Welcome to our IRS presentation, "Understanding the Basics of Virtual Currency". We're glad you're
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we can track your participation today. Okay, folks, it's my pleasure at this time to introduce our
presenter for today's webconference. Mr. James Daniels. James is a Special Agent in the Internal
Revenue Service Criminal Investigation Division. He's been a Special Agent since 1995. During
this time, he's conducted complex financial investigations involving tax evasion, bank secrecy,
structuring, money laundering, narcotics, identity theft and cybercrimes. And that's not all. He
has also conducted various complex fraud investigations including tax, healthcare, bank,
bankruptcy, wire and mail fraud. James is the Program Manager for Cyber Crimes in the Internal
Revenue Service Criminal Investigation Division and he's responsible for the program areas of
virtual currency and the dark web. It really is my pleasure to welcome James this morning.
Welcome, Jim. JAMES DANIELS: Great, thank you for having me here today. And I want
to thank everybody for attending. Today we're going to be talking about virtual currency. Let's go
ahead and figure out what exactly is virtual currency. Well, virtual currency is a digital
representation of value that is neither issued by a Central Bank or a public authority nor
necessarily attached to a fiat currency but is accepted by natural or legal persons as a means of
payment and can be transferred, stored or traded electronically. Basically what that means is is
that it is a system of value that allows a group of people that accept virtual currency as a
medium of exchange to pass value back and forth amongst one another. No Government controls it.
So it's not subject to inflation. It's not subject to any control from a potential outside
Government force to decide if there should be more, if there should be less. That's usually
decided by the community itself that supports that particular virtual currency. It doesn't have a
physical equivalent in the real world. But all of the characteristics of the traditional money
are still the same. Just as classic fiat money you can obtain, transfer or exchange it for other currency
you can use it to pay for goods and services such as mobile communication, online stores and
other things as well. Digital currencies don't have geographical or political borders.
Transactions might be sent from any place and received at any point in the world. And actually
digital accounts and wallets can kind of be thought of and treated like bank deposits and bank
accounts. So currently there are over 1500 different types of virtual currency. And that number
is growing every day. Now, the thing to remember is most of these virtual currencies are built on
top of another type of virtual currency. So the main one that's out there that most people know
about is Bitcoin. And Bitcoin came about in 2009 and it's code is out there on the Internet for
everyone to see. Anyone can download that code, make a modification into it and then upload it
back and basically send out their version of their crypto-currency out into the world. Now it's
up to the community whether they're going to support this new crypto-currency depending on what it will be used
for and how it will interact with whatever market they want to use but like I said Bitcoin is the
main one and why don't we go ahead and take a look at some of the top crypto-currencies that are out there
right now. PHILIP YAMALIS: Let me interject a question for you that came in.
JAMES DANIELS: Sure. PHILIP YAMALIS: I've got a small business owner saying hey you
mean I can use these crypto-currencies and accept these crypto-currencies in my business?
JAMES DANIELS: Yes, you can. You can accept crypto-currency as value. You can accept it as a
payment if you want to and then when you accept that payment you can turn around and exchange it for
fiat currency like the dollar, or the yen or the euro. You would just need to convert that crypto-currency
back to whatever fiat currency you wanted. PHILIP YAMALIS: Let's talk about those Top 10.
JAMES DANIELS: Yeah, alright, as you can see here now this list changes every day depending upon the value of
that particular crypto-currency, depending on other market factors but this just kind of gives you
a general idea of the top ones that are out there, Bitcoin, Ethereum and Ripple and then there's
Bitcoin Cash and we'll talk about that a little bit more because Bitcoin Cash came about because of
something that's called a fork. And we'll talk about that a little bit later. But I just wanted
to show that there are a number of crypto-currencies that are out there and we're going to get into each one
here a little bit more to kind of explain what some of the differences are between them. So let's
start with Bitcoin. So like I said Bitcoin started around 2009. And it was actually initially
thought about by a person by the name of Satoshi Nakamoto in 2008 and he actually published a
paper on cryptography describing the theory and concept behind Bitcoin digital currency. And in
this paper he basically launched and came up with an idea that hey here is a way that we can
centralize the infoand allow a medium of exchange to go back and forth between people without
having to use a traditional dollar and also not be subject to any Government influence. Now,
during that time when it was initially released Satoshi Nakamoto sent out his first version and actually put the
code out on the Internet now nobody ever knows who Satoshi Nakamoto is it's a pseudonym of someone or a
group of people who came up with this idea. Now, currently the supply for Bitcoin is almost at 17
million. Now, the maximum supply is 21 million and a great way to think about this is gold. I
always like to compare Bitcoin to gold because it's got a lot of similarities and the one big
similarity with this is the maximum supply just like gold there's only a finite amount of gold on
this planet. We can't make anymore. Now, there's still gold left that's out there buried in
the ground we haven't gotten yet and how we get gold out is we mine it and Bitcoin kind of operates
the same way. When Bitcoin first started in 2009, there were only 50 bitcoins out there and that
was because that was the first mine that occurred. And every mine that occurs after that
generates more and new bitcoins so that's why there's a difference between the current supply and
maximum supply is these differences between the two have not been fully mined yet and we'll talk
about mining down the road a little bit more. PHILIP YAMALIS: That's awesome. Jim I
have a unique question here and I can't stop so I had to throw it out at you somebody has asked
me about fiats what in the world does the Fiat car have to do with
Bitcoin. JAMES DANIELS: Well fiat in this example is not a car. Fiat in this
example stands for Government currency so the type of fiat currency would be the dollar or the yen
or the pound or the euro. So that's what that fiat stands for in this scenario. PHILIP
YAMALIS: So we are going to go ahead and exchange these as you told me earlier we're going to
change these different virtual currencies into the fiat into the country's currency. Great got it.
JAMES DANIELS: Yes no problem. OK, Sso the current value of Bitcoin is between 7 and 8 thousand,
maybe $9,000 depending on where it's at again this fluctuates no different than any other market
commodity. The value of it goes up and down and we'll talk a little bit more about some potential influences
on that but again a lot of the value comes from what the community is willing to sell it for and
what others are willing to pay for it. All right. And one unique thing about this is Bitcoin
itself has an address associated with it. A Bitcoin address. And you know it's a Bitcoin
address because it has 25 to 36 characters beginning with a 1 or a 3 and it's just kind of a
unique thing because other virtual currencies have other types of addresses associated with them
and sometimes it's hard to tell which one is which. But this is one way to identify a Bitcoin
address from other addresses. So let's go ahead and take the look at the market of what Bitcoin has done over
the last year. And this is where I think a lot of news reports have come out about it. A lot of
popularity has come out about it. In the last year Bitcoin had increased up to I want to say it
was 1500%. Which is a significant rate of return. If somebody had money involved in this. And a
lot of people did get involved with it, as you can see in this chart right here. The value of
Bitcoin almost got up to $20,000. And when you're looking at people that have been involved with
Bitcoin for quite a while, those that were involved over a year ago that were buying Bitcoin for
less than $1,000 each that would be a very large profit that they potentially could have made had
they sold the stock. Now you can see on the graph that the amount of Bitcoin value has gone down
and there are factors around that there are factors with the bubble in terms of what's going on
with outside influences. Even though I said countries can't influence what Bitcoin is and the
value of it, they can potentially control based upon making rules and laws as to whether virtual
currencies can be used within their country and so that's how kind of the influence comes into play
from outside factors. So let's look at another virtual currency type. This one is called Ethereum.
Now Ethereum started much later as you can see in 2015 and their maximum supply is different.
Their's is 100 million. So each virtual currency has got different characteristics with it. They
all don't apply the same concept. The current supply as you can see with Ethereum is most of them
have already been issued and their value is significantly less than what Bitcoin is. And their
market cap is obviously a lot less, as well. Their address, as you can see, is 42 characters,
beginning with a 0 and an x. Now an interesting thing with Ethereum is they kind of built on the
concept of what Bitcoin did was you're exchanging value for something. And so the creators of
Ethereum came up with the concept that if you're exchanging for something, why not put that
something into the exchange. So there's a concept called Smart Contracts that's been built into the
Ethereum platform that not only can you exchange the value but you can also attach the contract
for what you're exchanging. And we'll talk about Smart Contracts more in a little bit.
PHILIP YAMALIS: Awesome, Jim, a question that just came in. So right now you've talked about
Bitcoin, you've talked about Ethereum and I know you're going to talk about several others but do
we really know, does the Government use these crypto-currencies, as well? JAMES
DANIELS: Well, the Government doesn't necessarily accept payment in crypto-currency. The
crypto-currency is regulated by the Government in terms of how businesses have to interact with
them and how they have to treat them. And we do have taxable rules around the gains and losses of
Bitcoin. But I know -- yeah and at this point in time the Government actually doesn't take in
crypto-currency as a form of payment. PHILIP YAMALIS: Okay. JAMES DANIELS:
Now, that's not to say that that isn't going to change in the future or there may be you know
small scenarios that occur in certain areas. But as a whole, it's currently not being done.
PHILIP YAMALIS: Got ya. Thanks. JAMES DANIELS: No problem. All right. So
with Ethereum, Ethereum's price actually increased significantly more than Bitcoin did. It
actually went up almost 2500% over the same timeframe that Bitcoin did itself. And that's just
because Ethereum got into the game a little bit later and the initial value of it was a lot less.
And as you can see it still has the same characteristic peak that Bitcoin did and the same dropoff
as well because again the entire market of virtual currency during this period was all subject to
a very large increase and again the downward valuation of it over the same time period. Okay.
