Blockchain Afternoon #5 Taxation of Cryptocurrencies

All right, I think it's time to be done with the introductions and move on to our actual program. I'll be talking about several topics today. The first one will be taxation. I'm sure that's interesting if there's— if there are any investors here. Have you invested in cryptocurrencies? Just one? There's several. All right, that's cool. I have. Okay, so yeah, I'm gonna start with taxation. I'm going to later going to be talking about what problems blockchain and cryptocurrencies may solve. I'm gonna be talking about energy consumption, specifically on Bitcoin. I'm sure you've heard that it takes more electricity than certain countries, whatever that means. And in my opinion, the most important thing, I'm gonna be talking about starfish organizations. as in decentralized organizations, flat organizations against hierarchical and pyramid organizations. And I think that will be interesting for you guys to know how the future companies, in my opinion, will be organized. And I can't stress enough, let's put the disclaimer up there. Even though I'm representing ConsenSys here as well, I'm speaking as a single private person. I'm not single, I'm married. But don't trust me, don't trust anything I say. Do your own research. You can— you should listen, sure, about my opinions, but do make your own mind. And I will not be giving any financial advice or otherwise. I will simply be sharing my own experiences, what I've learned, and I hope you can benefit from that. And also disclaimer, I'm currently working on 2 ICOs, NX Solar and Weconomy, which I'll also be discussing later in the end. Also, if you have any questions during the presentation, I normally like to save it to the end, but if you have something to add or you feel like I'm giving you wrong information, please do raise your hand and interrupt me. Or if you have a really important thing to add, I will appreciate that and I will take your question. All right. Let's move into— oh, yeah, one more thing. I'm a generalist, so I'm not a tax expert. I'm not a coding expert. I'm not expert on anything. I'm not an expert on anything. So I know kind of a large scope of things, but once we go into the micro level of understanding of certain aspects, then I fall short and I will default to somebody who knows better. But hopefully I can provide some value here. All right. So let's talk about investing and capital gains first. So I'm sure If you looked into that, it should be quite clear that if you are realizing profits— and by realizing profits means that maybe you bought Bitcoin for like €100 and it doubled in price and then it's €200— and then you buy, let's say, a phone that costs exactly €200, then you are realizing a €100 profit, which will be a taxable event. So if you buy something that is a real-life asset or real-life thing or a service, you are trading it into so-called official currencies like euros or dollars. It will create a taxable event for the amount that you got a value increase. But at least in Finland, it doesn't work the other way. So if you make losses, there is no way to deduct that. So that's something to keep in mind. And this is the regulation currently. It may change, and different countries of course vary. I obviously have the most information about the situation in Finland, but I'm also going to, in the end of the presentation, touch on a couple other places that I've looked at. And partly because I'm— why I'm interested in this is because we are incorporating one of our ICOs, and we're also looking for optional places. One, one thing that is an interesting question is the trading between different coins or tokens. So in US, it seems that they have taken the stance that those are also taxable events. In Finland, this is not the case yet, and in most countries this is not the case. So you are free to make transactions between, let's say, Bitcoin and Ethereum, and even if you have some value increase, you won't— it won't be treated as taxable event. But in the US, it's a different, different story and a lot of things. Yes. Yeah, I think you're correct. I think the implementation will be super tricky because how, first of all, you would have to get all the information from the exchanges, each and every transaction. Somebody actually needs to go through those or program some bot to go through those. I'm sure they're working on it, but yeah, that's, that's true. I don't think it's, it's But that's something to keep in mind that will be probably going on everywhere else as well, because if it goes in US, I think some other countries are going to follow and try to tax each and every each and every transfer between coins. So something to keep in mind. And one thing, of course, to combat this is to use a decentralized exchange which doesn't do KYC and KYC is know your customer procedure, so they won't list any of your details. So then That will make it extremely hard and almost impossible for anybody to find out if you bought a cryptocurrency. But of course, it's your personal responsibility. Do whatever you want with this information. So there's some countries like Germany, for example, that when you use cryptocurrency as payment, it will be the the value increase will be tax exempt, which I think personally is is great. And I heard this from. Mikko Alasarala, who is from who is the CEO of Inbot, and he will be talking in the end as well. And yeah, that was really interesting. Another