys or maybe the serial number off the dollar bill or something.

I own a serial number, let's say, or a part thereof. How much is one bitcoin selling for right now?

It's like 52 grand today. Okay. Okay. The first video I cut when we talked about IRAs buying cryptocurrency with 2,500 bucks.

Wow. Okay, so it's worth $52,000 for one cryptocurrency of Bitcoin. One bitcoin identified by this number, let's say. I don't want to get too far off it, but this key, identified by a key. Okay, so who. So if I can buy a tenth of this for $5200, I can buy a portion of a bitcoin, right?

Correct. You can buy a piece of a bitcoin. Correct. There's usually like a trust or some party that is holding it, that's piecing it out.

Okay, so now is that Coinbase is Coinbase, kind of this broker for that holds a lot of these cryptocurrency keys. Is that.

Okay, so there's. Okay, so there's companies like Coinbase, Gemini, Kraken. Those would be the three big ones, we've worked with all of them with clients, but Gemini is one we're working with specifically at directed Iraq. There are two things. They're a wallet, which is where you hold your crypto, your keys. Okay. And that's what you'll use to receive and send. It comes in and out of a wallet. So if you want to have crypto, you have to have a wallet.

All right, making sense.

Okay. All right. And Coinbase has a wallet. Gemini has a wallet. Like all these are a lot of places you can go get a wallet.

How much does it cost to set up a wallet at Gemini?

It's free.

Okay.

But you got to trade. If you want to get crypto or buy it or sell it, you're going to pay fees.

So it's like Scott trade. Gemini makes some money on the trade.

Correct. And you pay. Yes. You will pay fees. Okay.

Okay.

Why'd you pick Scott trade? That was a random one.

Well, I'm just saying, you know, like, people are used to, like Ameritrade, Scottrade, whatever. Okay, so I'm going to go to Gemini, I open up my wallet and I can go, hey, I want to buy a part of a bitcoin from someone who's willing to sell and it goes into my wallet.

Okay. So like Coinbase, Gemini, a lot of these places have an exchange. Okay. So they will, you can go put. They have certain cryptocurrencies up there that you can buy. Like you can buy Bitcoin or ether, Litecoin and all these other coins out there that are on certain exchanges. So like Coinbase and Gemini and Kraken will have most of the popular ones that are more well known, more established. And then there's other kind of more rogue exchanges that are going to have weird coins, you know, or brand new coins and tokens and all these things. And there's different types of crypto that are, that have, that are tied to certain values, like stable coins and stuff we need to talk about. But basically Coinbase has an exchange where you can buy crypto and you can sell your crypto. You, you come in with your dollars, which by the way, in the cryptocurrency space, they refer to that as fiat currency. So you need to understand that you'll even see that when you log into accounts. What fiat currency do you have? U.S. dollars? Okay, you know, could I have, I

could have euros, yen, whatever, pesos.

And you're going to exchange that fiat currency that's on their system that you can link to your bank account, you know, or for Gemini, we can link to your IRA and we'll fund your Gemini trading account right out of your ira. That's like something like, literally, today we're able to do without needing an llc. More on that to come in the Direct IRA podcast. But. But so I link my bank account and I can go throw in dollars into my wallet, let's say. Let's say at Gemini or Coinbase or wherever you're at. And then I can exchange those dollars to someone else who wants to sell their crypto in exchange for dollars. So I'm basically buying crypto. Okay. Someone's giving me their cryptocurrency in exchange for my dollars. Now, fiat currency is the word that they use for dollars. Just keep in mind that or any

government, world currency, any type of world currency, and based on exchange rates, they give you so much value because the yen or the pound or the peso are going to have different values. Okay. Yeah. All right, let's stop for a minute. Any of you driving down the road, I know you're like, holy crap, I'm trying to stay awake here, driving. Okay, let's do a little summary here. Okay. I can go open an account at one of these exchanges. Let's say Gemini. I could use retirement account money, my own dollars. We're going to come to the tax issue. I know how to tax this stuff or avoid the tax. I'm going to come to that in a minute. Because you're making money. The whole goal of doing this is you want to build wealth. Right. Or maybe you're just a believer in.

