Bitcoin’s Total Value Tops US$1 Billion

You may never have heard of the virtual currency called Bitcoin before but you can be certain that's going to change now that the overall value of this virtual currency has now risen to well over US $1.3 billion. The intriguing thing about Bitcoin is that nobody really knows who created the original program but the credit goes to a programmer called Satoshi Nakamoto, although most people assume that's a fake name.

So what has actually caused Bitcoin to increase so dramatically in value over the last 2 years alone, despite the fact that very few online retailers actually accept it? Firstly wealthy speculators and investors like the Winklevoss twins (yes Cameron and Tyler Winklevoss of Facebook infamy) have been pushing the value of the currency ever higher by purchasing over $10 million worth of Bitcoins themselves. Plus the recent financial fiasco in Cyprus, where account holders saw their personal savings accounts raided to pay for the "gambling debts" of the main Cypriot banks, has prompted millions of European investors to look for a more secure way to save - one that's free from the grasping hands of greedy IMF and ECB officials.

A currency being worth around US $1 billion is no big deal, but what has the US Treasury worried is that because this is a virtual currency they have zero control over it. In a bigger financial picture Bitcoin could allow people to buy and sell goods and services without the use of rapidly devaluing paper currencies like the US dollar and the on-its-last-legs Euro. The potential risk here is that investors and depositors putting their money into Bitcoins could see a further devaluation of currencies which are already struggling to stay afloat in the shark-infested fiscal waters. To try and stop this flow of real cash to virtual cash the US Treasury is attempting to have services like Bitcoin labeled for money laundering, in an effort to tarnish their name.

Another major cause for traditional banks and currencies is that Bitcoin has now become so mainstream that investors are lining up to get involved, including some pretty big venture capitalists. This, of course, has caused the creation of a number of spinoff services which are going to add even more value to the Bitcoin currency simply because they'll encourage more and more people and companies to both offer and accept Bitcoin payments and transfers. Considering how quickly Bitcoin has progressed so far in valuation it is plausible that it could challenge other major currencies like the US dollar within just a few short years - something the Federal Reserve can never afford to have happen.

When it comes to filing your IRS tax return you should be aware that Bitcoin, unlike Paypal, does not file a 1099 on your behalf. This means that unless you properly declare your Bitcoin "deposits" then you could be liable for a number of penalties. The problem is that most people assume Bitcoin is simply outside the law but if you knowingly avoid declaring how much money you have tied up in Bitcoins you could wind up becoming a tax felon, after a lengthy IRS audit of course.  Thus consult with a CPA professional who can advise and help you file your tax return properly.

Bitcoin has some way yet to go before it will be seen as a challenge to FIAT currencies but it's now established itself as the first virtual currency in popular use - that in itself is enough to worry most bankers.