thing is hodling. Who knows what hodl means? Really? Not more people? That means well, it's a it's a misspell of the word hold, and so I think it was conceived around 2013 crash maybe when when was when it was the horrible bear market. And this one guy on Reddit, I think, was having a little bit too much whiskey and then getting a little bit emotional and misspelling the word. And I hope he's still hodling because it became a real meme within the, within the industry. So what that means is you're, you're going to hold on for long term. So you're a long-term thinker. I mentioned earlier how Bitcoin changed the way that I think about Money and value, and for me, it means that I'm I'm I've become a holder. I've become a believer in this technology. So that means for me, one Bitcoin is going to be one Bitcoin, and that's what I care about getting more of that because I want to be a part of the technological evolution that I believe in. So it's kind of like a belief, but it's it's also a technique because if you hold. or hodl, there will be no taxable events, obviously, because you're not realizing anything. So you might want to wait until the regulation is a little bit more clear or maybe more favorable, or maybe you, you move to another country that has a favorable regulation. Holding can be a good tool for that. And of course, it means that you only invest in the amount. And again, this is not a— I'm not telling you to invest, I'm just telling you How I feel. So if you are investing, you should only put in as much as you're willing to lose entirely. And so that creates a situation— you don't want to be in a situation where you actually need the money that you have invested and the market is going down and you are 60% down, like we had the down market from December, like almost 80%, 75%, I think. So you don't want that to happen to your life savings, and especially if you need to pay some bills. So hodling is interesting, but if you go too deep, if you start to get sleepless nights, might not be the greatest. Oh yeah, also I want to mention more about those deductions in Finland. At least if talking about capital gains, you can make. I know that there are some cases that people have been approved. to make some deductions, like for example your computer if you're a day trader, or you use— obviously you need to use a lot of electricity to keep your computer on and run it. And these kind of expenses can be deducted in the taxation. So that's something interesting to keep in mind if you decide to do something like this for actual, actual money and not just for a hobby. Moving on. So there's other kinds of ways that you might get taxed using cryptocurrencies, and one is mining. So we talk about mining a little bit later on the more technical side, but basically what mining is, is securing the network and getting a reward for doing so. There are multiple projects that you can still mine with home gear, or you can buy an ASIC, which, which means a computer that is just made for mining a certain algorithm. And you, you can use those and turn your electricity into money. And then at least in Finland, it becomes income tax. So for the, for the day of when you mine, the income tax will be calculated and denoted in the local currency of that day with that rate. So you pay income tax based on that. And another thing here that comes, comes into play is hodling. So if after that Once you paid the labor tax, income tax, then if you still hold, you are still subject to the capital gain tax. So let's say that you mine €100 worth of cryptocurrency, and then you will be taxed by €100 based on your income tax card. And then you decide to hold it for another year, and then it turns into €200, and then you want to cash out, you buy the phone again, and then you will be subjected to the capital gain tax again. So also something to keep in mind. There are these profitability calculators online that you may want to use. Yes? The microphone is not on. Oh, okay. Oh, sorry. Yeah, I hope the stream is It's okay as well. I've been known to mess up— mess with the sound with my shows as well. All right, I'll try to do a little bit better. Yeah, so that's something to keep in mind when you make profitability calculations if you are into this kind of thing with mining, which a lot of people say that it might not be worth your trouble because you have to actually put in some hours and you have expenses. You have to get those graphics cards, you have to pay for electricity. I would say normally, I personally, I don't do that because I feel like it will be better to just simply buy and hold. But some people are making great success, and I think it's mostly if you, if you know a good one, if you believe in some project and you mine that and you hope the value will increase, then that's something that I think you must take into account when you think if it's profitable or not. So you kind of have to be a speculator if you want to be a profitable miner as well, unless of course you are founding a whole big operation of mining farms, which, which is of course immensely popular— excuse me, it's immensely profitable. Okay, a little bit about commerce and making purchases and selling. There's also VAT to consider if you are selling goods and services, for example, professionally. So how does that come into play? Well, it's, it's pretty simple. It's like the income tax as well. So the VAT, you have to report based on the daily rate of the