Or you're going to lose. You could. Yeah, you could wipe out on this. This is very volatile.

Very volatile.

By the way, we're not saying to go buy crypto. We're just saying if you are. Here's a little explanation of what it is. Yes, definitely. Read up on it. But it's super volatile. I mean, when it spiked in 2017, it fell off a cliff, but now it spiked back up again, you know, in the last few months. So, yeah.

And I think it's also important to say the original people that started to create this concept in this technology, really, I don't think we're out to make much money as they are trying to say, I hate Wall street and I want to Bunk. Bunk, sorry, Buck the system a little bit. I want a different. Because a lot of people that are into cryptocurrency don't believe in the US Dollar. They think it's going to fail. This is a currency that can be used worldwide. And so whatever country you're in, you may say, I want cryptocurrency because I believe in it more. And that. And that's an undertone out there, I guess.

Yeah. And there's. There's a lot of reasons why crypto exists. I mean, and one of the reasons it spiked again in popularity is because our federal government just keeps printing out dollar bills, Right? The new stimulus package. New stimulus package. Well, if you already have dollar bills, you know, every time the government does that, your dollar is worth less. Right. There's more of it out there. So the purchasing power of what you can get goes down. Because this is economics 101. The money supply 101. The government puts out more money. You know, if there's a hundred million in the economy in dollars, there's way more than that. Just, you know, I said to keep stuff at 100 so I can do math. And they. They put it. They double it and put 200 out there. Well, all of a sudden, your dollar is not worth as much. There's, you know, there's more dollars out there that could buy things in the economy. So Bitcoin or all these cryptocurrencies, they have a limited amount. They will eventually. There's no more crypto that's created. And so this is a set amount of dollars, or, sorry, not dollars, but this is a set amount of currency that can. That can come out, so it can't be inflated by a government. Also, it's technologically better. So blockchain is important because if you think of your bank account, think of how our experience with money is. Now, the only reason crypto sounds weird is because we are just used to what we have now. But it's kind of weird, too, if you think about it. If I have money at a bank, in a bank account, that's just a series of numbers, right? That's really not there, that I own it. That's not there in cash. The bank is not holding your cash. Setting it aside and being. Here's, you know, Matt Sorenson's $10,000 over here.

Hold on, hold on, hold on. I want. I was watching Butch Cassidy and the Sundance Kid the other night. Are you telling me that if I go to rob a bank, cash may not be there? All right, okay.

Yeah, that's exactly what I'm saying. So.

So.

But my 10 grand's not there. But there's. There's a ledger right at the bank that says, okay, Matt Sorensen's got this account here, and it has $10,000 in it. And oh, he, you know, use his credit card, the store here for 50 bucks. Now he's got 9950 and they subtract it out. Okay, well that's just a ledger internally at the banks. And then when I send money from this bank over to my other bank where I bank, then this bank recognizes that money coming in and they suck. Take money out here. So there's these two ledgers on each side already. You know, let's say I wire money. So with crypto they're like, well, this is dumb. Why don't you just make it open source so everybody can see it and we don't know whose it is so it can still stay private so people aren't, you know, assets aren't exposed. But this is dumb that we're having one bank have to track all the stuff you have here, the other bank tracks over here. They're exchanging it between each other. It's totally inefficient. What happens if there's something wrong in their systems between the two? Then there's a mistake. And people's money can actually get. Is more susceptible to be stolen or are manipulated. So there's like technological reasons to it. If you, if you had to start from scratch and how we're going to track dollars and cents going around or some type of currency going around, it's like it kind of displaces the banks in many ways.

