Why is the IRS eyeing your digital wallet?

Ralph
00:00:00

Have you ever heard of Bitcoin or cryptocurrency and wondered what the fuss is all about?

Maybe you've dabbled in it but aren't sure about the tax implications. Well today, we're going to demystify digital wallets and cryptocurrency. So stick around to learn what is cryptocurrency and why is the IRS interested in it and how can you stay on top of this financial trend.

Podcast Announcer
00:00:20

In a world where crushing debt keeps you trapped, where living paycheck to paycheck has become your new normal, and where the dream of retirement seems impossibly out of reach, there's hope. Join financial evangelist Ralph Estep Jr. A man who's walked through the fire of financial failure and emerged stronger on the other side.

Welcome to Ask Ralph, the show where real world experience meets biblical truth to break the bondage of financial despair.

Get ready to take control of your money, break free from the financial stress and align your resources with God's purpose for your life. This is Ask Ralph with Ralph Estep Jr.

Ralph
00:00:58

Well, welcome to another episode of the show. I'm your financial evangelist, and I'm so happy you joined me on today's journey. Today, we're going to take a peek into the world of digital wallets and cryptocurrency. And every day, it seems like I'm getting asked about this more and more in my practice.

So if you're a Christian looking to improve your finances and understand this new financial frontier, and let me tell you. I really do believe this is a new financial frontier, you are in the right place. Now, before we get started today, let's take a look back at yesterday. We talked about long term care insurance and I made a bold thing and I asked, can you afford to skip it?I encourage you to go check that out if you missed it.

Well, today's listener question comes to us from John. John has got some questions about cryptocurrencies. Let me jump right into John's question.

He said, "Ralph, I keep hearing about cryptocurrency and digital wallets, but I don't really understand what they are or how they work. I'm also worried about the tax implications. Can you help me make sense of all this?" Well John, you've come to the right place because your financial evangelist, Ralph, has got answers for you.

I'm going to break it all down for you today. I'm going to break down the good, the bad, and as my grandmother said, the ugly. Yes, there is a huge ugly here. There's a huge risk here. But you can arm yourself by better understanding it. So today I'm going to break down the basics of cryptocurrency, I'm going to talk about digital wallets, I'm going to talk about the tax issues surrounding them, and more importantly, and I think this is the key takeaway for today. I'm going to provide you with some sage advice as my goal of being your shepherd to help you avoid losing your shirt as you explore this new frontier. Remember this. It's our goal to answer your questions here on the Ask Ralph show.

So you can submit your questions just like John did by going to justaskralph.com. And don't forget, every Tuesday, now we moved the time. We used to have it at 7 PM, but every Tuesday at 1 PM Eastern time, you can join me live by going to askralphpodcast.com/live. Again, that's askralphpodcast.com/live. It's a great place to come and mix with our community. I got a big secret coming out Tuesday.

We're going to be joined by a special guest. So come and see me every Tuesday get your questions answered.

Well before we get into the nitty gritty of this, let's turn to God's word for some guidance. Now you might be saying, Oh, Ralph, you're going to be digging deep today.
I can't think of anywhere in the Bible that talks about cryptocurrency or Bitcoin or digital currency, but let me just tell you, I found something that's pretty close. And it comes to us from the book of Matthew chapter 25, verse 21. And this is what it says. "His master replied, 'Well done, good and faithful servant. You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!'" See, I told you I'd find one. And this verse reminds us of the importance of being faithful. It reminds us of the importance of being diligent with the resources God has entrusted to us.

And that includes understanding new trends like cryptocurrency. As I said on yesterday's show, and I say on the show all the time, what you have is not yours. And that's tough for people to hear, but you need to hear this because when you have something that's not yours, you have an obligation to steward it.

What I call faithful wisdom. So let's get down to some faithful wisdom. But before I do that, let me tell you what I'm grateful for today.

Today, I'm grateful for the opportunity to help you navigate this exciting and sometimes confusing world of digital assets. It's scary. But just listen to me, it's truly a privilege for me to share this knowledge I've gained through my 30 years of experience and help you make informed decisions that align with your faith and values.