Let's take a look at Ripple. Now Ripple is a little bit different than Ethereum and Bitcoin in the
fact that Ripple has a different business model of what they are attempting to do. And what they
are attempting to do is basically get into the same market that the swift market is. And the
swift market is the exchange of money between banks either internationally or domestically. And so
with the swift payment transfer system, sometimes that could take 3 to 5 days to move a transfer
from an account in the United States to an account in Japan. And that time takes because of the
negotiation between the banks of how much the fees are going to be,s what account to send it to,
the verification going back and forth and those messages going back and forth take some time.
Ripple's concept is if two banks sign up and agree that they will participate within the Ripple
system, then they can now exchange their value of the Ripple currency which is called XPR and
basically what they do is they exchange the XPR instead of the actual fiad currency itself.
Rather than having a wire going back and forth they exchange the XPR. Then the XPR can then be
converted back to whatever client account it needed to go into. Now, Ripple states that they
believe that they can do this significantly faster than the 3 to 5 days that potentially they
could be done in 5 to 15 seconds of an actual transfer. Now, in terms of how the
market has worked before that would be a significant enhancement to moving money around the world.
So all of these virtual currencies that are coming out, there are different uses for them not just using
them as a form of payment. It also works in other scenarios, as well. And I think Ripple is a
great example. So let's take a look at Ripple's price, as well. You can see the increase and decrease
in value and again it follows kind of the same model as the rest of the community with the virtual
currency price fluctuations. Now we're going to talk about Monero. Go ahead. PHILIP
YAMALIS: I was going to object so this is all legal. I mean I can trade in and out of this as I
want just like a particular stock if I want? JAMES DANIELS: Yeah, there's nothing
inherently illegal about owning or transacting in virtual currency. The only legal or illegal
component of it is the mode and intent behind it. If you're using it to conduct an illegal
transaction or if you're using illegal money to attempt to conceal it but merely using the
currency itself, virtual currency, the fact of it doesn't mean it's illegal. I always like to use
the example that currency is used to buy and sell drugs. Gosh. PHILIP YAMALIS: Yeah.
JAMES DANIELS: Now, holding onto cash just because I have cash to go use and buy a cup
of coffee just because I have cash doesn't mean I'm going to go around and use it to buy and sell
drugs. PHILIP YAMALIS: Right. JAMES DANIELS: The mere fact of the ownership
or possession of it does not mean you're doing anything illegal it's what you do with it is the
thing that makes it illegal. PHILIP YAMALIS: I get it thanks for that awesome example.
JAMES DANIELS: Yeah no problem. So Monero is a another type of virtual currency. And
Monero is a little bit unique and different in the fact that it goes in and Monero is what's
called an anonymizing crypto-currency. So in the other crypto-currency types that we have talked
before about, Bitcoin and Ethereum, their information is recorded to something that's called a
public blockchain and we'll talk about blockchains a little bit later. But basically the public
blockchain is a centralized repository of all the transactions that occur. All of the
information. And with that, you can then see on the blockchain the address that I talked before
about, where it came from and where it went to. The dollar amount. And the transaction amount.
Well, in anonymizing crypto-currency conceals that information prior to writing it to the
blockchain. So what Monero does is uses something that's called a ring confidential transaction
that hides that information when it's recorded. The maximum supply as you can see for Monero is
about 18 million. And again, that can fluctuate depending upon how the code is written and most
of it is issued out right now being used. And again Monero is just another type of
crypto-currency out there. Now, you may be wondering what controls the maximum supply of these
types of crypto-currency. Well, the interesting thing is, it's written into the code that
supports this type of crypto-currency. So whoever wrote the code for Monero, Bitcoin or Ethereum
they are the ones who actually determine the maximum value or pardon me the maximum supply of that
potential crypto-currency. And what happens is is that -- when it's written that way and it's
logged onto a blockchain, that maximum supply for that type of crypto-currency now can't be
changed. So it basically locks it in kind of like the whole gold reference once you have a
specific number and amount, it can't be changed. PHILIP YAMALIS: Great so far you have
talked about Monero, Ripple, Ethereum, Bitcoin and why don't we stop here and put our first
polling question out here. JAMES DANIELS: Sounds good. PHILIP YAMALIS: So
our first polling question, let's think about Bitcoin. What's the maximum number of bitcoins that
can be created I know Jim showed this on his slide what's the maximum number of bitcoins that can
be created. What do you think the correct answer is? Is it A, 210,000. B, 2 million. C, 21
million. D 42 million. Please take a half a minute or so. Click in the radio button what you believe
closely answers this question again do you think the answer is A, 210,000, B, 2 million, C 21
million or D, 42 million. Take a few seconds here. All right folks let's stop the polling now and
we'll share the correct response on the next slide. And the correct response is C. 21 million
units of Bitcoin. I think that's a pretty huge amount. But here is the most important thing,
Jim, folks are listening and they are paying attention because 90% of our audience responded
correctly with the correct answer. So keep up the great work, James, back to you.
JAMES DANIELS: All right, sounds good. So before we jump into Smart Contracts, one thing I do
want to touch on is I had mentioned about addresses associated with the bitcoins and other virtual
currencies. A great way to think about what an address means, it would be the equivalent of like
a serial number on fiat currency or on the dollar bill. Every dollar bill has got a unique number
on it. This address is the equivalent of the virtual currency's unique number so that's how the
addresses work in regards to virtual currency. PHILIP YAMALIS: Got ya. Who determines
mass supply? And how does that happen? JAMES DANIELS: So as I just mentioned earlier
the maximum supply is actually designed and controlled by the developer who created the virtual
currency itself. PHILIP YAMALIS: So the developer has a good stronghold in doing that.
JAMES DANIELS: Correct. PHILIP YAMALIS: Thanks. JAMES DANIELS:
All right. So we're going to talk about Smart Contracts now I talked a little bit about Smart
Contracts before in regards to Ethereum and we're going to talk a little bit more about them here. Now
according to Black's Law Dictionary a contract is an agreement upon sufficient consideration to do
or not to do a particular thing. That sounds simple, right. Contract law is a deep rabbit hole which
spins a myriad of offshoots which may dictate their lives but here there is one key shift in the
Digital Age the law is now programable code. Smart Contracts helps you exchange money, property,
shares, or anything of value in a transparent, conflict-free way while avoiding the services of a
middle man. The best way to describe Smart Contracts is to compare the technology to a vending
machine. Ordinarily you would go to a lawyer or a notary, pay them, wait a while to get a
document. With Smart Contracts you simply drop a quote, unquote bitcoin or other virtual currency into a vending machine
i.e. a ledger and escrow, driver's license or whatever else you were attempting to get will come
out. Smart Contracts not only define the rules and penalties around the agreement in the same way
as traditional contracts do but they automatically enforce those obligations, as well. So let's
talk about some examples of how Smart Contracts can be used. So in the Government, it's possible
to use Smart Contracts to start keeping track of things that we want to make sure are secure. One
potential thing is your identity. Driver's licenses. Social Security numbers. These kind of
things could be programmed into a code and written onto a blockchain which now then allows this
to actually be secure and allows it to be authenticated, if you will, because it's written in a
way onto a blockchain that can't be changed. Another way that it can be used is in a supply chain.