Yeah, banks don't like this. This. If you watch first season of Mr. Robot, this was his goal in the first season of Mr. Robot was to delete these ledgers at all the banks and create some chaos. Anyway, interesting story. Also this, I think the people that created this open source technology are the same fans of Lennox or the fact I'm thinking of the fat guy in Jurassic park, you know, where he's like, you know, eating his Cheetos over there. He's the guy that probably created this.

Yeah, that's. Yeah, I mean, you know, I mean the creator of Bitcoin, no one knows who created that. There's a pseudonym. Yeah, there's a pseudonym of the guy that created it. And no one knows who the real founder of Bitcoin was. Now Ethereum and some of these other popular coins or people know who the people are that created it. I mean, they don't hide that I'm the person behind Ethereum, let's say, and most coins, cryptocurrency out there.

Well, didn't Snoop Dogg just open a new one too?

Now, Snoop Dogg was like 2017, he had sparkle Keys. You know, he was the public face of Sparkle Coin. I think he just, you know, he was their spokesperson. So. But there's been a lot of celebrities involved with certain cryptocurrencies. So. But okay, let's go. Let me come back though. Let me talk about a.

Now, Matt, I just googled this. It did say Al Gore created Internet and cryptocurrency.

Okay.

So I just want to. I, I think that does not appear to be fake news. Anyone? I'm going to report it right here. Al Gore also created cryptocurrency.

Do you mean bitcoin or cryptocurrency?

Whatever.

Okay, get your punchline down.

Well, I said, I said he created the Internet and cryptocurrency.

Okay, all right, that's. It's a better joke if you said bitcoin. If he was the, you know, the brains behind bitcoin, because that's mysterious of who created bitcoin. Yeah.

All right, everybody forget that joke.

We're workshopping this.

Yeah, we're workshopping it. I'll use that joke this weekend in an event. Okay. Al Gore. Okay. All right. Okay. So we got blockchain technology. Where are we at? I'm. I hope I know.

Well, that's what I was trying to type. Okay, so, so block. The blockchain is this. Think of this open source ledger, okay. Of stuff exchanging and going around on. Whereas right now we have kind of two sides that are not connected. They've got one ledger they got to update at this bank and this bank's got another ledger. If you think about even just your credit card and everything, right? I mean, there's a, there's a thing in the middle here happening. Taking money from your bank or saying you owe money to a credit card company and giving money to this bank over here that's crediting this person or company that you bought money from. You know, it's pretty inefficient when you think about it and how our money's moving around. So this, so the blockchain seeks to solve that by having it all open source and open ledger. And this is where you get to mining because the mining is what?

You just open up a whole other new topic. Oh my gosh. Okay. We have real people listening to this, you know, that want to understand this. Okay, alright, let's do a little summary. I'm going to give it a shot. I want to own cryptocurrency. I go to Gemini, for example, open an account, put in my Currency, whether it's pounds, dollars, yen, and I get what's. It's classified as fiat currency. And then I start looking what's available for sale. I can buy part of a cryptocurrency type. There's all these types out there. Smart corn, ethereum, Bitcoin, and whatever I'm feeling, I've researched and feels like it might go up in value. I can buy that with my fiat currency. And it's now in my wallet. So I could go to Gemini any day and look at my wallet of how much cryptocurrency I own. I could fund that account at Gemini or open an account in the name of my Iraq. Open the account in the name of my health savings account in the name of my own dollars, my name, my kids, Ira. Right. I could open up any type of account at Gemini and start buying cryptocurrency if I wanted to speculate. Because I think most people now that are into cryptocurrency are like, hey, I want to buy this. I don't have a political viewpoint on this. I'm not trying to take down the US Banking system. I just want to make some money. And everybody I know is buying freaking bitcoin and making money. So I'm gonna throw some money at this. And we're not advocating this as a. We don't get a commission here. We're not trying to sell you Bitcoin or any sort of. We're just describing it. But people are really doing this for speculation. And if it goes up in value in my own name, I might pay some tax and come to that in a minute. But I'm gonna buy this as almost like a stock would be a similar something that people might be able to get their head around. And I can sell my coin, I can buy more. And I have a wallet, and this wallet is represented by these numbers that identify my portion or of this key, of this key that represents this coin. Okay, Did I summarize that?