If I'm doing that, then I say, well done, good and faithful servant. Well, let's get to our main content today.

All right, John, let me get right to your question. Let's start with the basics for somebody who doesn't even have any clue what we're talking about, but they're starting to hear about this on the news.

Maybe they're seeing it on social media. Let's talk about what is cryptocurrency. I thought that was the best place to start before we get into some of the more finite issues. Basically said, cryptocurrency is a type of digital or what they call virtual currency. And it uses a big word called cryptography to secure transactions.

If you know anything about it, people mention the most is Bitcoin. I still want a lot of people hear about is this Bitcoin, Bitcoin, but there are thousands of others. Yes, you heard me right. There are

thousands of other digital  currencies. There's Ethereum, Litecoin, and Ripple. I could spend the next 24 hours talking about each of those, but just know, they're a type of digital currency for people to exchange goods and services. So let me tell you a little bit about the statistic of this. And this kind of shocked me. Now, these are as of the end of 2024. Think about this for a second. The total crypto market size.

This is worldwide. It's about $2 trillion. Now, Bitcoin is the biggest player in this market. So if you're talking about Bitcoin, they are the biggest player. Now, this is the one that shocked me and it really surprised me. About 450 to 500 million people worldwide are using or own this cryptocurrency. So I was really surprised by that because I thought this was sort of you know, a cutting edge thing.

And far, a few people were jumping on the bandwagon here. Now we're talking about Bitcoin. Bitcoin price can be between 40,000 and 50,000. That's for a whole Bitcoin. Ethereum price between 2,500 and 3,500. Again, I'm not going to get into the details with this, but the thing that's happened over the past six months to a year is more big companies are getting into the crypto market.

Major financial giants like BlackRock and Fidelity are now actually offering Bitcoin and other digital currency investments. And that's what I want to talk about on today's show because this is affecting more people. You're seeing more what I call mainstream ideas for investment come at you. And this is another thing that surprised me.

There are a ton of countries that are using this. India, Nigeria, the U.S., Vietnam, and the Philippines are starting to take on and you know, with Trump being elected to the White House, we're seeing more talk about the wide use. In fact, over a hundred countries are working on digital versions of their own national currencies.

So you got to understand that this is not something that's going to go away. You're going to hear a lot about it. But the thing is I wanted to talk about it on today's show because there's a lot of unknowns. There's a lot of scams out there. The first thing we want to talk about, and you'll probably hear about this term called Bitcoin mining.

And I'm going to talk about what that is, because when I first heard about this, I pictured some adult child, you know, somebody who's never left the nest sitting in their parents basement. They haven't even showered in weeks. They're surrounded by a wall of computer screens. There's empty pizza boxes falling over.

There's trash everywhere. And you hear this constant hum of a stack of computers. But what really is this data mining? Cause I think that's where we need to start. And I wanted to make it really simple so that everyone could understand, because honestly, I didn't really understand it before I started to dive into it.

So think of cryptocurrency mining like a giant digital lottery. Computers are racing to solve these puzzles and the computer that wins gets new coins as a reward. So basically you get a reward of what you're trying to work with. And that's what keeps this process, this digital money system like Bitcoin running smoothly and securely.

So let's talk about how that works because, and listen, I'm telling you all this because I think you have a need to have a great understanding of just what this is. So again, I'm going to make it simple. Imagine a digital notebook, piece of paper, but it's digital, and every cryptocurrency, just like Bitcoin has a public record of all those transactions.

And that public record is called a blockchain. And like I said, I'm going to make this easy for you to understand. So you got this digital notebook, Bitcoin is at the top and each of them has this public record. Anybody can access it. They can see it. And that is called a blockchain. So then what happens is somebody sends Bitcoin to another person.

Let's say for example, you decide to go to a store and that particular store and believe it or not, yes, there are stores that are now taking Bitcoin. That store allows you to pay with Bitcoin. So a transaction has been created. You are sitting at the register, standing at the register, you're paying with Bitcoin and the company's receiving this Bitcoin.