Keeping track of inventory. One unique thing with a blockchain is that when you write something
to a blockchain, its value or whatever you're writing to it can't be changed. It's encrypted in a
way that no one else can go outside and make a modification to it. So you can always rely on the
information that's put into the blockchain, which is the entire basis around the virtual currency
concept. That when you're making that transfer from one to the next, you can rely on it because
it's been written to that public blockchain. Now, a supply chain can be also used, as well, from
an inventory standpoint. That rather than having to go in and do audits all the time and
inventory checks of how much product do I have, that when product comes in and product goes out, it
can be written to a blockchain so you always know what the last value was. Moving forward you
wouldn't have to in theory go back and keep checking to see, well, hey, where am I at now and what
is the value of this particular widget that I have. In the automobile industry, as well, it could
also keep track of everything about your vehicle. The VIN number, how the vehicle was made. And
all of those things then could be, again, written into a contract and put onto a smart -- into a
blockchain and then recorded and stored and now you've got that particular item that's basically
written on, official, and no one could question as to what it was because it was written to a
blockchain. Another really good example is in real estate. So let's talk about how it would look
like in a real estate transaction. If somebody was attempting to sell their house to someone else,
a buyer, you would normally would have to go through a title company. You would probably use real estate
agents. In some states you have to use lawyers. What this would allow is if the entire industry
itself went to a smart contract and went to a blockchain type technology scenario, the information
about your house could be recorded to the blockchain. The liens that are on your house, the
mortgages that are on your house. The information related to the last time it was sold and how
much it was worth. Now when you went to go sell your house, since everything has now been
authenticated on this particular blockchain, on this particular transaction there would be no need to go back to find out what
are the other things that could potentially be on here because everything is recorded in this one
place. And it could potentially make a lot of these transactions and contracts a lot easier to
use. And it would speed up the transaction time. And then also potentially reduce costs
associated with that particular transaction. So let's go ahead and move on to the ICOs. I'll make
sure our slide is caught up here. Excellent. Okay. ICO is Initial Coin Offering. And it's a
controversial means of crowd funding centered around crypto-currency which can be a source of
capital for startup companies. In an ICO a quality of the crowd funding crypto-currency is sold to
investors in the form of tokens in exchange for legal tender or other virtual currency such as
Bitcoin or Ethereum. These tokens will potentially become functional units of currency if and
when the ICO's funding goal is met. An ICO provides a means by which startups avoid costs of
potentially regulatory compliance and intermediaries such as venture capitalists, banks and stock
exchanges but it significantly increases the risk factors. ICOs may or may not solve
outside existing regulatory requirements depending upon the nature of the project. Some ICOs are banned in
jurisdictions such as China and South Korea. ICO and token sales became popular in 2017 there were
at least 18 Web sites tracking ICOs before the midyear. In May the ICO for a new web browser
called Brave generated $35 million in under 30 seconds. A messaging app, Kix in September of 2017
raised nearly $100 million. At the start of October 2017 ICO coin sales were worth 3.2 billion
and that had been conducted during that year. Which was more than 10 times all of the amount of
2016. As of November of 2017 there were around 50 offerings a month with the highest grossing ICO
as of January 2018 called file coin which raised $257 million. 200 million of that was raised
within the first hour. PHILIP YAMALIS: Wow. JAMES DANIELS: Yes. So with
that what can we talk about some of the ICO issues. Well one of the big things is ICOs can be
used as fraud. Now not to say that every ICO is a fraud but there is not a lot of regulation around
this right now. The FCC has warned investors to be aware of -- scammers using ICOs to execute something called a pump and
dump scheme in which the scamer talks up the value of an ICO in order to generate interest, drive up the value of the
coins and then quickly dumps the coins for a profit and then the developers usually are the ones
that are around that whole concept because they are the ones who developed it talked about it
built it up and turned around and took it out. The FCC has acknowledged that ICOs may provide fair
and lawful investment opportunities. The UK Financial Conduct Authority also warn that ICOs are very high risk and speculative investments, some are scams in cases and some offer no
protection for investors. Even in cases of legitimate ICOs funded projects are typically in the
early stages and therefore high-risk stage of development. The European security and markets
authority notes high risks associated with ICOs and the risk that investors may lose all of their
cash. By the end of 2017 ICOs had raised almost 40 times as much capital as they had raised in
2016. Although still amounting to less than 2% of the capital raised by IPOs. According to
Telegraph companies raised about $6 billion of ICOs in 2017. 37% of that amount was made by 20
ICOs. As of February 2018 an estimated 46% of the 2017 ICOs had already failed. PHILIP
YAMALIS: So the message out there THEN, Jim, would then be for the investors that are seeking to do
some investing they have to be very, very cautious with these ICOs. JAMES DANIELS: Yes
ICOs are very high risk. And people need to know and understand that fact before they get involved
with them. Definitely. Next we're going to talk about Bitcoin mining. And what this is is there
are three ways you can attempt -- that you can obtain bitcoins. One is through mining. The
second is direct purchase and the third is through an exchanger. So what is bitcoin mining? Well, bitcoin mining is
a decentralized computing process. It verifies that all of the transactions of a particular block
are valid and what this means is if I'm going to do a transaction with Phil and I want to send
Phil $10, I'm going to take from my Bitcoin pool and I'm going to send $10 to Phil. With that, in that
transaction, I'll submit that transaction into a pool of transactions. Those transactions are
pooled together and after about a 10-minute period of time, they will be put into what's called a
block. Those bundled transactions now are going to be computed against by a whole bunch of
computers that are out there attempting to solve what's called a proof of work problem. And
basically what they are attempting to do is guess the crypto value, the value that is needed to
encrypt this particular block. But when that solution is found, that particular block is added to
the blockchain. Now, I'm not going to get into the details about the encryption and all of that
components. But basically the biggest thing to remember here is this entire process is called
mining. And this mining process validates the transactions and puts it on to the blockchain. Let's
take a quick look as to what's the bitcoin -- what the Bitcoin mining computers looked like
originally they started out just as normal computers but have advanced over time to create more
specific computers that are specifically designed and only do mining of a specific type of
crypto-currency. So what ended up happening when they ended up creating these computers is they
realized if they put these computers together and worked together at the same time all attempting
to solve this problem, they would become more efficient. So they ended up creating what are
called Bitcoin mining pools. And these Bitcoin mining pools have started to come up and as you can
see in this picture here, a significant number of machines are put together. And this is the only
thing that they end up doing. Is mining Bitcoin themselves. Now, this is a -- considered one of
the smaller Bitcoin mining pools. And in the next picture we can see what a larger Bitcoin mining
pool could look like. And this is a large server farm that is, again, specifically designed just
to mine bitcoins. Now, you might be thinking, well, wait a minute, why are all of these people
doing the mining. I don't understand why we would have and put this much resource into the mining
pool itself. Well, there's a big reason why. And the big reasois that when you mine and you get
the answer correct, you actually win bitcoins. So remember when I talked before about how Bitcoin
is a lot like gold and you have to mine it out of the ground, this is that exact same process. When
you do that mining, you actually get a reward. And currently you get 12.5 bitcoins for every
mine that you do. Every block that you prove. Well, 12.5 times say about the $8,000 amount that
potentially goes to $100,000 that's coming out. Now remember Bitcoin mining occurs every 10 minutes
so every 10 minutes 12.5 bitcoins are coming out. Now, that reward has every 210,000 blocks so it
initially started at 50 and then went to 25 and now we're at 12.5 and it will have, again, right
around June of 2020. So this is how and why these minors are out there. And they are putting this
investment in. Is because they are getting this reward back out. Now, one of the things to think
about is okay you're putting all of this into it but there has to be a cost associated with it.
One of the things you think about when talking about gold mining is the actual mining yourself you
have labor costs and in this scenario here when you're generating all of these machines you have
a cost associated with it, as well and that cost is electricity. It takes a lot of electricity to
house those server farms that we looked at before. And if we take a look at the cost to mine one
bitcoin depending upon where you're at will depend on the cost of that particular electricity. As
you can see on here expensive and inexpensive places to potentially mine. The interesting thing
with this is depending upon where you're at it may or may not make sense to actually mine in your
particular country. As you can see on the right-hand side, Venezuela being the most advantageous
place it only costs them $531 to mine 1 bitcoin with the potential profit, granted not talking about the
initial cost to get into it but at $8,000 a bitcoin that's a pretty good rate of return. On the flip side
if you're in South Korea it can potentially cost you $26,000 that's where you probably wouldn't be
doing that. Now, one of the questions would be who issues the reward of the bitcoins? Well it's
already written into the code. So the code, when it creates this transaction and validates that
all of these transactions are good, that $10 thaaattempted to send to Philip, when this block is
written to the blockchain, that transaction actually occurs so that money is now transferred to
Phil. At the very top of this block, the reward is actually given out to whoever won. So within
the code it happens automatically. PHILIP YAMALIS: So Phil is going to lunch with
your $10 buddy. JAMES DANIELS: That's right. PHILIP YAMALIS: Hey so let me
ask you another question, James. After then for example we learned that there's 21 -- the maximum
amount of Bitcoin can be 21 million or so after that 21 million bitcoin is mined, then what
incentive is there for the Bitcoin minors to continu JAMES DANIELS: Right. So with
that, again the reward started to get the entire process started up. Now the concept is and it
actually already has started already actually when I attempted to do the transaction with Philip,
my transaction being $10 and then there's a huge pool of other people doing it, the miners
actually go out and pick which transactions they are going to do. Now if I want to get my
transaction done sooner and quicker, I could potentially put on a hey I'll put in an dpra amount
or I'll pay a -- an extra amount or pay a quote-unqoute fee to have mine processed first over
other peoples. So the concept is when we get down to the very end and there are no coins left,
people will end up being -- they will pay now to have their transactions done back and forth not
much unlike of what's happening in our current economic system that when I use my credit card a
fee is associated with every single transaction. The concept is the virtual currency market and
environment would have caught on by now and everyone is using it. Thus adding in a potential
small fee which is still going to be less than what the fee is in the current economic system that
that's what would continue to perpetuate this potential mining process. PHILIP YAMALIS:
Good incentive if you ask me. JAMES DANIELS: Yeah. So let's talk about the
blockchain. One big thing I want to make sure people get and understand what the blockchain is it
is just a database. It's no different than any other database that's out there. Other databases
you have heard about maybe Microsoft Access. SQL Server, mysql, Oracle. It's just a
database that holds information. But the blockchain is a little bit unique in the fact that it's a
decentralized distributed public ledger. And what that means is is it's stored out on the
Internet and anyone can see it when it's in this form. Anyone can go into the blockchain and take
a look at all of the transactions. Now there are several copies of the Bitcoin blockchain that are
out on the Internet to make sure that if one goes down -- if that potential site goes down you have
other ones that support it so there are many copies of it that are out there but they are all the
same. And so with that you can always go in and take a look at these public blockchains to see
everything about it. So let's take a look at how the blockchain works. Now, when I described
before about that transaction with Philip, is I want to send money to Philip so what would happen
is I would send my request and then that transz action would go out on to the Internet as a
request to do a transaction. And again, it would get bundled with other transactions, as well,
and then it goes into the process of being mined and once it's mined and validated, then it's written
to the blockchain itself. So let's take a look at what's inside the blockchain transaction
itself. Inside of the blockchain we've got a time stamp, we've got the transactional data. We've
got the unique cryptography that basically concealed and wrote the particular block. And something
that's called a previous hash which is basically the last value of the previous block. That way
you can chain them altogether. Now, the interesting thing is is that in terms of how the Bitcoin
transactions work, a great way to think about it, it's similar to what checks are. So if we take
a look at a check in terms of what constitutes a check, there are almost every similarity to how a
Bitcoin transaction works. You have the Check No. Which is the transactional hash number the
quote-unquote unique number of this transaction. You've got a time stamp. You've got an amount.
