Bitcoin Q&A: Operating a business with cryptocurrency


[ANDREAS] Lysander asks, ‘What is the optimal
time to come out openly as a bitcoin user?”
“How do you arbitrage between talking
openly about Bitcoin when transacting…
thereby drawing attention from the tax administration,
regulators, thieves, and jealous people who see you…
as a millionaire, [versus] quietly running your
bitcoin operations as discreetly as possible?”
“The former may help network adoption, [but is a risk
if] the government [decides] to strike hard against it.”
“The latter may seem selfish, but it might be
more efficient to let the network grow naturally…
(which it should, good things
barely need active promotion)
and stay under the government’s radar
until it is too big to be destroyed.”
That’s a great question, Lysander.
First of all, I agree with the final part of your statement,
which is ‘good things barely need active promotion.’
If people need Bitcoin, they’re going to figure it out;
they’re going to find it and they’re going to use it.
The vast majority of people who got all excited
about bitcoin in 2013, and then again in 2017,
did not get excited because they needed bitcoin, or any
of the ICOs and tokens that gained a lot of attention.
It was mostly speculative attention and that
doesn’t help. I don’t think it helps the industry develop.
I think it distracts, creates a lot
of noise and potentially backlash.
When is the optimal time to come
out openly as a Bitcoin user? Never.
‘Bitcoin what, who? No. Is that a game token?
I’ve never heard of it. Are you a computer geek?’
‘I don’t know what you’re talking about.’
I don’t have the option to do that. [Laughter]
Trust me, it comes at a very heavy personal price,
with a lot of risks.
If people don’t know that you’re involved in Bitcoin, if you
haven’t already made the mistake of publicly declaring…
how much you’re involved in Bitcoin (out of enthusiasm,
a lot of us did in the early days), then shut up.
Keep it to yourself. You’re going to be
safer, your family is going to be safer.
You don’t need to be the ambassador and
advocate for / promote Bitcoin to the world.
Some of us don’t have that option anymore.
It’s not an easy thing to do.
I don’t regret being public and talking about this
technology. I’ve always been very enthusiastic,
but at the same time, having that kind of
public [presence] makes things difficult for me.
So I would say: keep your mouth shut.
Harry asks, “If you’re travelling the world
and only accepting bitcoin for payments,
…that seems to be a complicated tax situation.”
“If I were to pursue the same path as you,
and accept only bitcoin for my services,
…how would I handle paying taxes?”
All right. A few clarifications there, Harry.
First of all, I do travel the world and accept bitcoin as
payment. But I don’t only accept bitcoin as payment.
I accept payment in a number of currencies.
I prefer cryptocurrencies for a variety of reasons,
including that, when I get paid with cryptocurrencies,
I get paid quickly without the possibility of chargeback.
without complications from banks,
without having to call a bank fifteen times…
to find out what happened to my SWIFT wire
transfer and why it hasn’t been approved yet,
only being able to operate Monday to Friday, 9am to
5pm, whatever jurisdiction or timezone that bank is in.
For many reasons I prefer cryptocurrencies,
but I don’t only accept cryptocurrencies.
I accept U.S. dollars, euros, yen, British
pound sterling, BTC, ETH, LTC, BCH,
and quite a variety of other currencies.
Before I got into cryptocurrency, I operated a
consulting business that had international clients;
at that time, I also accepted British pound sterling, euros, and U.S. dollars for payment.
So I [was already operating] a multi-
national, multi-currency small business.
How do you operate a multi-national, multi-currency
small business? Generally speaking, it is much easier…
if you price your services in a single currency.
For accounting reasons, that’s preferably
the currency you’re paying taxes in.
As a U.S. resident, I pay taxes in the U.S.
and so I price my services in U.S. dollars.
That’s going to be the basis on which I calculate
my cost, my income, and the tax that I owe.
If I charge someone $100 USD for a service,
then I’m going to price that as $100 USD.
If they want to pay me in British
pound sterling, euros, yen, or bitcoin,
they’re going to have to make a conversion
(at the moment of payment).
“I owe $100 USD to Andreas. How much is that in
British pound sterling right now, when I’m paying?”
They’ll make that conversion, make the payment in
whatever currency they choose, at the appropriate rate.
When I receive this foreign currency or cryptocurrency,
I have received $100 USD worth of value.
That’s how much I priced it. That is
what the exchange rate was at the time.
