Wednesday, January 07, 2015

Bitcoin and Other Virtual Currency

As described in Wikipedia, bitcoin is a software-based online payment system introduced as open-source software in 2009. Payments work peer-to-peer without a central repository, government backing, or a single administrator, which has led the US Treasury to call bitcoin a decentralized virtual currency. Although its status as a currency is disputed, media reports often refer to bitcoin as a "cryptocurrency" or "digital currency."

Merchants have an incentive to accept the digital currency because fees are lower than the 2–3% typically imposed by credit card processors. However bitcoins can be subject to wide price swings, can be stolen, and lack consumer protections.

Along with the growing popularity of Bitcoin,  the number of charitable organizations that accept virtual currencies has been growing. At the same time, so has government scrutiny, creating uncertainty about the continuing value of Bitcoin, Ripple, Litecoin,  and other, smaller currencies.  In March, the Internal  Revenue Service issued its long awaited opinion on the taxation of virtual currencies, ruling they should be treated as property, not currency.  That creates administrative and paperwork problems for those using Bitcoin, but also allows donors to obtain generous charitable income tax deductions for donating Bitcoin that is worth more than they paid for it, just as they do for giving appreciated stock to charity.

Some Links on Virtual Currency

How to Donate Bitcoin to Charity and Get a Big Tax Deduction

Bitcoin: How the Charity RNLI is Using the Virtual Currency

Fidelity Charitable Now Accepts Bitcoins
Fidelity Charitable, the second-largest nonprofit fund-raiser in the country, is allowing its donors to contribute bitcoins to their giving accounts.

How Bitcoin is Used in Combatting Ebola