You've got a wallet, which would be the equivalent of your routing address. And then you've got
the Bitcoin address, the address we talked about earlier being the account number. And then you
also have the outgoing Bitcoin address which is the account that the money was transferred into
and again you have a signature, which is a unique private key that's associated with every
transaction that only the owner of that particular bitcoin owns. So it's not a very far stretch
from what we're currently doing today in the financial system. It's just done in a digital way. So
blockchains themselves, again, I have talked about that blockchains are just a database. And
there are many different kinds of them. The one we have been talking about mostly are public
platform blockchains which is like Ethereum and Bitcoin that are out there on the Internet in the
cloud that anyone can get access to. Now there are other types that we had also mentioned was the
Ripple which is a private platform blockchain which means those Ripple transactions occurring
between banks those are not out there for everyone to see. Now they are still recorded to a
blockchain it just happens to be a private blockchain. Now the other types there are software
blockchains which is basically it's just a platform that you can write on top of to save to a
blockchain and you also have public and private of those. So I just want to make sure that everyone
understands that Bitcoin and blockchains are not the exact same thing. They just happen to use
each other in order to work. So now let's talk about a blockchain fork. I'm not going to go into a
lot of depth into this but I just want to bring it out because you may hear about it out there
and want to know what it is and basically what a fork is is when I had talked before about the
software being out there that there's a specific number of bitcoins of 21 million and there's a
specific number of mining rewards that can be given that's all written into the code. If someone
goes in and decides to make a change to that code then what ends up happening is you have two
versions of the code. The date that the new code was implemented now has a different set of rules
than the old set of rules so you have what's called a fork. One of the forks that happens is the
old set of rules, the other fork that happens is the new set of rules. And both of them operate
and move forward. Now the interesting thing is and let's go and take a look at the next slide which is
Bitcoin Cash. Bitcoin Cash was on our list when we looked at the Top 10 we had Bitcoin and Bitcoin
Cash well Bitcoin Cash came around because of a fork and what ended up happening with this
particular fork was Bitcoin when it was initially started had a block limitation size so within
the code, it says only 1 megabyte worth of information can be written into a block. Well, no different
than computers before we had hard drives and everything was stored on a floppy disk and we thought
a floppy disk will hold everything we need Bitcoin was the exact same way they initially thought
hey 1 megabyte is plenty of information, Well, they realized quickly that oh my goodness we filled up the
block we don't have any more room. So developers went in, came up with a new set of code that said
hey we can go up to 8 megabytes now. Well, when that code was then released on August 1st of
2017, you had a fork. One fork allows for the 1 megabyte size. The other fork allows for the 8
megabyte size. Now on that day say I owned 10 bitcoins when that fork occurred think of it kind of
like a stock split that now I'm going to have an equal number of bitcoin and an equal number of
Bitcoin Cash and those both ride now on their individual forks moving forward. Now the forks may
or may not be supported by a community. Some people may decide you know what, we don't agree with
the 1 megabyte we only want to use the 8 and so the community will end up supporting that. Depending
upon how much support there is for a potential fork it could continue on like Bitcoin Cash has or
other forks may go for a little while and then die because the community doesn't support it or
agree with it. So moving forward looking at other things that occurred when that first fork happened
you had other forks that occurred as well the next one that occurred was Bitcoin Gold and again
all of these are important because on this particular break you ended up with the same equivalent
number of bitcoins you owned at the time with now the same equivalent number of Bitcoin Gold. And then
it happened again in November with Bitcoin Diamond and again all of these code changes that people
are writing are coming up with what they believe is a new possibly better way to handle and
operate these Bitcoin virtual currency types. Now these aren't just the only three. We put up a
quick little list of the other ones that occurred out there, there are lots and lots of Bitcoin
forks that have happened. Some are still in existence. Some are not. But all of these things
potentially created new types of virtual currency that can be used for exchange. And then there's
one more small list here that is as well some more forks that have occurred and these are all off
of just Bitcoin and it's possible to have all of these things happen with any virtual currency
type. Again think of it more like a stock split is probably the easiest way to think about it.
But these are forks that occur within the blockchain itself. PHILIP YAMALIS: I like
your analogy of the stock split I think that's awesome that's a good way to understand that. I was
going to ask where the knife fit in because I'm thinking about lunch already that means it might
be time for a break since it might be time for a break how about we throw another polling
question in here. Does that work for you? JAMES DANIELS: Yeah, go ahead, it does.
PHILIP YAMALIS: So here is the second polling question that we have for you. And again I'm
going to take you back to thinking about Bitcoin transactions. The question goes, where are
Bitcoin transactions recorded? Boy, I heard James talk about this at all. What do you think the
correct answer is? Is it A, Brickchain, B, blockchain, C, currency ledger, or D Internet ledger c.
Take a few minutes, click on the radio button you believe most closely answers the question.
Again do you think the correct answer is Brickchain, B, blockchain, C, currency ledger, or D,
Internet ledger chain. All right. We'll take a half a minute here for some polling. Share your
responses with us. All right. And we'll share the correct answer on the next slide. There's the
next slide. And I see that let's see the correct response is B, blockchain. All right. Let's see,
did that surprise many of us? Or did we stay in tune? Well, James, I got some good news for
you, 94% of our audience responded correctly on that. So let me turn it back over to you and
let's get into more of what is called Bitcoin direct purchases. JAMES DANIELS: Yes.
Okay. So another way to do a transaction is called a direct purchase or an off-chain transaction.
Now, one thing, again, with a bitcoin itself is when you have the public and private address,
which is basically when you have those two things together, you effectively have the equivalent of
cash. That you can do anything with it. It's a bare instrument at that point. Whoever owns
those two things has control. Now, what's possible to do is I can use the computer to transfer
money. I can go through an exchanger which we'll talk about in a minute to do money but since I
do own those two things, I could potentially sell those two public and private keys on their own
to someone else. And in doing that, you potentially will create what's called an off-the-chain
transaction and in the criminal world that's some of the things that we see as a way that people
potentially try to hide transactions. Even though they are transactions are recorded to the
blockchain, if I sold my public and private key to Philip, and just handed him those two things,
that particular bare instrument and he now controlled them and did anything he wanted to with
them, that transaction never went on to the blockchain. It never went through a miner. It was
never recorded on to the blockchain because we did that transaction potentially face-to-face. So
the last type to get it is through Bitcoin exchanges. And Bitcoin exchanges are the equivalent of
an MSB which is a multi-service business. It's kind of like a check cashier. In that I would go
to it and say hey I have cash that I want to convert to a virtual currency type. And Exchangers
operate in different virtual currencies some do Bitcoin, Bitcoin Cash, Ethereum. Some do more.
Some do less. And there are some that are not necessarily an exchanger -- I take that back, they
are an exchanger they do more of exchanging one virtual currency type for another. Kind of like a
commodities exchanger. But Bitcoin Exchangers are located in the United States. They are also
located around the world. And to open an account with a Bitcoin exchanger you just need some
basic information. Email account, username, password and potentially some other ID information
depending upon the volume of transactions that you're going to do. Now, Exchangers are still
subject to the same know your customer requirements as banks and other money service business
providers. So they still have to provide and follow the same regulations as the others in the
industry. So one of the things we're going to take a look at is Coinbase. Coinbase was founded in 2001.
It's located out of California. And it's one of the major Exchangers here in the United States.
They have been operating, like I said, for quite a while. And you can see the coins they take on
here they take Bitcoin, Bitcoin Cash, Ethereum and light coin they have a minimum deposit amount.