I know that what I received was worth
$100 USD at the time of payment.
That’s income, so I pay income taxes on $100 USD.
It doesn’t matter what currency I got paid in.
In fact, it doesn’t even have to be currency. If I received
my payment in cake, the IRS requires me to declare…
the value of that cake at the moment of payment.
When I eat it, I then have to remit 30-40% to
the U.S. government as federal income tax,
[but] they don’t take cake for income tax payments,
any more than British pound sterling, euro, or bitcoin.
So I have to give them the equivalent
amounts in U.S. dollars.
The other complication of course, which applies to
foreign currencies: if I receive euro and don’t convert…
to U.S. dollars, or if I receive bitcoin and I don’t convert it
to U.S. dollars, and then six months later I do convert it
(to another currency or use it to buy something), and in
the meantime the value of that currency has increased,
I have to pay capital gains on that percent increase.
What is my cost basis? The same as the amount on
my invoice, as the amount of pricing I did back then.
The amount of euro or bitcoin I received was worth $100
USD at that time. If it’s worth $110 USD when I sell it,
then I’ve made $10 USD worth of capital gains.
I need to pay either short-term or long-term
capital gains rates. It’s not that difficult.
Handling taxes is exactly the same as if I was handling
taxes in any other currency, [including] foreign currency.
Exactly the same as operating a multi-national, multi-
currency business, whether you accept [bitcoin] or not.
You still have to pay capital gains.
I had to pay capital gains on my euro income
too before cryptocurrencies came around.
That’s the more complicated side, so keep track of cost
basis. [I track] cost basis for every income I receive…
in a cryptocurrency, or other currency. When I make a
payment or conversion, what they call a “taxable event,”
I count my capital gains or capital losses,
and I pay for that tax. That’s basically it.
It takes a lot of reporting, a lot of paperwork.
But it’s not really complicated.
It’s just that you have to do your accounting carefully.
Obviously I, like any small business, use an accountant.
I used an accountant before cryptocurrencies
came along, because the U.S. tax code is just crazy.
Fun story: Intuit, the company that owns TurboTax,
has been paying lobbyists for more than a decade…
to [argue] against any simplification of the tax code.
Because the more complex it is,
the more you need their products.
It’s not an accident that the tax code is very complex.
That’s how you do taxes with [foreign
currencies] and cryptocurrencies.
Keep in mind: I’m not an accountant, an attorney,
a financial adviser, [or] a tax advisor.
I’m simply telling you how I do it, what my personal
experience as a small business entrepreneur is,
and what advice my accountant gives me.
Of course, in order to do this right, you have to take
responsibility and consult a qualified professional…
to get advice on these issues.
[AUDIENCE] That was really interesting,
thank you very much! [ANDREAS] Thank you.
[AUDIENCE] My question is really short. When bitcoin falls to zero, as long as it contains the first principles,
you’re still happy and it’s a complete success?
[ANDREAS] At zero, it doesn’t work. But… [Laughter]
That was a very good, very cheeky question. [Laughter]
Okay, thank you. Let me just elaborate on that a bit.
In terms of economic velocity, in order for a currency
to be useful, you have to be able to do transactions…
that are big enough to get your business done.
If the economy for bitcoin transactions, or any
other cryptocurrency, is big enough to support itself
and to have enough velocity to do the transactions,
then whatever price point that is, is sufficient.
I’ve been using bitcoin since it was $3.
The first time I got involved, it was $3 each.
Here’s the thing, I used it in my business. I used it.
I got paid. I paid others. I bought stuff. I sold stuff.
I had use of cryptocurrency in and out of my business,
in my personal finances, since 2012 or 2013.
Bitcoin worked at $3, at $10, at $100, at $1,000,
and it worked again at $200. [Laughter]
It’s worked for me as a currency. If you use it as a
day-to-day currency, you get less of the whiplash effect.
If I pay the audio / video people at this
event, who I’m going to pay using bitcoin,
and I earned that bitcoin last week
at the conference where I spoke…
Yes, there was a bit of a fluctuation [in that week],
but money in last week [can be] money out this week.
It’s not a big deal. Whether that was at $3 each or
$8,000 each, it makes absolutely no difference to me.
When the price is low, I earn more in bitcoin terms.
But then I also spend more, in bitcoin terms.
When the price is high, I earn less and I spend less,
so it doesn’t really matter as long as it’s churning.