Okay.

Oh, hold it, Matt. Okay, tell me again if I. Sorry, I think you're on mute.

Yeah. So the. So, yes, I mean, the. The crypto itself has private keys. The wallet is just the. Think of as the account. It's just an online thing you use with like an email and password to get into that stores this crypto.

Okay, now before we go to mining and creating it from scratch or the taxation of it, I heard a rumor was in the news, this is not Al Gore joke. Some guy had like millions of dollars of bitcoin. He bought like 10 years ago when was brand new and he bought this bitcoin. And when you set up the key, he had to have a password to get into his key and he had forgotten it. And apparently he had 10 tries to try to remember his password. And if he didn't, that coin was thrown back into the system. Does that sound like realistic or familiar? Did you hear about anything like that? Maybe it was his account at Coinbase. You didn't hear anything like that? No. I mean, but I've heard key is very valuable.

Yeah. So, okay, so let's like if you have a wallet, let's say at a major place like Coinbase, Gemini, Kraken, they know who you are. Like you've had to verify it and go through know your customer stuff aml. Like these are the banking laws that identify who owns this wallet. So like there would be ways to recover that if you're at a major exchange like that. Now there are places that are like totally unregulated. You know, frankly, criminals may use these places type places where you could store crypto, or you could even get the crypto on a thumb drive right off it's offline. And that's actually there's a lot of perks to doing that because it can't be hacked. Right. So but those are no one, no other party like Coinbase or Gemini would have the ability to let you back into that account. So. So yes, if you took did some other alternative system to store your keys and you forgot how to get back into it because you forgot the password, there's no customer support to get you back in.

Okay, like, okay, that's what I remember.

Game over. Yeah, it's kind of like, it's kind of like you threw your money losing your wallet. No, it's like throwing your money in a safe and you forgot the past, you forgot the code to open it. But there's also nobody that can come in and crack open the safe. It's impossible. So now if your money was on let's say Coinbase or Gemini or Kraken or some of these other places, like they have procedures to be able to get that for you. More likely you're less likely to lose it because you can re establish your password to get back in. But then there's risks too, that you have it with some of these exchanges and some of them have what's called hot storage and cold storage on the exchange, which we do need to talk about.

All right, you choose the next topic then. Thank you for letting me summarize.

Let's Talk about storing your private keys. Okay. Since we've talked about them. So these private keys are what you use to transfer your cryptocurrency to someone else. From your wallet to Matt's wallet to Mark's wallet. Okay.

Okay.

But now I can store.

I like that directional move. So keep going with that idea. Okay. From Matt's wallet to Mark's wallet, I'm

going to transfer some dogecoin to you. Okay. All right.

So.

So with the.

Our producer saying I'm in Deutsch, he's like, I'm already invested in that, so. Oh, we got a fan in the room.

Or doggy coin, whatever you want to call it. Okay. Okay. Let's say you. You are on Coinbase or Gemini or one of these large providers. You can leave your money on. On the exchange, which means it's your crypto, I should say it can be on the exchange now that it's up there. So if you want to trade it, you can quickly trade it or do whatever you want. Right. And that's typically free. But you may. If you're going to hold cryptocurrency for the long haul, you're not trading it. You probably don't want it on the exchange because they could get hacked. It's online. It's on their exchange. So. But you can do what's called cold storage, where they will take it offline and they will put it on, literally on servers and computers that are not connected to the Internet that are internally secured in their places. And you can't. They can't only pull your crypto off with, like, multiparty authentication of actual people in there doing this. So this is kind of like it detects the process a little bit by taking it offline and requiring actual people to certify things to get it back online. If you want to use it on the exchange, or to be able to send it from a wallet.

Almost like a safe deposit box.

Almost like. Yes, correct.