Well, now this transaction needs to be verified. It needs to be added to that digital notebook. And that's where these miners come in. They're kind of like bankers, but they don't have a bank. They don't have the you know, the stone bank with a door and the infrastructure for that. You see, in the traditional banking system, think about that transaction we just talked to. You're in a store, let's say you hand them your credit card, the merchant swipes your credit card, they scan your credit card, whatever it's like, and that transaction goes to the bank.

The bank says, okay, here's merchant A, we see Sally is making a purchase. Let's take the money from Sally's account or Sally's credit card and give it to the merchant. So that's the way traditional banking works. But in cryptocurrency, these are these things called miners, which they really not miners in small people or young people, miners as in like gold miners.

And they're really powerful computers that do the job. And so you might be thinking, okay, well, how does all that work? Well, solving puzzles or solving these puzzles of what allows the Bitcoin chain to be added to. So these miners compete, these folks who have these supercomputers, they compete to solve what they call a complicated math problem.
Think about like a guessing game. You've got this decision, you got this problem you got to solve and you're making guesses. And the way that it works is the first miner that solves the puzzle gets to add that page, gets to add that transaction or what they call that block to that digital notebook or that blockchain.

So you picture that notebook and you've got transactions in it. So the first miner that's able to solve this puzzle gets to put that new block on that blockchain and as a reward, this is why it's considered the way that it works is they get what they call a fee or a reward from that transaction, which is basically new Bitcoins.

Now, obviously they're not going to get one Bitcoin. They're going to get a fractional piece of a Bitcoin. And this process is repeated over and over and over and over continuously. And what that does is it keeps the cryptocurrency network secure and running because there's no central bank. If you think about it, it's constantly all these people coming at it from different directions with these supercomputers.

Now, let's talk about how that happens because I thought this was fascinating. There's actually different ways to mine crypto. There's traditional mining, what they call proof of work. And that's what Bitcoin uses. And they have these super powerful computers to do the work, these computers, and they use tons of electricity, which is going to lead to why people are sort of having issues with this.

And you think about this, the more powerful computer you have, the bigger computer, like picture the dude in the parent's basement, and he's got one computer. He's not going to solve, he's not going to get the opportunity to solve many of these puzzles, but if he's got a block of computers or a stack of these like 10 servers, and that's what happens, people go out and they subscribe to these server farms.

I'm not going to lose you in the details there, but the more powerful the computer, the better you get. Now, because that was eating up a ton of electricity, because you've got to fire up all these computers, you've got all these virtual servers running, they started having what they call, you know, more energy efficient methods, what they call.
So the first one was called proof of work. The next one's called proof of stake. And I'm not going to spend a lot of time talking about this, but I just like I said, I want you to understand the basics. So in this proof of stake, and this is used by Ethereum 2.0, what they call Cardano. More information than you need.

But instead of using these super computers to solve these puzzles, people lock up some of their coins to help secure the network. And the argument there is it uses less electricity than traditional mining. So you might be saying, oh, wow, Ralph, you just gave me an idea for a new side hustle. Maybe I could buy a block of computers and start, or a group of computers and start data mining.

Well, the truth is you could do that. You can earn what they call crypto rewards. It helps secure the network because if you think about why that secures a network, you've got a bunch of individual people looking at these puzzles to make sure no one is submitting a transaction that is invalid. They've got to solve that puzzle.

And here's the truth though. Here's the problem with this. You know, my big takeaway today. Your evangelist here Ralph. I actually think some of this is sort of a Ponzi scheme and I'll talk about that in a minute, but these early miners, the people who were doing this early got very rich from this.

So there are some pros. You can get those rewards and you can become, you know, a member of that network and get very rich. But here's the problem. You're not going to do it with the computer you got sitting over there in your office or in the corner of your rec room. You got to have big computers.