cryptocurrency that you've sold, and then you will have to pay that VAT to the tax office based on, based on the daily rate. And again, the same thing applies with hodling. Again, you are subject to to the capital gains tax should you hold it. So this is one reason I believe that most, most companies choose to turn their cryptocurrency earnings into fiat currency right away to cover for expenses and also to avoid volatility risk, because you don't want a situation that your livelihood depends on selling those donuts or dates or what that guy is selling. and then the next day there's a crash and you lose 50% of the value, it will be quite bad. So that's why a lot of businesses are using these services that convert the cryptocurrency into fiat right away, and then that also makes the taxation and giving up the VAT rather easy. Of course, there's more and more businesses and consultants that simply charge in Bitcoin or other cryptocurrencies and never turn it to fiat. Fiat and just wait for the— wait until it becomes a little bit more popular, a little bit more easy to use it, or maybe favorable taxation. Also something to keep in mind. So I promised a couple examples. I don't have that many, but I've looked into these options. And yeah, I mentioned Germany already. Seems like they have— early this year they have managed to hammer down a clear regulation. Unfortunately, it's not super easy, and it takes a lot of reading through and understanding. And one reason why still I think not that many businesses are founding their ICO or their cryptocurrency or blockchain project in Germany, because while there is a clear regulation, it's still a lot of paperwork, and there's maybe more nimble options for that. Estonia is not listed here, but I would mention Estonia is one good example of the lack of bureaucracy because it's quite easy for anybody in Europe to found a company using e-residency. So that's something that a lot of projects are using. I mentioned Arizona here because they passed— I believe they passed a bill that you should be able to pay your taxes in cryptocurrency. Which is great. Of course, it's not a law yet, but still it shows kind of like a direction and hope that this is going to be taken more seriously. And of course, being legal tender, being able to pay the taxes, has always been a very important part of money. So that may be a good thing. Italy is one of the places that has a personal cryptocurrency tax of 0%, so there's no taxation For now whatsoever, if you if you happen to live in Italy, Netherlands has extremely low capital gain tax. So it's like we're talking two three percent. So another attractive option. USA is probably it's quite hard to say. Sometimes I feel a little bit hopeful when when the regulators seem to have the right clue. However, there's a lot of strong. influencers and parties that benefit from the old system so much that I'm a little bit hesitant on the regulation and what it's going to mean for cryptocurrencies in, in the US. And that's, I think that's one reason why a lot of projects don't accept US investors at all, because they don't want to get in trouble with the SEC, which is the securities regulator. And to clarify, securities are these like Security, we're talking about security tokens in, in the end as well, and what that means and what tokenizing real-life assets means. And that's basically when you, when you are investing in something and your hope is to benefit, get some dividends or get some, get some value, long-term value from your investment. That's a definition of security. So what a lot of projects are doing is providing just this while there's no regulation. So most of the projects are, in my opinion at least, unlicensed securities. So that's something to keep in mind because there have been subpoenas for some projects. That means that they have been sued and the price of said projects will normally plummet right after that. So if you are invested in a project, then it's probably something you want to consider. Will it be declared security at some point, and will it be delisted from exchanges? Because the exchanges, obviously, they don't want to take a risk in selling unlicensed securities. All right, that's the end of, end of the taxation part. I leave here some of my personal social media channels. You may reach me and find my content. And I also have a private consultancy called Omnifin, which I also represent every time. And I hope you found this informative, and if you have any questions right now, I will be happy to try and answer them. Yeah, that's a good question. How it works is that you don't— if you don't have any real-life connections, that is, the I believe, the tax office uses. You don't have any real-life connections, let's say that your family still lives here, or your apartment is still here, then you can apply for this limited liability on taxes. And I believe that takes around 3 months to get that, if I'm not totally mistaken. Correct me if I'm wrong. But it does require that you actually move there. Not only you have an official address, but you don't have significant property in Finland, for example, or whatever country you're moving out from. And then it takes around half a year to process the paperwork. And I do think that you can have a summer house, for example, that is not considered significant property. But I think you can even have, like, investment houses to some extent, but don't quote me on that. Excellent question.