Welcome to our IRS presentation, "Understanding the Basics of Virtual Currency". We're glad you're joining us this morning. My name is Philip Yamalis. I'm a Stakeholder Liaison at the Internal Revenue Service and it's my pleasure to be your moderator for today's webconference. Today's webconference will last 120 minutes. Before we begin the presentation today, I would like to ask that if you are with the media, please send us an email message at the address provided on this slide. That address is SBSE.SL.web.conference.team@IRS.gov. I know there's a lot of dots in there.

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We'll pull it off and we'll ask the presenter the question. We may not and probably will not be able to answer all the questions submitted to us during this webconference. But we will answer as many of them that we have time for. One more thing to note, we really do appreciate your questions because they help us ensure that we have the relevant information for you on IRS.gov.

During the presentation, we'll take a few breaks to share knowledge-based questions with you. At those times a polling-style feature will pop up on your screen with a question and some multiple choice answers. We ask that you select the response that you believe is correct by clicking the radio button next to your selection and then simply click submit. As a note you might need to turn off your pop-up blocker to receive these pop-up questions. So if you do not get the pop-up box for responding please enter your response timely right away in the ask question feature, this way 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 the webconference, you will receive a Certificate of Completion that you can use with your credentialing organization for possible CPE or CE credit. If you're eligible for continuing education from the Internal Revenue Service and you registered with your valid PTIN, your credit will be posted in your PTIN account. If you're eligible for continuing education from the California tax education Council your credit will be posted to your CTEC account, as well. If you qualify and have not received your certificate and/or credit by June 28th, send us an email at SBSE dot SL dot web dot conference dot team @ IRS dot gov. The email address is shown on the slide that you see in front of you. Also if you want to know who your local Stakeholder Liaison is, you may send us an email using the address shown on the slide and we'll send you that information or you can simply go and look it up yourself by finding the Stakeholder Liaison in your state by visiting IRS dot gov and using the keyword search Stakeholder Liaison. As part of the Services' efforts to provide you with timely topics and interesting speakers, we would appreciate if you take a few minutes to complete a short evaluation before you exit our program today. If you have any requests for future webconference topics or pertinent information that you would like to see in an IRS fact sheet, a tax tip, or Frequently Asked Questions on IRS dot gov, please include your suggestions in the comment section of the survey or in the ask question feature on your current viewing screen. Click the survey button on the left side of your screen to begin. If it doesn't come up, don't forget to check to make sure that you disabled your pop-up blocker. If you have done that, you won't be able 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.