CryptoArt is a very recent artistic movement in which the artist produces works of art, typically fixed or animated images and often in close collaboration with the machine – not necessarily a computer but also, for example, a scanner or an old Polaroid – and distributes them using the blockchain technology and the Ipfs peer-to-peer (InterPlanetary File System) network.
But how does the CryptoArt system work? When an artist exhibit his work in a digital gallery a transaction was created in the Ethereum blockchain. The transaction creates and transfers a token that is uniquely associated with the artwork in the cryptographic portfolio of the artist. The transaction is digitally signed by the artist, using asymmetric cryptography, in order to prove the authenticity of the work.
The artwork (in fact its image in Jpeg format) is then input from the gallery in the Ipfs peer-to-peer network and distributed among the various nodes of the network. The Ipfs network baptizes the image with a unique code, which distinguishes its contents. This means that the same image, even if distributed on multiple nodes of the network, will always have the same name and will be conceptually identified as a single resource.
The digital work now begins its life (however immortal) on the blockchain. Anyone can admire it and buy it at the price set by the artist (many sales work by auction). The price is expressed in Ether, the third cryptocurrency by market capitalization after Bitcoin and Ripple. At the time of a possible purchase, a new transaction is entered into Ethereum: the token of the work passes into the portfolio of the buyer collector while the agreed Ether amount pass into the seller’s portfolio. The work, even after being sold, remains on the market and can still be traded. Each change of hands compensates, in percentage, also the original artist (a 10% of the sale price on most digital galleries). All these steps, which in the traditional art market take months or years to occur, thanks to this technology happen in a few moments, in a certified and safe way.
From a regulatory and fiscal point of view, there is still no specific and exhaustive legislation on the crypto currencies (Bitcoin, Ethereum, etc..).
Let’s start by saying that, from the artist point of view, the Ethereum should be considered as foreign currency. So although there is not the specific need to declare the amount owned, he should however declare all the transactions carried out exactly as he do for those that occur in other currencies (Euro, Dollar, or others). And this applies, according to the fiscal laws of the residence country, to any cryptocurrency used.
Therefore, from the fiscal point of view for the seller, using Ethereum is exactly how to use Euro or Dollars: from a fiscal, bureaucratic or administrative point of view it does not change anything.
So even if the artist collects Ethereum and chooses to store them on its own wallet, if he were to sell them in the future and obtain a capital gain, he would have to pay taxes on it.
From the buyer point of view capital gains are taxed, but are paid only when they are recognized. So only when the work were sold, or at the close of the balance sheet, the capital gain could be recorded, and only on this the taxes would be paid.
Good morning .. how do I tax and declare the profits obtained by mining?
I will try to give an answer to you and to all those who wonder how mining gain should be taxed. Bitcoins (or other crypts) are generated by mining from 0. From the moment in which those bitcoins are converted into “euros” or other “real” currencies and come on a bank account, there is no previous bitcoin purchase order from which to calculate capital gain, and the actual gain goes from 0 to n bitcoin.
This means that the capital gain would be total and it would be necessary to pay the capital gain rate on the total bitcoins deposited / converted into the bank account.
But this it’s obviously wrong.
Because paying the tax rate on the total “created” bitcoins without taking costs into account, is an absurdity. Mining cryptocurrencies costs a lot in terms of initial expenses (hardware to extract) and electricity, we know. Therefore, from the total amount of bitcoins generated, the expenses incurred should be subtracted and just on this difference, the taxes should be calculated.
Obviously, my considerations are not law, given the obvious regulatory gap I’m trying to interpret the only information that has been given to me by the fiscal authorities of various countries.
There is still too much confusion on the subject and it is difficult even for the most experienced accountant to quantify the right taxes to pay if no further information is provided on a case-by-case basis.