Case 19-6 Classification of Cryptocurrency Holdings Software Provider (the “Company”) supports and sells computer softwa

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Case 19-6
Classification of Cryptocurrency Holdings
Software Provider (the “Company”) supports and sells computer
software. The Company accepts cryptocurrencies (e.g., Bitcoin,
Ether, Ripple) as payment for the sale of its computer software.
The Company holds its cryptocurrencies partially for investment
(e.g., expectation that they will appreciate in value) and
partially to use in the future to purchase goods or services.
Cryptocurrency is a new type of value and payment method that is
different from fiat currency (e.g., U.S. dollars and foreign
currencies). Presently, cryptocurrencies have no government backing
or recognition by a central authority as legal tender. Their value
is only supported by supply and demand.
Cryptocurrencies do not have a physical form but exist as
immutable distributed ledgers (electronic records) maintained on
public blockchains. They are different than electronic instances of
cash, such as an online bank account, in that they are not linked
to a physical currency.
Bitcoin and other similar “coins” use cryptography (e.g., use of
codes to secure communications) to control the security and
creation of these coins, which led to the term
“cryptocurrencies.”
There are other crypto-assets that are not cryptocurrencies,
such as tokens. It is important to distinguish between
cryptocurrencies and tokens.
Cryptocurrency is a unit of value that is native to a
blockchain. It is a means of exchange within the blockchain to
incentivize the network of participants to use the blockchain. The
sole purpose of a cryptocurrency is for exchange of value, and it
has limited functionality beyond that.
A token is a piece of business logic (i.e., “smart contract”)
coded into an existing blockchain. A token can have a functionality
beyond an exchange of value — it can represent any asset or
functionality desired by the developer for use on a platform.
Tokens may be an interest in an entity (e.g., security token), an
interest in a specific asset (asset token), or a right to a future
product or service (utility token).
Cryptocurrencies are usually obtained by purchasing or receiving
them on a peer-to-peer basis. That is, they can be received
directly from a counterparty in exchange for an asset or service or
they can be purchased in exchange for a fiat currency, often from
an exchange that specializes in cryptocurrencies.
For a cryptocurrency to function as a means of peer-to-peer
exchange, a ledger needs to be maintained for tracking ownership of
the cryptocurrency. For cryptocurrencies, this electronic ledger is
maintained using blockchain. There are many copies of this ledger
and many ledger keepers. Distributing the processing allows many
users to each play a small part in the maintenance of the ledger
system; this means that the security of the system does not rely on
a few individuals.
The amount of coins for a particular cryptocurrency that are in
circulation is tightly controlled. For example, for Bitcoin there
is a limit on the number of coins that can exist. New Bitcoins are
only created as payment to processors (called “miners”) for
providing the service of validating and distributing an electronic
ledger of these transactions to those involved in maintaining the
blockchain.
Required:
Information needed:
Codifications used, quotes, describe a problem offer a solution
using the quotes from the codifications (More the better), Should
be 3-5 pages of information and quotes and solutions.
Thank you in advance