Let’s start at the beginning: What, you might ask, is a “Bitcoin”?

A Bitcoin is a cyber monetary unit used in a revolutionary financial system known as Bitcoin, applicable to real-world transactions.

The notion of a cyber monetary unit might not be surprising to you. After all, virtual currencies have been popular in online gaming environments for some time. Some, like World of Warcraft, have created entire virtual economies that function much like our own, creating exchange values between online and offline currencies through secondary markets like eBay.

What’s different about Bitcoin is the second proposition that is noted above: the potential interpenetration of Bitcoin between virtual and actual worlds. The Bitcoin itself is virtual. It moves in a virtual environment. However, it can be used for tangible goods and services. You might use bitcoins to purchase groceries, gasoline, clothing, services, or .

The Bitcoin provides a basic introduction:

“Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system.”

Key Points to Note

First, the currency is purely intangible and transactions take place within a decentralized, virtual marketplace that operates on a user to user platform. This structure produces some interesting implications: Bitcoin is free from government regulation, can be used anywhere in the world by anyone, and transactions are anonymous. As a result, bitcoins have gained a relatively small but strong user base.

Second, the currency is not added into the market like more orthodox financial systems. Instead of creating money like the Federal Reserve, bitcoins are introduced into the market by computational competitions held for Bitcoin users or “miners,” and the winner receives a prize in the form of bitcoins. The amount awarded to miners is cut in half every four years, keeping the potential amount of bitcoins in circulation limited to 21 million, as there are 12 million in circulation now and the current award amount is 25 bitcoins. The value of a Bitcoin is roughly over $750, meaning that a miner wins roughly $18,750 per competition. While the mining competitions may be the best way to earn bitcoins for computer geeks, the average person is better off buying them for cash.

Finally, what is perhaps most remarkable about Bitcoin is the rapid increase in value that’s taken place since its inception. A single bitcoin has gone from being valued under $1 in 2009, to over $750 in just four years. This phenomenon has made for very happy investors, perhaps the most famous of which are the Winklevoss twins who are among the biggest stakeholders and .

On the Fence?

The rapid growth of Bitcoin, however, has many skeptics believing that it is a bubble waiting to burst and will devalue just as quickly. Phil Sanderson of IDG Ventures argues: “.”

This is a legitimate concern, however, the past four years of Bitcoin have defied logic and it may continue to do so. Despite the closure of the Silk Road, one of the most active Bitcoin market places, companies accepting bitcoins remain small in number but are growing constantly. There are plenty of websites and that will exchange bitcoins for cash, and recently, a made news for joining the Bitcoin movement and accepting the digital currency.

Regardless, however, don’t expect to see Bitcoin go mainstream anytime soon. It seems too misunderstood and volatile to gain widespread confidence from stakeholders for the time being. Though investors, users, and business owners alike have found several useful ways of bitcoins, for the rest of us, there are just too many implications, too many puzzles still unresolved.

In fact, some countries have already taken early action against the use of Bitcoin and other digital currencies. Chinese officials have forbidden financial institutions operating within China to deal with the currency in any respect, causing Bitcoin Internet exchange rates to reduce significantly. Their reason? The currency does not hold any “real meaning,” nor does it hold the .

As Hao Hong, in charge of Chinese research at Bocom International Holdings Co, stated: “The concern is that it interferes with normal monetary policy operation… it is difficult to regulate and could be used for money laundering.”

While China has taken a first, bold step in standing against the Bitcoin craze for the time being, you can expect other countries to follow suit in either support of Bitcoin usage or vehemently against the currency. Either way, policy makers and regulators will need to take that stance soon, as bitcoin is only increasing its profile despite taking a hit in China.

And the Verdict is…?

In sum, investing in bitcoins ought only to be appealing to risk takers and for a few reasons. Bitcoins are intriguing because they’re anonymous, have undergone incredible spikes in valuation, and are decentralized and unregulated by government, giving investors confidence that no exterior force will alter the system.

These qualities alone would make any investor starry-eyed, if not for Bitcoin’s massive shortcomings. The dangers of investing in Bitcoin is that it is not easily forecasted. No one knew it would spike as it did, and no one can say with confidence that it won’t dip dramatically. Also, Bitcoin’s recent success has inspired many others to follow its formula, giving way to the creation of many alternatives such as Anoncoin, Zerocoin, and Litecoin.

