Since the bitcoin is getting more and more popular, mining has become the key to the cryptocurrency ecosystem. The mining workers have been driving the transaction and verification for cryptocurrencies. Therefore, the mining industry has always dominated the expanding cryptocurrency world. For many people, the mining has even grown into a thriving business.
As mining costs and competitiveness become increasingly higher, the mining workers are trying to maximize their profits by means of tax deduction.
Differences of National Policies
Due to the sharp increase of electricity consumption in Iran, the Iranian government has become tough on bitcoin mining, especially illegal mining. The Iranian Ministry of Energy believed that 7% of abnormal increase of electricity consumption resulted from the mining, so it intended to limit the rights of mining pool until the new energy tariffs had been passed.
The US Internal Revenue Service regards the revenue of cryptocurrency mining as the business income, even for the mining workers with small-scaled operation(read more: Cryptocurrency Investors is Now Targeted by the IRS). Anyone who receives the mining award of more than US$400 within a year must report their activities. The mining workers must report the profit of each coin received every year, the time of receiving and its market value.
Canada shows friendly attitude towards the cryptocurrencies and publicly provides opportunities for the industry of cryptocurrencies mining. Canada classifies bitcoin as a commodity, so the users are obligated to pay taxes. If bitcoin is regarded as the income, the income tax should be levied. If people only hold it, they are also obligated to pay capital gains tax. But it’s said that Canada is considering levying taxes on cryptocurrencies, but it will depend on whether the business is corporative or individual.
Bitcoin transactions are strictly forbidden in China, so there are no specific laws and regulations for the mining activity.
Mining operations can produce incredible profits. However, the cryptocurrency mining is full of technical and financial traps, and any improper operations or accidents will pull the mining business into troubles. The most important costs of any mining operations are the hardware as well as the electricity to maintain mining activities.
The electricity consumption of cryptocurrency mining is very high, so the mining workers in deregulated areas of electricity market can enjoy very low electricity prices. The difference in electricity costs can determine the difference between profits and losses.
The mining workers with cheap electricity do have big competitive advantage in terms of profitability. If the mining farm is established in a region with a high electricity price, some of the mining revenues will be offset with lower net profits. For the mining workers who spend heavily on electricity each year, tax cuts can intuitively increase their mining benefits.
At present, the Iranian people can receive the subsidy from the government, which can offset the gap between the charged fees and the actual electricity consumption. It provides a favorable environment for cryptocurrency mining workers. That’s why many mining farmers choose to set up farms in Iran. But now, the mining workers in Iran may face months of uncertainty until the new policy on electricity tariff is issued.
At the same time, better hardware configuration also means higher prices, but they will lay solid foundation for the efficiency of mining operations. As a result, the efficient rigs often demand considerable capitals from the mining workers.
Business and Investment
The mining activity aims to provide the necessary supporting for the blockchain while create profits for mining companies. The profits usually depend on the market values of the mined cryptocurrencies. The price downturn in cryptocurrency market may mean the losses in mining, so the talented mining workers must be not only the skilled technicians but also the experienced investors.
Usually, the mining workers focus their resources on well-returned coins. Since some cryptocurrencies can bring more rewards than other coins, they sometimes exchange the mined cryptocurrencies for other cryptocurrencies which they prefer to hold, or exchange it directly into legal currencies.
Such transactions need to pay not only the service fees for the transaction platform, but also the taxes in some countries. It will be the bad news for cryptocurrency holders. However, levying taxes on cryptocurrency also has positive effect, because it means the cryptocurrency is gradually being recognized by the government.