You can actually hook up your credit card. You can pay with PayPal or you can actually do direct
bank transfers into the exchanger to convert to virtual currency types. The next one we'll look at
is Etoro. It was founded out of Tel Aviv Israel these are a couple of the top Exchangers as you see
they have access to a couple more coins they have Dash and Monero and Ethereum and Ethereum
classic, Ethereum classic was another fork that occurred. Again these guys operate out of
Israel. Now they may have clients here in the United States. Again if they do have clients in the
United States they are subject to the KYC the know your customer rules as any other bank is, as
well. Now, another possible way to get and transact money is through effectively called Bitcoin
ATMs. They are really not an ATM it's more of a kiosk than an ATM because an ATM has the
connotation that it's hooked up to an account. And a Bitcoin ATM is not necessarily hooked up to
an account. You're actually exchanging through the ATM your bitcoins for cash or vice versa
putting cash in and getting bitcoins back out. So the first one opened in 2013 in Vancouver,
Canada, 81 transactions occurred on that day and almost $10,000 exchanged. Now the other
interesting thing is the ATMs themselves are an exchanger, as well. So they are required to
follow the know your customer requirements, as well. And they have been gaining in popularity and
even celebrities have been getting involved with promoting and backing Bitcoin ATMs. This
particular one with Mike Tyson, which was opened in 2015, is
located in Las Vegas, Nevada. Now Bitcoin ATMs themselves have been on an increase significantly
over the past few years. We're over 2500 ATMs now with 2 ATMs going per day. And again, this is
according to coin radar.com. Now it's not necessarily 100% up to date but it gives a pretty good
idea as to where you can find about Bitcoin ATMs and where you can transact them but it is not an
all-inclusive list. There are definitely more Bitcoin ATMs out there and again these locations kind
of change as we go, too. So if we look at a map across the world as to where a majority of these
Bitcoin ATMs are located, as you can see, a lot of them are located in the United States. But
there are a significant number located in other countries. Now, other countries don't have the
same know your customer requirements that we do. And so that leads to potential criminal activity
in that you could have someone in another country that doesn't have the same requirements that we
do. Where they upload a lot of cash into an ATM and then immediately transfer that value to
someone in the United States that is one potential way that people use these types of transactions
to avoid the currency reporting requirements that the United States has. We're going to talk a
little bit about the keys I mentioned before. This is the same thing as the address on a bitcoin
itself and a great way to think about it is you have a public key and a private key with those two
things that's how you transact your bitcoins. With that -- actually I take it back, it looks like
we have another polling question here. PHILIP YAMALIS: Yeah, I think we have another
polling question here we'll get it out of the way quickly because it was discussed in the previous
segment but the third polling question is what is a way that you can get bitcoins? What do you
think the correct answer is, folks, is it A, mining, B, exchanger, C, direct purchase, d, all of
the above? Take a minute click on the radio response button that you believe most closely
answers the question. Again, what's the way you can get bitcoin? Via mining, via exchanger, C,
direct purchase, or D, all of the above. Take a few seconds here. All right. Let's go ahead and stop the
polling now sir and let me share the correct answer on the next slide. Next slide. And the correct answer
is D, all of the above. All right. So let's see how many of our respondents answered that correctly. And
that number just got thrown at me wow man. James you're doing a phenomenal job 99% of our audience
answered that so I'll go ahead and get you back to talking about the wallet keys. JAMES
DANIELS: All right excellent. Thank you. So like I had talked before about the bearer instrument
in order to make it actually a bearer instrument you need complete control of it and you have a
public and private key. A great way to think about a public key and private key is the public key
would be the equivalent to the address of your house. Anyone can see it. No different than the
address on the house in Google Maps. This is the address you use
to exchange back and forth if I wanted somebody to send money to me I can give them this address
and they knew where to send the money. Now I would keep that quote-unquote money in my house the
only way I can access it in my house is with the actual physical key like I use at my house to get
into it. If someone has both of those things, they know where to go and with the private key they
know how to get into it. So that's why those two things are kept separately one you have the
address to your house and two you have the key to actually open it and transact it. One thing that
helped people out a lot rather than having to remember the public and private keys all the time
are something called Bitcoin wallets or wallets in general, virtual currency wallets. The virtual
currency wallet basically helped manage all of your bitcoins for you so think of it literally
like a real wallet in the fiat currency we talked before about in that I could have a $5 bill, $1 bill, and
a $20 bill. Each one of those bills fit into my wallet. The Bitcoin wallet works the exact same way I
may have a couple different sets of bitcoins that are all stored within this wallet. Now this wallet
then allows me to transact back and forth and it keeps track of the public and private keys for
me. Now there are lots of different kinds of wallets. There's actually five different kinds on
this first page we'll take a look at you have mobile wallets which is they basically store onto my
phone. You have hardware wallets which I'll have a picture of in a little bit. Web wallets where
you access them through the Internet only and desktop wallets which is you interact them only on a
particular computer. So web wallets, like I said before, there are advantages and disadvantages to
each. Having a web wallet I can get to it from any computer. But at the same time that means I
have to have access to the Internet in order to transact. Disadvantages is you're susceptible to
potentially phishing scams malware or Internet attacks that occur on those types of web pages.
Another type you have a mobile wallet this is where I actually carry the wallet on my phone and
it's a lot easier to use I can carry it around I can take it anywhere with me. Some potential
disadvantages of it if you didn't back up your phone and your phone breaks or crashes or whatever
else, you will probably need -- you're going to potentially run into losing your entire wallet
depending upon how you have it stored. But it's just another good example. The next one is going to
be desktop wallet this is where it's actually stored on your physical computer itself. Now that
would mean you have to take the computer around with you and those kind of things but it also
allows you to store it in a potentially secure place that nobody can get access to. But again another
problem with it if your computer dies or computer breaks and you can't get back into it your
wallet is gone. The easiest way to think about it if I have a $1 bill and I lost my wallet in the
ocean and it sunk to the bottom, it's gone. Bitcoins work the exact same way. If they are lost or you
lose or misplace the keys they are gone forever now the bitcoins are still out there they are
still in existence but nobody can transact with them. The next one is a hardware wallet and these
come in a different -- in different kind of shapes and sizes some look like thumb drives some look
like tiny little calculators but they all effectively still do the exact same thing. It's a little
bit more secure way you can actually have passwords in order to get in so no one can transact
without your knowledge. Some of them plug into a computer and allow you to do the transaction.
It's just another way you can carry a wallet. And the most basic and generic way is called a paper
wallet. And this is effectively sometimes what people call cold storage. Which is I'm not storing
it on any computer or hard drive I'll literally going to create a printout onto paper the public and
private key. And there are generators out there that will go and do this for you. Where you can go
in and it will generate a random wallet for you by moving your mouse around and this is an
interesting one that as you can see as I go through these next couple of slides here that when you
move your mouse around a bunch of green dots appear on the screen and they will go through and
eventually will generate when you move it around enough will generate a random wallet for you. And
then you get to the place where you get to select the type of currency that this wallet is going
to hold. Now this particular wallet generator generates 197 different types of currency. And you
would go in and select the one you would want it to hold because again when I had talked before
about the keys being different, the addresses themselves being different starting out, the wallet
itself needs to know what type of currency it's going to hold because you can't hold different
types of currency within the same wallet you have to have a wallet for each currency type. So
going into the next screen as to what a paper wallet looks like this shows you here that basically
it prints out the wallet address itself and it also has a QR code which
is the fancy little box with all of the white and black spaces on it and this is the thing you
actually use to transact with you can use that QR code with a phone and if I have a wallet on my
phone, I can actually take a picture of this and send money to it. That's a quick way to do a
transaction. Now a lot of people will use these to store their currency on and then literally put
this into a safe. For safe keeping. It's kind of like a saving account. When it's in this paper
form, and you only have access to the public and private key no one else can get to it through a
computer, they can't hack in. Again, it's one of the probably most secure ways in terms of
putting it into a safe to score virtual currency itself. Now there are some potential security
concerns about creating paper wallets. So you can download the software to your machine. To your
own computer and generate your wallet offline so somebody else potentially didn't hack in and see
while you were doing it. But those are just a couple of the things just to kind of think about and
potential concerns with generating paper wallets themselves. PHILIP YAMALIS: So the
security points are definitely there. JAMES DANIELS: Yes. I think we've got another
polling question. PHILIP YAMALIS: Hey that sounds good to me our fourth polling
question, here it is. Coming. There it is. What is the type of currency wallet that Jim was
talking about. What is a type of currency wallet? What do you think the correct answer is? A,
paper, B, hardware, C, software, or D, the enall encompassing, all of the above. Take a minute,
folks, click on the radio button that you believe most closely answers this question. Again,
what do you think the correct answer is. Is it A, paper. B, hardware. C, software. D, all of
the above. Go ahead and take a few seconds. Click in the radio button you believe most closely
answers the question. Okay let's stop the polling now and share the correct answer on the next
slide. And the correct answer is D, all of the above. And our respondents answered 90% of our
respondents responded correctly there Sir James so let me turn it right back over to you. JAMES
DANIELS: Excellent. Great thank you. All right, so the next way now that weve got this wallet how do we fund
it. There are a couple of different ways you can fund it. Like I said before you use an exchanger
that will hold your wallet for you and I can connect a bank account to it. I can actually use
debit or credit cards to fund my wallet or we can use like ATMs and put
cash directly into that wallet. We can also do transactions directly. From one phone to the
next. If I have a mobile wallet on my phone and Philip has a mobile wallet on his phone I can
take a picture of his wallet's QR code and send him money through that. You can also go into
businesses, which they will have their own wall wallet themselves that if I wanted to transact
with them, I would send money to that business's wallet to pay for potential transactions. Now, we
had a question before about actually accepting bitcoins in their transactions. And
right now there are a significant number of businesses not just in the United States but around the
world that actually accept Bitcoin as their transactions. A couple of the notables are on here,
Amazon, Dell, Tesla, Overstock. All of these companies accept Bitcoin transactions. And so that
number is increasing more and more every day. Now, some people may not want to transact
specifically in the Bitcoin transaction using their wallet so another company has come out with
the ability to use credit cards directly. Now, these credit cards are normal Visa, MasterCard type
cards but are tied specifically to your Bitcoin crypto-currency wallet so now you can transact with
a Visa or MasterCard but rather than coming out of your bank account or going to a credit that you
have to pay at the end of the month this will come directly out of your crypto-currency wallet.
Now, this actually opens up the door obviously to transacting anywhere around the world. Now, some
of these things are actually anonymous prepaid cards, which I can fund with cash at an ATM. So
depending upon the level of privacy that somebody wants to have, there are many ways that this can
be used to conduct transactions. So the question is why use bitcoins? And there are several
reasons why you would want to use bitcoins. Sometimes the transactions are fast. You've got
potentially less than 10 minutes of a transaction. And the cost associated with it are a lot less.
It's cheap both for consumers and merchants because you don't have that fee associated on it with
something like a credit card. Now, the other interesting thing that's mentioned on here are there
are no chargebacks. When something is recorded to the blockchain it can't be changed. It's
written. It's there. It's there forever. No different than if I give some unknown person cash
and then that person turns around and walks away, I can't get that cash back. These transactions
occur the exact same way. There are no chargebacks. Now, people can't steal your payment
information from merchants because when I do that transaction, the only thing I'm sending across is
that public key. I'm not sending my private key. So even if someone has access to my public
key, they can't spend it. They have to have both. Now, the other interesting thing is it's not
subject to inflation. So you don't have governments that could potentially increase or decrease
the value of this currency strictly based upon current market factors or economic or environmental
factors. And of course the anonymity that's behind. Other -- other interesting uses with bitcoins
is you have the public and private key. And the money can be created by mining itself. And it's
completely mobile and can be used with many different types of currencies around the world.
PHILIP YAMALIS: So Jim, one of my colleagues and I'm not going to name a state or
anything like that sent me an article as we were live here and she says that a local county tax
collector's office announced in the newspaper that it will start accepting the crypto-currency
Bitcoin for transactions. So this news just came out recently in the end of May. What are your
thoughts or concerns or -- on the fact that we can even pay local taxes with this now.