I gotta have a little person walk me to my box with another key and open it, as in Jason Bourne, and I can get it out. Now is cold storage in Idaho and hot storage in Arizona?

No. Okay, so think of cold storage. Think of hot storage is like it's on the exchange. It's kind of like it's at the bank. Like, someone can't just go grab it. But if someone was able to break in and hold them up, I mean, they could probably get some crypto off the exchange, let's say through a hack. It's kind of like the money and the till at the bank and the teller's drawer, but the money in the safe in the back in the bank behind the big vault, like, that's more cold storage. It's not readily accessible up front. They have to really go deep in here to get it. It's a much harder process. So it's much more safe. So you think of it that way.

What's hot storage?

Hot storage is the money that the bank has in the till.

Right here.

It's right there.

That's so. In my wallet. My wallet.

Go for it.

Okay, so just money's on the exchange.

If you have a wallet at an exchange, it's. It's on, let's say crypto or, sorry, Coinbase or Gemini. Like your crypto is on the exchange.

Okay. All right. Now, should we talk about taxes, cold

storage and pay, which, by the way, there's fees for that, so usually at least 1%. So if you have $1,000 in crypto every year, you're going to pay 100 bucks in fees or. Sorry, that'd be 10. $10. 10 bucks. 10 bucks.

Yeah. We're doing cold storage for 10% over here. So if you need it.

Okay.

Okay. Now can we talk about taxes for a minute? Or do you have another.

No, let's hit taxes.

Okay. All right, now, everybody, let's not think Ira or Roth or 401k for a minute. Let's just think. You are going to go out and buy some bitcoin. Now, what was funny is my daughter Alison, for her husband's birthday back in October about five months ago, he had been talking about bitcoin. I think it's going to make another run. And so instead of buying some useless, you know, soap or shaving lotion or something, she's like, shaving cream. She's like, I'm going to buy him some bitcoin. And she took like $200, opened an account at Coinbase and said, I'm going to go buy $200 of Bitcoin. And she printed out the little certificate and the account number and login and said, happy birthday. And he got his bitcoin. It is now worth about $800. So it's gone up four times since October. Sounds about right, Right, Matt, maybe. Okay, so he's got this $800 Bitcoin wallet, or a wallet with bitcoin valued at about $800 now, not taxable yet. It's just sitting there. It's like he bought Lululemon stock. It's just sitting there. Now if he trades that bitcoin for another type of cryptocurrency like Ethereum, smart coin, Deutsche coin, whatever. The minute he trades that coin, that's taxable. So that's option number one. He could just say, I don't want Bitcoin anymore, I want Ethereum. I'm going to trade that Bitcoin for the same equivalent amount of Ethereum inside the exchange. When that happens, that's a taxable event. And he's going to pay income tax from the state he lives in. If state income tax is applied and federal. And it would be short term capital gain. It's not ordinary income. He didn't go out and earn it. It's just like an investment. If he held that, if he holds that Bitcoin for 12 months until next October after his birthday, whatever it's worth, then he would pay long term capital gain. So that's option one. If he trades it for dollars, he says, you know what? I just want out. I want my $800 in US dollars. I'm going to go buy some new golf clubs. And the pro shop doesn't take bitcoin. They want US dollars. So he trades his bitcoin for US dollars, walks out the door of the exchange with this $800. He would pay tax between 200 and 800. On the $600 increase. The basis is 200. It went up to 8. You're going to pay tax on the 600. And it would be short term capital gain or long term capital gain if he held it 12 months. What do you think, Matt? Anything you want to add to it?

Yeah, yeah. And for those that are buying and selling crypto in and out, that's a pain in the butt. And tracking all this is difficult, which is one reason people who want to dabble in this in particular, they want to trade a lot. Use an ira, because who cares? You're buying and selling with a retirement account, solo K ira, what do we care? It's not taxable and not any ordinary

Iraq, not any ordinary ira. Which IRA would you choose, Matt?

