Cryptocurrency (crypto), such as the commonly known Bitcoin, has been booming recently. To those unfamiliar with crypto, the name is a bit of a misnomer, as cryptocurrency is not a true “currency” that is regulated by the government, but rather a string of electronic codes that is a substitute to currency in the form of an online payment. Since there is not much government regulation regarding crypto, there is no government protection or involvement in transactions. The IRS has given guidance about the necessity to report crypto transactions, and the instances in which it is taxable, but those new rules are not widely known and are dangerously overlooked. Due to cryptocurrency gaining so much popularity, it is presenting a new issue to overcome in divorce proceedings.
Any purchaser of cryptocurrency has an electronic address, which holds the crypto that requires keys necessary for the owner to conduct transactions. The type of keys you have, and the number of keys, will depend on the type of vehicle (wallet, exchange etc.) that holds your crypto. A public key is used to keep transactions secure and maintains the electronic wallet holder’s identity within the block chain. The private key is used to access and identify the wallet. Because only the electronic wallet holder knows its respective private key, the transactions remain anonymous because no identity is otherwise disclosed. The string of electric codes that allow crypto to be transferred are comprised of electronic blocks. The transactions and value of crypto are protected by requiring that every electronic block in a string be edited in order to make any change to any block in the collective string. This is believed to be impossible in the community at large since every electronic device connected to the block chain in the entire world would have to be effected and changed at the exact same moment.
While anonymity that comes with crypto has made it an attractive option for criminals to use while engaging in illegal transactions, for crypto holders to attempt to avoid IRS taxes, to attempt to hide assets from law suits etc., the anonymity is also beneficial for people with pure intentions to store assets.
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