If instead I follow the traditional trading
practice of ‘buy high, sell low,’ [Laughter]
when you intended to ‘buy low, sell high’
but the market just didn’t want to cooperate…
Then the price matters, but I’m not using as a currency.
These are really matters of adoption.
Tio asks, “How is buying versus earning bitcoin helpful?
Why is earning bitcoin, instead of buying it, better?”
I think I’ve said that earning bitcoin is better,
but not necessarily for Bitcoin or for the price.
I think it gives you a different perspective of the system.
In the end, how ever you may use this cryptocurrency…
It’s not necessarily better one way or another, but I
want to encourage people to think about it differently.
A lot of people who enter the cryptocurrency space
for the first time will think of it as an investment.
Their first action is to buy cryptocurrencies
by converting fiat into the cryptocurrency.
What that means is, usually they
have to go through an exchange.
Their first interaction with this decentralised world
of cryptocurrencies is a rather centralised entity.
Their first experience with pseudonymous
cryptocurrencies is to take their photo I.D. or passport,
upload it to a ‘Know-Your-Customer’ (KYC) or
‘Anti-Money Laundering’ (AML) compliant bank,
or a third party which acts like a bank (the exchange).
Unfortunately, a lot of people who go through that
process leave the cryptocurrency in the exchange,
assuming they’re done, and then effectively
never take possession of their cryptocurrency.
They don’t have the keys to the cryptocurrency.
As you know, the rule is: not your keys, not your coins.
Or as somebody recently paraphrased it, “nacho cheese,
nacho bitcoin,” which I thought was kind of funny.
So, buying bitcoin puts most new users down
a path of treating bitcoin first as a foreign investment,
purely as a store value or speculative thing
which they’re not going to use or take control of,
and which puts them directly into contact
with centralised entities and KYC/ AML.
They’re not anonymous and [will
encounter] all of these other problems.
A somewhat better approach would be to buy your
[bitcoin] from an ATM, a vending machine with cash.
Or through a person-to-person exchange,
which in many countries is perfectly legal.
Person-to-person exchange, without
having to reveal your identity.
Simply hand over some cash and
get a cryptocurrency in return.
In both of those cases, you’re exchanging one form
of peer-to-peer money (cash) for another form (bitcoin).
You are taking possession of the cryptocurrency
by [receiving] it [through] a wallet you control,
preferably not one that’s hosted on an exchange
but one where you control the keys.
That’s a different experience. Now you are
actually using a decentralised system.
You’re part of a decentralised economy.
The reason I think earning is better: instead of using fiat
to buy a cryptocurrency, you offer a product or service,
and when that product or service is rewarded
[with cryptocurrency] in return, there’s been no fiat.
It’s simply a payment in cryptocurrency for a product,
which means you’re now participating in an economy
where the currency is the cryptocurrency.
You’re using it as currency, as a medium of exchange.
So is [whoever] bought the product or service from you.
One of my friends in the space got most of his bitcoin
by baking baklava, a Greek dessert with nuts and honey.
He basically baked his way to a stash of bitcoin
by selling it at conferences and gatherings;
selling, literally, trays of baklava for bitcoin.
Once you earn bitcoin, you start thinking of it as
the fruits of your labor. It’s a very different feeling.
When you earn it regularly and spend it regularly,
you get less of this feeling of massive volatility.
If you spend bitcoin that you earned last week,
then [the price didn’t] change so much.
The currency then works whether
bitcoin is at $3, $3,000, or $30,000.
It’s the same.
If the price goes down, you earn more (in bitcoin terms)
for your labor, but spend more for other people’s labor.
If the price goes up, then you earn less (in bitcoin terms),
but you also spend less when you buy things.
So it all ends up equal in the wash, but it changes your
mentality. You start using it, you start trading [with it].
You create this internal economy and velocity.
Is that “better” for cryptocurrency? I don’t know.
I think looking at cryptocurrency as an
economy [with] its own economic activity,
rather than purely as a speculative investment vehicle,
gives you a more comprehensive perspective.
That doesn’t mean you shouldn’t also invest, maybe?
Maybe you can invest.
Earn some, invest some, speculate a bit,
use it as a currency. I think it all helps.
The most important thing: understand the differences between centralised and decentralised money;
understand the difference between peer-to-peer and using an intermediary.
Custodial accounts are generally
a very bad idea, very insecure.
As long as you follow some of
those ideas, buying is just as good.

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