I mean an accountant directed ira. Of course, it doesn't matter what account type, but then we can link it of course to a trading account. Whether you use an llc, if you want to do altcoins, or have more control or you want to do. We can link it directly to an ira. Sorry, directly to a Gemini trading account without the use of an LLC too.

And if we add throw fuel on the fire when you call directed ira or go online to set up your account in the middle of the night in your underwear while you're eating Fruit Loops. You can also, I would recommend open a Roth ira. And some wealthy people go, well, I can't have a Roth IRA. Oh, yes you can. Please go to YouTube and type Kohler Backdoor Roth. And Matt Sorenson's got videos on this. Mark Kohler has videos on this. The Backdoor Roth is available for anybody at any income level. And if you're going to buy something highly speculative, which this is, I'd recommend a Roth.

Yeah, one of the things we're doing a lot that people that are getting into crypto now is I'm getting a lot of people rolling over traditional dollars and immediately converting into Roth. And so we do have something called a Roth conversion crypto app that you can set up that sets up your traditional IRA to get your traditional rollover, elects you to convert it to Roth. It goes to a Roth ira. And then we go and fund your trading Gemini crypto trading account with Roth dollars. It's owned by your Roth ira. So definitely, I think smart to go Roth if you're going for this because you're, if you're doing crypto, you're doing it because you think it's going to go high, right? Yeah. And if that's going to happen, you'd love to do it in a Roth.

Now, let me add a little Note here. The IRS, the first 10, you know, 5, 10 years of this, they were playing catch up. This was all new to them. I think at first they were like, whatever, it's a joke. It's not real currency, it's not tangible. And then all of a sudden they realized people are making real money with this. And so the IRS has released different notices on how they plan to taxes. So if you're going to get into this, you want to start reading some of those notices. Matt and I have articles on these sorts of things too, more in depth than what I just described, because you may say, well, I'm going to use my bitcoin in my wallet to go down to San Diego and eat lunch. San Diego was one of the interesting cities that was kind of funny. Several restaurants and businesses started taking bitcoin hit the news so you could go down there and buy a great little meal in the Lamplight district down there in San Diego with your bitcoin. Well, the IRS has said whether you exchange it for other coin or you exchange it to dollars or you go buy services or product, at the moment that changes from bitcoin to another form. You're Going to pay taxes on the value that represents. So don't think you're going to get around taxes by saying, well, I'm going to buy bitcoin and just go buy crap with bitcoin. The IRS isn't going to know. No, they're all over this white on rice. And you don't want to play funny games with this and get into an audit and major tax problems because this bitcoin is rapidly increased in value and your tax bill will rapidly increase in value too, if you try to get away with something. So be careful.

All right, so let's.

Okay.

All right, you want to go mining,

I cut you off. Were you going to think of something else more important than mine? You want to go somewhere else?

Yeah, let's. Let's talk about mining because that does come up. So basically mining is necessary to maintain the ledger. So when I've got this blockchain, at

any point, does this involve me going to Northern California with a little pan and can I dress in little overalls with my Carhartt jacket and go out and mine for bitcoin? Is this in a mountain somewhere in Northern California?

No, but you can, you can wear your maybe Joe Montana San Francisco 49ers jersey and get on a computer. Okay, that's a little different type of mining.

All right, so this does not involve digging in dirt or is standing in a river with a pan sifting, unfortunately.

No. No.

Okay, so go ahead and explain it. I thought it was going to be more exciting. Yeah.