JAMES DANIELS: I personally don't see any concern about it. Again it's just another medium of
exchange. It's no different than cash, it's no different than credit card it's no different than
paying with an EFT or a wire as long as both end parties represent and feel that they are receiving
value and that value can be exchanged, it's just another medium of exchange
is all it is. PHILIP YAMALIS: So there you go folks. Pretty soon you'll be paying your taxes with
certain currencies, as well. JAMES DANIELS: All right. So let's go next ino - something that's called
tumbling and mixing and I only want to bring this up just so you understand what's actually out there.
Tumbling and mixing is a process of attempting to hide and conceal the ownership of bitcoins. The
ownership of the number of bitcoins I had, where they came from, and where they are going to. And
there are services out there that basically take the equivalent of a whole bunch of bitcoins, put
them into a big pot, mix them all up and everybody gets a different bitcoin back and basically it
makes it very difficult in tracing as to where bitcoins came from and where bitcoins went to. These
services are out there. There really is no legitimate business reason to do something like
this. The only intended purpose of this is attempt to conceal and hide potential ownership of
bitcoins. And in the next slide, it kind of gives you a quick example of how one of them works.
Is in this particular one, there's a pool of bitcoins that are out there. And when I put one in,
I'll get someone else's random one and then that transaction isn't recorded anywhere. So you
can't really trace my Bitcoin transaction to go from one to the other. But this is something
that's out there. There are companies that do it. But I just wanted to bring it up. All right.
The next thing we're going to talk about is the tax implication of bitcoins. nOW IRS issued a Notice
2014-21 which basically defines how bitcoins and virtual currency is to be treated. It lays out
the fact that virtual currency is treated as property and not currency for Federal Tax purposes.
The receipt of virtual currency as payment for goods or services is included in income at its
fair market value at the date of receipt. Virtual currency received by an independent contractor
or an employee constitutes income. It also constitutes income for self-employment income or
wages. A taxpayer who mines virtual currency realizes gross income upon receipt. If mining
constitutes a trade or business, and the taxpayer is not an employee, then the taxpayer is subject
to self-employment tax on the income. This is the regulation notice that came out in regards to
Bitcoin and I just wanted to bring this up that that notice is out there. I believe that they are
working on a new one. But this is the one that is out there for the current tax years.
PHILIP YAMALIS: So stay tuned for more information but this is what's out there now. I did want
to make it perfectly clear that the IRS is not accepting Bitcoin. That question earlier that I
asked was from a local county tax office. JAMES DANIELS: That's correct.
PHILIP YAMALIS: I just wanted to make that clear. So stay tuned for more IRS notices on the tax
implications of virtual currency. JAMES DANIELS: All right, I think we have our next
poll question. PHILIP YAMALIS: Let's do it. We sure do. It's our fifth and final
polling question. And the question is, taxable gains and losses on virtual currency are treated
the same as taxable gains and losses on? Fill in the blank. Which do you think the correct
answer is? Is it property, B, stock. C, foreign currency. Or do you think it's D, they are not
taxable. (Chuckles). PHILIP YAMALIS: I'm sorry I had to laugh at that. I hope I
didn't give away the answer. Please take a minute and click on the radio button that you believe
most closely answers the question, is it A, property is the correct answer, B, stock, C, foreign
currency, or do you think it's D, not taxable. All right. Give it a few seconds for folks to send
us their answers. I see them coming in at a pretty quick pace. So let's stop the polling now. And
we'll share the correct answer on the next slide. And the correct answer is A, property. Okay.
Forgive me, I got it wrong personally. Let's see how everyone else did. Correct answer was A,
property. All right, James, trick question. We got 79% of the -- of our respondents answering
that correctly. So why don't we clarify that just a little bit and why it's property not stock or
foreign currency. JAMES DANIELS: Right. So the regulation notice 2014 first outlines
the fact that virtual currency is treated as property and not currency for Federal Tax purposes. So
how property is treated is how you would treat a taxation for virtual currency. And that's
outlined specifically in that notice. PHILIP YAMALIS: So it pays to read those
notices before guessing on a polling question. (Chuckles). JAMES DANIELS: Yes.
PHILIP YAMALIS: All right let's turn it back to you. Thanks for that clarification.
JAMES DANIELS: No problem. All right. So the thing we're going to look at is I had mentioned
before about blockchain and blockchain transactions you can actually and anyone can do this go out
to blockexplorer.com and it will have on there the latest Bitcoin transactions that have occurred. I
have pulled a couple of slides to show you what it looks like and what is out there. And as you see on
this page here you've got the latest transactions. In that is those are the transactions that have been occurring every 10 minutes and
in that you can actually click on that hash value itself and you'll see the blue line hash value.
You'll actually see in here the transaction of what it looks like. And on here very top it tells
you the hash. And it tells you the number of transactions that are included with this particular
block in this one here it looks like there's 1439 transactions. Now it tells you the block reward of 12.5
that we mentioned before and then also down below it gives you some more information as to the version of
the code and the size of the actual block itself. Now there's another thing on here, difficulty,
which is basically how quote-unquote complex that calculation was in order to prove that block. So
if we look at the transaction itself, somebody had asked before about well where do the 12.5
bitcoins come from. And if you look at each individual transaction within this block, the first
one that we'll pull up here shows that here is the mining reward of the 12.5 approximately
bitcoins that were paid. Now the difference between the .5 and the .69 are the quote-unquote fees
that people had paid to get to this transaction here. And so this is the address -- the address
that's in there starting with the 18C that's the address that the reward went to because that is
the person that won. Then if we look at an actual transaction that occurred within this block of
Bitcoin transactions, you'll see on here that there are -- these are the public addresses as to
where bitcoins came from and where they went to. So on one side you've got the bitcoins coming in
and the other side is who it was paid to. Down below in the corner you can actually see that a fee
was associated with this that was actually paid out, as well. So let's look at a graphic that
actually represents this transaction itself. So if you think about the wallet that we had talked
before about, that if I have a wallet that's got a $5 bill and two $1 bills in it and in this
example it shows a .2, a .01 and a 3. Well my example I'm going to talk to you guys about let's say I've got that $5 and
two 1s and I need to pay for something that costs $6.50. Well when I look in my wallet I have $7 so I would
take all of my money I have in my wallet the 5 and two 1s and push that out to pay my 6.50 I
wanted to pay. In that transaction now, the person I'm paying is only going to get 6.50 so I need
to get 50 cents back out and that comes back to me in a new bitcoin itself. A new bitcoin address.
And so this is how the transaction works for bitcoins. No different than it does in the real
world. I hand over a specific amount. If I didn't pay the exact amount I will get the balance
back and that's what's recorded on to the blockchain is how many bitcoin addresses were used to
make this payment. So you could have on one side 50, 60, 70 transactions that constitute one
payment for a particular amount. So looking at the transactions themselves, again, it works a lot
like the dollar bill example. I could use 100 $1 bills to pay a $100 item that I'm going to buy.
Or I could use one $100 bill to pay it. Depending upon what you have in your wallet will depend on
what gets transacted and what gets recorded on to the blockchain itself. So what helps us out and not
just the Government but also in the private sector is there are Bitcoin tracing transaction companies
that are out there. And three of them that are out there are Chainalysis, CipherTrace and
elliptic these three companies have created software that sits on the blockchain and allows people to
visualize the transactions that occur. Let's take a look at the first one it may look a little
complicated again when I'm talking about dollar bills that are moving to pay certain things and
coming back, you have to go in and kind of take a step back and look at the transactions that are
moving. Even though we're looking at Bitcoin transactions, this could represent no different than
transactions between bank accounts as well if you wire money from one account to another or move
EFT or write a check or take cash out, this is just a representation of where the flow of the
value of the bitcoins is going. Now, the last one I want to show you which is quite interesting is
the picture of the entire blockchain itself of all of the transactions. This is just an
interesting fun one to take a look at because in the very bottom corner when I had talked about
Satoshi, that is the initial creator of this because he was the only one doing mining when it
first started and so he had a whole bunch of bitcoins that were mined and that's where a lot of the
initial ones came from. Was early in that process. So that's my basic overview of the Bitcoin
transactions and virtual currency itself. So I'm going to turn it over to Philip. I think we may
have a Q&;A session. PHILIP YAMALIS: Yeah, you're right, James, we certainly do. Hey,
it's me again, it's Philip. And I will be moderating this Q&;A session for Jim. Before we begin
the Q&;A session I want to mention again that we probably will not have time to answer all the
questions submitted during the webconference webconference. I see quite a few have come in.
However, let me assure you that we will answer as many as we have time for. We certainly do have
quite a bit of time to answer some questions. Please note that if you're participating to earn a
certificate and related continuing education credit, you will qualify by -- excuse me; I got
choked up there. You will qualify for the CE credit by participating for at least 100 minutes from
the official start time of this webcast. So unfortunately you can't really include the first 10
minutes of chatting that we engaged in that was before the start of the hour. I'm getting a little
bit of background noise here so let's see if we can fix that. I apologize about that technical
difficulty. All right, everyone, we've got a lot of questions here so let's get started so we can
get to as many as possible. So Jim, in the questions coming in, I'm going to say that there were
several, several questions asking for another explanation of the blockchain so why don't I open
the formal questions and answers with that. Why don't you summarize blockchain with another
simple explanation. JAMES DANIELS: Sure, no problem. So again, the blockchain as
it's used for virtual currency is the database that stores all of the information that occurs in
the virtual currency transactions. So back to my example with Philip when we looked at the
transactions that we just took a look at. If I'm going to send Philip $10 worth of bitcoin within
that transaction itself is going to be the address it came from, the amount I want to send, and
who I'm going to send it to and when the transaction occurs. All of that information is then put
together in a transaction. That transaction is then bundled with a whole bunch of other
transactions. Those transactions then become a block. That block then is mined by the miners that
are out there. Basically validating that all of these transactions are accurate and true. Then
that block then is added to the blockchain itself. Which as we showed in one of our examples it
is a chain of information which each block holds all of the data and transactions that occurred
within that period of time. And then that change just continually builds on top of each other
that you can go all the way back to see the very first block and then that block continues to
build and build. That is the concept of a blockchain as its used in virtual currency.
