Hi friends! I hope you all are enjoying your Thursday and gearing up for a fantastic weekend.
I’ve just finished attending my umpteenth blockchain and cryptocurrency webinar (by now, I should be an expert!) and I’m finally starting to make a clear connection between the art world and cryptocurrency. This has been an area of interest since I wrote a blog post a few months ago about trends that will drastically change the art world, and the first trend that I listed was cryptocurrency.
For those that are unfamiliar with cryptocurrency, there are many great online guides but one of the simplest definitions I got was from Mario Costanz and his team over at Crypto Tax Academy. He described the process of trading cryptocurrency as an exchange of value between peers, defined between the peers, as opposed to the value being set by a third entity (as is the case with fiat currency). I won’t spend too much time explaining this in depth because they do it much better than I can, though they are clearly explaining this from the tax obligation perspective.
I also read this fantastic 3-series article by Tim Schneider over on Artsy. Part 1 gives a great overview to what blockchain and cryptocurrency is. Part 2 gives a great case study in how forward-thinking artists (and, by extension, collectors and gallerists) can participate in a cryptocurrency structure. Finally, Part 3 proposes three major issues in the art world that cryptocurrency technology could solve.
Here’s where my simple interpretation comes in: for the sake of taxes and income recognition, cryptocurrency is an asset just like art. And investing in art using cryptocurrency is similar to bartering goods and services: both sides must determine the fair market value and both sides have to recognize the exchange as a taxable event. If you’re curious about how virtual currency is defined by our current government, you can read this 2014 IRS notice (no new guidance has been issued as of today’s date). Looking at cryptocurrency like an asset, instead of viewing it as fiat money, can help a lot in understanding what it is and how to work with it.
I’m going to be learning more about this in the upcoming year, but I hope my mini-guide was helpful, and I also hope that the linked articles provide some additional clarity. Cryptocurrency is here to stay, so the more we know, the better off we are.
Thanks for stopping by, and I’ll talk to you all soon!