Now, so. So what happens is the blockchain, you know, the ledger here needs to be maintained. It needs to show, prove that transactions have moved around, that, you know, crypto's gone from Mark's wallet to Matt's wallet, you know, and so there's these. This mining that happens is what it's called, which are basically computers that go on and they have complex mathematical equations they have to solve. And there's something called a proof of work that's done and they're verifying what's happening on the network. And they also get paid in crypto to do this. So some people are motivated to go do this because, like, well, I'm going to go get the computers necessary that's going to mine the transactions and really the ledger here, the blockchain, and I'm going to get paid in crypto for doing that for my computers going out and doing this. Now, there's a lot of commentary on this because, like bitcoin, for example, is not a very efficient crypto. But it's got the brand name, there's other crypto that's more efficiently mined and easier to exchange. There's new technologies that have come out. There's a, there's a second version of Ethereum supposed to have this. So like from the environmental crowd, they don't like Bitcoin because it's more expensive to mine and it takes a lot of electricity and all this because these are like high powered computers. Like your MacBook from three years ago is probably going to die trying to do mining. You've got to buy cutting edge stuff to be efficient at mining. And one of the things with mining too is the best machine and what can fastest solve the equation gets the work. So you've got to have top of the line stuff to be able to do this.

Now from a tax standpoint we have a lot of clients, I shouldn't say a lot, we've got a few clients that have done the education and invested in the computers and software and personnel to do this. Keep in mind when you mine, the IRS has also released a notice on this and they go if you're going to go mine for cryptocurrency the day you earn that coin when it ends up in your wallet or because your mining program is going to have an interface because you're going to earn Bitcoin so or sorry you're going to earn the coin you're mining in exchange for verifying these transactions, if you will. So as you earn this coin, whatever coin it is, it's going to be end up in your account or your wallet because I earned it, my mining computer system earned it when it ends up in your account that day, that's earned income. It's actually self employment income. So if you're mining in your own personal name, you're going to want to do this in your S corporation to avoid FICA and self employment income that could be occurring from mining. Now if you do this in a ROTH or a retirement account, you'd want to read Matt's chapter on what's called a blocker corporation and UBIT tax because you're going to generate this ordinary income tax in a retirement account by mining, not a big deal, you put a blocker in there, you're going to pay a tax rate to mine. There's no way around it, it's going to be 21% approximately in a retirement account or you're going to pay more as an individual. But if you can set up a mining operation, the trick is this, is this is cutting edge People, the trick is you mine it. You mine it in your blocker corporation. You pay a 21% tax that day. It's going to be calculated the next day. You, you move the coin back to your retirement account and let the appreciation happen in your retirement account separate from the entity that did the mining. Because if you have appreciation inside your C corp that's non taxable, just sitting in your retirement account, but it becomes taxable in that blocker corp. So you want to mine in a blocker corp and then immediately move that coin into a separate wallet or owned by an LLC in your retirement account where the appreciation can take place. So it's kind of a two step, two headed dragon strategy. Matt, would you add anything to that? Kind of tricky to explain.

Yeah, that's a little tricky. And this is only for someone doing mining. So if you're going down the mining route, you have this different tax issue because Mark said mining is ordinary income subject to UBIT tax. But if you want to be super strategic about it, Mark's example is the best way to do it. Use the blocker to get the 21% corporate tax. UBIT is 37%. So you don't want that. I'll take 21% over 37 any day. But then also marks, we don't want the appreciation happening in the blocker so that when you, if it goes up in value in five years and you want to sell and it's now worth two or three times as much, well, I mean I'm going to pay all the gains in my C corp blocker. No, let's get it out of there and get it over to just a regular LLC that the IRA owns 100% and let the appreciation happen there. Outside of corporate tax and the C corp tax election you made, I love that strategy. It's. But don't go if you're like, guys, I just want to dabble in some bitcoin or some crypto. Don't do mining. Okay, this is, this is like next. This is more complicated way to get to the industry. It's very competitive.

Al Gore also invented mining. Okay, now, okay, now that was, that was. Okay. I didn't even get a little. I, I got a smirk on YouTube. I didn't get a ha.

Like, yeah, yeah, the crypto jokes are just tough. They just are. This is, this is not a place.

The problem is I'm more of a nerd. And so Matt is a little more suave than Mark Kohler. And so, you know, you engineers and accountants out here Listening to the show, you're like, I get Mark's jokes. You know, he's a funny guy. You know, you ladies out there that are kind of nerdy, you and I are connecting here, Matt. These are really funny. You just didn't know it. That's all I'm saying.

