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Tremendous demand for cryptocurrency is one of the leading factors driving the growth of Bitcoin mining across the globe. Amid the boom, Bitcoin mining has become a lucrative venture for many, and without surprise, a focal point for IRS enforcement and scrutiny. In this article, Benzinga provides guidance on Bitcoin mining tax implications for foreign investors.
Overview of Bitcoin Mining
Unlike the traditional banking system, for most cryptocurrencies, the issuance of new coins is not in the hands of centralized entities. Instead, new cryptocurrencies are generated through the process of mining, which adheres to a predefined set of rules established by the underlying protocol.
In broad terms, mining refers to the process through which cryptocurrency transactions are verified, gathered and recorded in a digital public ledger known as the blockchain, with Bitcoin being the most prominent example. Bitcoin mining is a resource-intensive activity that results in the issuance of new coins and plays a critical role in maintaining the integrity of the blockchain network.
By racing to complete cryptographic puzzles under a proof-of-work consensus mechanism, miners propose the blocks that make up the Bitcoin blockchain and that store the history of network transactions.The greater the computing power of a miner, the more likely it is to solve the cryptographic puzzle. When a puzzle is solved, …
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