These factors demonstrate how the field is just too young and investors are too inexperienced to predict longevity in any one cyber economy, not to mention, Bitcoin. While cryptocurrency is a promising contender, we have yet to see if it will really be a player to watch out for.

The views expressed in this article are the author’s own and do not necessarily reflect 51³Ô¹Ï’s editorial policy.

Image: Copyright © . All Rights Reserved

The post Bitcoins for the Uninitiated: An Introduction appeared first on 51³Ô¹Ï.

Granted, taxes are a drag. What’s an even bigger drag are capital gains taxes. Call them what you wish — “justified” or “penalties for hard work” — the fact is they’re going nowhere. And all of what used to be the old practice of moving assets abroad, offsetting short positions for trading stocks for diversified pool shares; well all that has become a big no-no to Congress and the IRS.

The question becomes: what can one do today – right now – to mitigate the 2013 capital gains tax hike? In short, what manner of combat and hopeful defeat can be taken to rein in the hike?

Clear as Mud

Capital gains, as a tax-related institution in the US, has never been easy to understand. Not that anyone worried about capital gains needs help from , but even so, some relief is warranted.

And that’s because with 2013, it has become even more confounding. Noted experts in the field argue that understanding capital gains no longer depends on taxable income after deductions, but rather a notion that the Bush tax cuts have expired, while a 3.8 percent rise has come courtesy of the Obama Healthcare bill. In all, with a 21.2 percent rise in long-term capital to a 40.8 percent increase in short-term, the overall percentage of capital gains tax increases for 2013 tallies over 66 percent.

But even with this vast uptick in capital gains rates, in some cases, the old tried and true methods might still work to at least lessen the new damage that has arrived with 2013. According to recent financial publications, here are some of the more reliable methods to alleviate the capital gains tax pain.

Donate the Gains

This doesn’t make sense when first considered, but when looked at as far as a tax deduction is concerned, the thought pattern is brilliant.

What one does is take an appreciated stock and simply donates it. As an example, if a person purchased shares some time ago for $2,000 which are now worth $10,000, they can offer the shares to a charity and in return, receive a $10,000 tax deduction without having to declare the $8,000 as income.

Some investment firms have stated that this donation of appreciative investments has saved their clients upwards of $10 billion in their various charity trusts.

Transfer of Funds

It is possible to transfer appreciated stock to a relative who exists in a lower tax bracket. By doing this, the relative can pay off debt, which say for instance might be a son or daughter with a student loan, and put the sum of the transfer on their tax return. Though tax rates for this type of exchange can fluctuate year to year, in the first year this is done, the child’s tax rate could be as low as zero percent.

Be careful though as the “kiddie tax” falls into play if the child is under 24, and that’s even if they are a full-time student. Another concern is this method fails if the “gift” is over $13,000, as larger amounts could affect lifetime gift/estate exclusion rates.

You Could Just Die

As bleak as that is, it’s no joke. Successful long-term investors will tell you that as they choose to hang onto assets and borrow against them for whatever their cash flow needs may be, they still had fun while not cashing anything in and paying capital gains as well as guaranteeing that their investments were being left to their heirs.

Known in the financial world as a “step up,” this process refers to one’s heirs never having to pay income tax on the appreciation of a stock from when it was first brought to when it was passed on due to death. Just be attentive to how much money current tax standards allow in estate transfers such as this.

Keep the Beach House in Malibu

Did you know the California Coastal Commission has not allowed new land development between the Pacific Coast Highway and the Pacific Ocean, since 1981? What that means is property with a direct ocean view has skyrocketed to the point of sheer folly. This also means that it can be very tempting to sell a beachfront property, or any other property of value, for a price thousands of times more than when it was first purchased.

Yes, but the capital gains taken on from such a sell could very well be heartbreaking. The best bet no matter how the capital gains tax code shakes out from year to year and administration to administration, is to simply hold onto whatever has gone up so high in value; it would be a bigger pain to sell it than to keep it.

The views expressed in this article are the author's own and do not necessarily reflect 51³Ô¹Ï’s editorial policy.

Image: Copyright © . All Rights Reserved

The post The 2013 Capital Gains Tax Hike: How to Defeat it appeared first on 51³Ô¹Ï.