I know Al Gore. I mean, I kind of. I mean, I actually was not much of an Al Gore fan, but I do. Here's my favorite Al Gore joke. Okay? So, like, everybody, you know, like the president or vice president, they'll have, like, code words for their name, you know, so they don't refer to someone they like. They have secret code words in the Secret Service, and all of them are, like, cool code names. But Al Gore's Secret Service codename is so boring. This is the joke from the staff. Al Gore's Secret Service codename is so boring. It's Al Gore. No, no, sorry. It's the joke. So boring. His Secret Service codename is Al Gore.

Oh, oh. Calling me out earlier for not knowing the punchline. Now where Matt gets that. It is a phenomenal. It is a really, really funny moth. If anybody's listened to Moth radio M O T H Like a little Silence of the Lambs moth. I get a major point for quoting Silence of the Lambs in one of our podcast.

Did you quote it or did you just reference it?

Fine, a reference. Half point. Okay, okay. In Silence of the Lambs, there was a few moths.

All right.

Anyway, if you could listen to moth radio. It's hosted by npr. It has been around for years, and it is a really, really fun podcast if you haven't got into it. But just Google Moth Radio hour. Al Gore. And there's a.

The speechwriter. He's a speechwriter.

Speechwriter for Al Gore. And he talks about how that came about, and it is so funny. It is. It's a really funny little to be on Moth. On a moth stand up, you have to use no notes, and it has to be a truthful story, and you get up and tell it before a live audience. That's moth. It is one of my bucket list items. I want to do a moth stand up one night where I get up and tell a story. But anyway. Okay, well, everybody, thank you so much for listening. Matt, any final words on cryptocurrency?

No, I just think careful with who you're interacting with on this. Be careful with the private keys. Take your time to learn what's going on. There's outrageous fees to invest in this stuff. So there are some companies that are charging 10%. If you, you want to buy a thousand in crypto, they're going to charge you 100 bucks. Our fee at Directed IRA when you're doing it is 1%. You can get the active trader fee schedule at Gemini which is 0.25 to 3.5% when you're trading there. So just be careful on the fees out there when you're getting into it and don't go all in. That's my one thing of advice. I mean unless you really know what you're doing and you're in the. You really understand the technology and what you're doing. For people that are like kind of, they see the shiny light of this, they're like, I just don't want to miss it. Okay, maybe less 1% or less of your investable cash throw into this to kind of dabble in it and, but we can help it Directed IRA if you want to do it with a retirement account, we're using Gemini. As we said, we have a strategic relationship there. We can link your IRA account and it can own specifically Gemini trading account that you can, you can be trading 365, 247 whenever the heck you want. You want. That's the thing about crypto. The market never closes. You can always be trading crypto. So by able to linking this, it lets you puts you in control to make the trades well.

And my final note and reminder is that tomorrow on no, no, sorry. It's going to be next week on Directed Ira podcast, another podcast we hope that you've subscribed to in your favorite podcast listening app or on Spotify or YouTube. Type in Directed Ira podcast. You'll find a show specifically dedicated to Directed IRA strategies, laws, techniques, ideas and Q and A. We do an open forum there as well. So next week's show will be on how to specifically what your options are for using a retirement account to do crypto investing, mining, all the above. So hopefully you'll be around for that too.

So thanks everybody for listening and till then, thanks everyone.

Yeah, thanks everybody.

I was thinking of a crypto joke. I had no crypto joke.

I was like there's gotta be some

like sign off on crypto. Like.

Yeah, but Kraken, there's gotta be a. I don't like the word cracking. Is that there's a joke.

Isn't like a Kraken like, like a, like a serpent type thing or like a dragon or something? A Kraken?

No, no, we're not ending on a high note.

Hey, but I'M a Gemini. So. So Gemini, you know, Scorpio. So there's nothing to say there. Guys, if you're still listening, we love you. Thanks for being here.

See you next week. It.