PHILIP YAMALIS: Got you. So a follow-up question that came in with the blockchain information if
basically the blockchain does change but if the information can't be changed, how does the
information get verified when entered into a blockchain? Why can one rely on the blockchain
information to get the bitcoins out there? JAMES DANIELS: That's a great question.
So what happens is is that it's all done based upon the cryptography behind the block itself. So
when you mine that information and it's put on to the blockchain, it's put on encrypted. Which
basically means there's an encryption lock on the data. No one can go in and change it. So if
you think about an account balance in a bank account where every transaction you've got you know
what the ending balance is. Well, you can rely on that ending balance in a blockchain because
every time you do a transaction in the equivalent of a bank account, it's reconciled at the time
it's written into the account. Since it's reconciled at that point in time you know that that
amount is true and accurate. So you don't have to go back and take a look at what were the
amounts a month ago because this is an accurate amount, this is a valid amount of what it is,
based upon the technology. So again it's based on the technology that the information is encrypted in a way
that cannot be changed thus you can rely on it. PHILIP YAMALIS: Very good. That makes a
lot of sense. This is exciting. This is really an exciting field. So simple question I know I
asked something similar earlier because I saw it come in. What happens then when all the bitcoin
currency that's out there, what happens once it's all been mindd? JAMES DANIELS: Yeah,
so back to that concept that you know you're getting a reward for doing the mining, as you saw in
what we had before, there are actually fees associated with some of these transactions, as well.
Those fees will start to increase. But the theory and concept is is that the environment has
built a community strong enough and you have a community that's been operating within this virtual
currency arena for a while now that the community will continue to support it, even though there
are some fees associated with it. And again, it becomes now a new part of the financial market
of is it more cost effective to do the transaction using a Visa or MasterCard or is it more cost
effective to do the transaction using virtual currency. And again, the ultimate market will make
that decision as to what's most cost effective. And again that's also going to help determine the
price and value of virtual currency moving forward in the world. So it will move to a natural
progression of how markets operate today. PHILIP YAMALIS: Okay. Let's go back to a
basic question. So how can you have a $10 transaction if Bitcoin is valued at $7,000?
JAMES DANIELS: That's a great question. So Bitcoin itself to move away from the concept of it
actually being a whole thing. Bitcoin itself actually can be fractionalized and you can actually
-- I want to say you can go to 8 decimal places of a bitcoin. So when -- PHILIP
YAMALIS: 8? JAMES DANIELS: 8 decimal places so .0000001. PHILIP YAMALIS:
Wow. JAMES DANIELS: Decimal places of a bitcoin. So when I say I owe him $10 worth of
bitcoin I don't own a whole Bitcoin I own a fractional amount of. And they actually are
called Satoshis after the main developer of it and so you actually own fractional parts of a
bitcoin. You don't actually own an entire bitcoin kind of like thinking about if I have a dollar
bill I say I have a dollar well if you have 25 cents of a dollar you have a fractional amount of
it. PHILIP YAMALIS: Very good. So I know you talked about this but a couple of
questions came up like this and I agree, they are great questions and full disclosure here, I take
no credit for them, I respect the audience asking these questions. So here is another one that
came in. What's the difference -- it came in a few times. So this is why I would like you to
address it again. What's the difference between Bitcoin and Bitcoin Cash. JAMES DANIELS:
Okay. So Bitcoin initially started in 2009 and was the form that had been operating for a while and
Bitcoin Cash came around because of that change in code. It came because of the fork that occurred. And
the reason that fork occurred was because of the size limitation of the initial Bitcoin software
where it only allowed one megabyte of information which ended up not being big enough so you
needed to have a bigger storage mechanism and the developers decided on 8 megabytes so when they
implemented that code it actually created a split in the blockchain. You have one that operates
on the old software, which has the 1 megabyte and then you've got the chain that operates on the new
software, which is 8 megabytes thus creating two different types of virtual currency, Bitcoin and
Bitcoin Cash. PHILIP YAMALIS: Got ya. So talk about these forks. And specifically
you talked about the gold and the diamond forks and that they have a value -- well, let me ask you
this, do those gold and diamond forks have value tied to actual gold or diamonds or are they just
simply names to identify those forks? JAMES DANIELS: Yeah they are just simply names
that somebody had used to identify that particular fork. There is with Bitcoin and a majority of
the other virtual currencies I'm not going to say all virtual currencies don't have anything to
back them because somebody may claim that they do I can't say for sure but I do know Bitcoin even
though it says gold or cash or diamond or platinum one of them even said Bitcoin God so nothing
actually backs it itself the value of it. The value comes from the community accepting what it is
and willing to exchange it back and forth at that market rate. PHILIP YAMALIS: OK. So
daily in the news we do hear reports, Jim, of the crypto-currency systems being hacked. So --
JAMES DANIELS: Yes. PHILIP YAMALIS: So when they hack these currencies what
exactly is being stolen by the hacker? What value is the hacker obtaining by hacking the
crypto-currency? JAMES DANIELS: So that's an excellent question. And the key thing
to note here is the crypto-currency itself is not being hacked. The great way to explain this is
let's say I've got my house. In my house I've got $1,000 sitting on my counter. The bat guys
can't get to that $1,000 unless they get into my house. So what you have out there is you've got
these Exchangers. The Exchangers are the equivalent of the house. Within the exchanger is my
wallet. In that wallet I've got cash. The hackers are actually hacking the exchanger, not the
virtual currency. Since the exchanger holds the public and private key to assist me in
conducting these transactions they have control over my wallet no different than a bank and a bank
account. So the hackers go in and hack the exchange to get access to the public and private keys
and then steal the money out of my wallet that's at the exchanger itself. So they are not hacking
the virtual currency. They are hacking the company to get access to the information to make that
transaction. PHILIP YAMALIS: Wow that's scary. So we hear of malicious software
getting downloaded to practitioners' databases something to keep in mind if they use
virtual currency that that hacking takes place in the same way. Very interesting. Here is another
question that came up, what can you buy with virtual currency that you cannot buy with cash, credit
cards or checks or any other, what this questioner asks, normal currency? JAMES
DANIELS: So that's actually a good question and leads into the next presentation that we're
going to be giving on the dark web. Is within the dark web itself, you cannot transact in cash.
You can't transact in credit cards. You can only transact in virtual currency. And so within the
dark web and the dark web markets that are out there, that is their medium of exchange is virtual
currency. PHILIP YAMALIS: Very good. JAMES DANIELS: So -- yeah. So in the
real world, physical world, it's no different. There's just areas within the Internet that you
cannot use cash to exchange. PHILIP YAMALIS: So come back and join us at 2:00 o'clock
to hear more about the dark web in a presentation that James will be giving a little tease and a
little promo for that 2:00 o'clock presentation and that's 2:00 o'clock Eastern Time. Okay. So
you talked about these ATMs. How do you access the ATMs that you spoke about? What do you
enter? Is it like a pin number you use to access the ATM? And where is the physical location?
JAMES DANIELS: Yeah so it's actually -- this is the thing. Is when I was describing
it, I say ATM because it looks like an ATM but it's actually a kiosk and what it is when I go up
to it, I have to tell it my public key. Hey, I'm going to give you $100 worth of cash. I want
you to transfer $100 worth of Bitcoin to my wallet. So I will give and show the ATM kiosk my
phone and then the kiosk takes a picture of that QR code I have and then sends those bitcoins to my
phone. So you actually are transacting in your public key to move cash to your wallet.
PHILIP YAMALIS: So if I didn't back up my keys what if I forget my keys when I go to the kiosk
have I lost access to my bitcoin at that point. JAMES DANIELS: Yes and this is the
thing to remember is no one owns, no one controls Bitcoin public and private keys. No different
than cash. Right? So if I have $20 and I walk down the street and I lost it. I can't go back to
the bank and say, hey, remember that $20 I took out of the ATM. I lost it. Can you give me
another one? It's no different than Bitcoin. If I lose my public and private key, there's nobody
I can call, there's nobody I can go to, to try to retrieve and get those back. They are gone. And
they are gone forever. So you have to be very careful. It is a bearer instrument. It is no
different than cash. You have to be careful with it. If you lose it or someone steals it, it's
gone. You can't get it back. PHILIP YAMALIS: You use that example of the virtual
wallet sinking to the bottom of the ocean. So it's probably a good idea to make backups of local
storage methods in case something happens. For example, you talked about the mobile wallet, the
desktop wallet, the hardware wallet. You can make backups of those local storage methods, right?
JAMES DANIELS: You can make backups of your public and private keys. Right. So you
can print them out on paper and store them in your safe. But again the other part of that, the
more copies of that that you have, the more danger there is of someone else taking it. So there's
pros and cons of having each. If you're the only one that has the key and you have no copies of
it, you know nobody can steal it. If you have 100 copies of it out there, anyone can take it, if
they find one of them. There was something that happened on a news report early on when this was
coming out the news reporter had got on to the news and was talking about virtual currency about how
he had just gotten some bitcoins. And he showed up on to the monitor his public address as to his
Bitcoin address. Well, right below that was his private key, as well. (Chuckles). JAMES
DANIELS: And so within 3 minutes the people watching the TV program realized what he had done
and somebody went in and took his money. Because he had showed his public and private key.
PHILIP YAMALIS: Wow. (Chuckles). PHILIP YAMALIS: All right. So somebody says
here, hey, Phil, I got a stupid question. No, no, no, no stupid questions. No stupid questions,
no questions are stupid. The question is can the crypto-currency be interchanged? For example, can
I use Bitcoin to purchase Monero or another crypto-currency? JAMES DANIELS: The
answer is yes. You can use Exchangers that are out there that specifically do that. So there are
some Exchangers out there that they don't even accept cash. All they do is exchange one
crypto-currency type for another. And no different than you've got people that want to exchange
gold for silver. Or one commodity for another commodity. This works the exact same way. There
ares companies out there that do that for you and
again they charge a fee associated with it no different than anything else to exchange from one to the other and you're
subject to what the market price is on buy-sell and that kind of stuff, but yes you can exchange one crypto-currency type
for another through a crypto-currency exchanger. PHILIP YAMALIS: Just like when you're
taking a trip, you want to find these -- the device or the credit card that doesn't charge the
foreign exchange fees. You want to -- JAMES DANIELS: Sure. Exactly, yeah, you're
going to want to try to find the best value for your m. Now, I will say with the ATM, the Bitcoin
ATMs that are out there, they do charge fees for doing that. And some of them charge between I
think the average is 7 to 18%. Now that's a significant amount to conduct a cash transaction to
move to your bitcoin. Now from a business perspective, I don't think it's a very profitable way to
attempt to move money around. So it's one of the things to consider some of these things have a
very, very high transactional cost associated with them. Some of them do not. Normal Exchangers
themselves do not have a high exchange rate because they are also subject to KYC, the know your
customer requirements. Some of these bitcoins kiosks that are out there don't have or don't
comply with the regulations. So there could be a potential connection between those that are
willing to use the kiosk to have their privacy and pay a significant exchange rate to have it
converted to a virtual currency. PHILIP YAMALIS: Very good. Very good. So somebody
is going to take a trip to Europe they want to know what the euro is on a certain date. I think
you told me there were some website. How can I find out the value of Bitcoin for example on a
certain date? JAMES DANIELS: Yeah, so there's lots of ways to find out. Out there on
the Top 10 list that I had, on that itself I'm going to quickly look up on my side computer here,
it is on coinmarketcap.com. It's one of the websites that I use. PHILIP YAMALIS:
Coinmarket -- JAMES DANIELS: Coin, C-O-I-N, market, M-A-R-K-E-T, cap.com. On there they list almost every virtual
currency type and the current rate that it's going for. Now, that being said, no different than
when you go to exchange gold. Right. I can go to one business who is willing to exchange it for $1200.
A business down the street may be willing to exchange it for 1203 and one down the street may be
willing to do it for 1210. Exchangers work the same way. The buy and sell differential between
the two is where a lot of them make their profit. So that is an average market rate for what it is.
But just know that just because it's that price doesn't mean that that's what you're going to
get for it. It depends on who you transact through. PHILIP YAMALIS: And those are the kind
of things that drive up and down the price of the currency, too, right? JAMES DANIELS:
Sure because if a lot of people start to buy well then that's going to affect the value and vice
versa if a ton of people are willing to sell then that's going to affect the value as well. And
others can affect the value when China had come out and basically said that they are no longer
going to allow Bitcoin miners to operate within their country, that significantly impacted that
market. Because now all those companies had to move to a different country in order to continue
to operate their mining, which means they potentially had to pay more in electricity costs. So
there are a lot of outside factors that impact the value of virtual currency. PHILIP
YAMALIS: Thus the high risk at this point. JAMES DANIELS: Yes. PHILIP
YAMALIS: So James, do you find personally do you find any advantage of purchasing in Bitcoin as
opposed to regular currency out there? JAMES DANIELS: Again it comes down to each
individual person. A good example I like to use is there are some countries out there that don't
allow women to have bank accounts. Well that makes it very difficult for them to own and operate a
business which they are probably not allowed to do either. Well they can own and have on their
mobile phone now Bitcoin. And a Bitcoin wallet. And can actually conduct and do transactions
within a country that potentially may or may not allow them to do it. So depending upon where
you're at depends upon whether or not it makes sense for you to do. In Venezuela right now with the
significant increase in their inflation the amount of money they've got in their bank account what
it's worth from one day to the next significantly changes so there it may make more sense to hold
your value in Bitcoin because it doesn't fluctuate as much as your country's inflation . So it
kind of really just depends upon each individual person's situation. Here in the United States, a
majority of the people feel comfortable with the Government and how things own and operate and move
around. Some do not. And so depending upon your level of comfort will really kind of depend on
what makes sense for you. And again, owning Bitcoin, transacting in Bitcoin, doing those kind of
things does not necessarily inherently mean anybody is doing anything wrong or bad or illegal.
It's what you do with it that comes around as to whether you're doing something that may or may
not be illegal. PHILIP YAMALIS: Right. All right. So here is a question that came out
which I'm not sure we addressed it. What happens if Bitcoin -- well, let's say does Bitcoin
expire? What happens if it's not used within a year for example. JAMES DANIELS: Yeah
so there is no expiration of it. Bitcoin was originally created in 2009, the very first ones, are
no different than any others. Just like the dollar bill. I could have a dollar bill from the
1900s it still spends the exact same way as a dollar bill that was created two weeks ago. There
isn't an expiration on it at all. PHILIP YAMALIS: Interesting. All right so earlier
you said that people could pay for Bitcoin transactions so a miner can actually go in there and earn
bitcoins, thus earn money, earn currency. But it sounds like most miners are stealing bitcoins
from others in a transaction, true? JAMES DANIELS: Did I hear the word stealing?
PHILIP YAMALIS: Yeah. JAMES DANIELS: No. So miners -- yeah, miners are
not stealing bitcoins. What it is is a reward that they get is preprogrammed into the code. So
the 12.5 bitcoins they get come out of the unused pool. So no one owns those bitcoins right now
so they are not stealing those coins from anyone. Now, people can apply and have a fee associated
with their transaction. They can offer, hey, I'm willing to pay a transaction fee to have this
done. Then the miners will get those transactions fees so the miners are not out stealing
bitcoins they are actually part of the community to help transact and validate the transactions
and then they get rewarded for that through the Bitcoin reward and through transactional fees.
PHILIP YAMALIS: Very good so I have somebody asking can you clarify real quick the
public versus the private key.
JAMES DANIELS: Yes, so public and private key. I'll go back to the house
example. Your public key would be equivalent to your address. This is the thing you give out your
bank account address the things you want people to transfer money to you've got to give them the
location as to where it's going to go. That's your public address. Your private key is the thing
that you need in order to unlock your house. That's the secure component of it. On a check itself,
the check is not valid until I sign it. That's my private key on a check. With my debit card you
can look at the number of the account. Everybody can see that. Nobody knows my pin number. My
pin number is the equivalent of my private key. PHILIP YAMALIS: Very good. Excellent.
Well, my producer has just said that that's all the time we have for questions right now. So let
me take this opportunity to really, really, really thank you, Jim, for taking time to answer
questions for our audience today. We really, really appreciate your time and you sharing your
expertise with us today. Let me ask you this, James, before we close the question and answer
session, what are the most important points that you want our attendees to remember from today's
webconference? JAMES DANIELS: Yeah so the most important points I want to do is that
virtual currency like Bitcoin is not controlled by the Government. Again, it's controlled by a
community and it's supported by a community. The second thing is blockchain is just a database.
No different than any other database. Blockchain just happens to be used as the technology behind
virtual currencies to store the information of the transactions that are conducted. And that
virtual currency is taxed like property. And again, refer to the IRS notice that I had mentioned
before for all of the taxation rules around virtual currency. PHILIP YAMALIS: Very
good. That's awesome. I'm getting a message here from my -- okay. That's awesome. Awesome
material, James, again, thank you so much. Let me remind our audience that for those of you that
attended today for at least 100 minutes after the official start time of 11 a.m. Eastern time for
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to see that pop up. We hope you'll be able to join us for web conferences that we'll be offering
throughout the year. I do want to remind you that today's conference will be recorded -- has been
recorded and will be available in approximately 3 weeks under the webconferences. So as you can
see on this slide, we have several upcoming webconferences planned for the upcoming weeks. We
hope that you'll be able to attend one or more of these web conferences. And don't forget this
afternoon Understanding the Basics of the Dark Web beginning at 2 p.m. Eastern Time. Again, to
register for these and other upcoming IRS web conferences please visit IRS dot gov using keyword
webinars and select the webinars for tax practitioners or webinars for small businesses. That
also goes for our archived programs, as well. And we do hope that you will look to your local
Stakeholder Liaison for information about the policies, practices and procedures that the internal
revenue services uses to ensure compliance with the tax laws. We also elevate issues that affect tax
administration by using the issue management resolution system also known as IMRS. Ladies and
gentlemen, it really has been a pleasure to be here with you. It's been a pleasure to have James
Daniels as our presenter. On behalf of the Internal Revenue Service I'd like to thank you
for attending today's webconference. It's important for the IRS to maintain strong partnerships
with the tax professional community, with industry associations and other Federal, state, local
governmental organizations. You make our job a lot easier by sharing the information that allows
for proper tax reporting. Thanks again for your time and attendance. Much success in your business or
practice. Feel free to exit the webconference at this time. Have a great day.