It uses a ton of electricity. And the problem with that is see, so what that did was the intention at the front end, was to have individual people like just, you know, Joe six pack for lack of a better way. So this is the average person doing this, but see these big companies got wise to this and it's hard for individuals compete when you got these big companies who have these, you know, big warehouses full of computers that are just constantly crunching these numbers.

And then, of course, a lot of places just  banned it because of the use of electricity So you might be saying, okay, Ralph, I get it. I understand that whole thing. So here's my big takeaway. And I don't want to spend a lot of time talking about this mining, but like I said, I think this is a hurdle we got to get past because to be very honest with you, when I started learning about Bitcoin, I was like, wait a minute.

You're telling me there's a coin. Do you want me to invest in something that can be conjured up in somebody's basement on their basement computer? And that was really the impression I had, but now I have a little bit different sense of it, but here's my view on this. I still think mining is like a digital gold rush.

You know, when everybody raced out to California and then they had their covered wagons because there's gold in them Hills, right? And they rushed out there because they wanted to stake their claim. They wanted to find that, that little area of gold. And I think that's way this started at the beginning, but now it's really not that the big companies that make money from it.

And most people at this point, and this is what I'm getting on to get into in this discussion are just buying crypto directly. They're not mining it for themselves. So you might ask Ralph, okay, great. I get it. I understand what it is. It's a way to exchange goods and services, the way they pay for those things.

But why is this growing in popularity? I think the big thing is there's a push in this world for decentralization. No government controls these digital currencies. You know, with the U.S. dollar, for example, and I'm not going to spend an hour talking about economics, but with the U.S. dollar, the government can manipulate the currency.

They can do things to change it. They can do things to prop it up or make it worth less. Well, with these cryptocurrencies, since there is no centralized government, it's the true level of decentralization. It's not controlled by any central authority. A lot of people argue it's safer because it uses that blockchain technology, makes it very secure.
And at the same time, like I said, you heard me at the beginning. This is a public thing. It's a public record. The other thing that's nice about it, they call it accessibility. Anyone with an internet connection can buy, you can sell, you can trade cryptocurrencies. And many people see this as an opportunity for growth.

So that's really the reason that it's gaining this popularity. You're hearing more and more about it. The president talks about it. Elon Musk talks about it, all of these you know, thinkers, these Silicon Valley thinkers are all making huge investment in this. So you might be saying, okay, Ralph, that sounds good, but where can I even use cryptocurrency?
Well, here's the thing. And it's funny, there was a pizza shop not far from me. And I don't know if they're still doing it now. We haven't been there for a while, but they actually had what looked like an ATM machine and it was a Bitcoin ATM machine. So you could actually go to this machine. You could transfer your money.

I think it was onto like a little receipt. You could actually go in there and log into you and we'll talk about wallets in a second 'cause that's how this works. But you could actually pay for your pizza. So some business are accepting cryptocurrency as payment. I've seen some car dealerships that had said that they're gonna take these.

A lot of people, like I said, there's this mainstream push towards investment. People are buying cryptocurrency as an investment and a lot of people are using it for what they call smart contracts. Because then these cryptocurrencies can support that smart contract. Now John, I want to talk a little bit about what you're talking about with those tax implications.

Because this is a thing a lot of people don't think about, and it's really a counterintuitive situation or position that the IRS has taken. The IRS considers cryptocurrency, these digital assets as property, not currency. They don't consider it like dollars and cents.

And since they consider it property, like a house, a beach house, a second house, a rental property. Since they consider it property, it's subject to capital gains taxes when you sell or exchange it for profit. So think about it like this. Real simple terms. Think of it like selling a piece of land or a valuable painting. it's something. If you make a profit from that, you'll likely owe taxes on that gain.

So let me share a story with you. A few years back, a friend of mine, let's call him Tim. And Tim got into cryptocurrency. This was kind of when it was first starting out. And he was making decent profits. He would come in to meet with me, get his taxes done. He said, Ralph, man, you got to look at this cryptocurrency.

He was like an evangelist, if you will, for cryptocurrency, but he wasn't thinking about the tax implications. And to be honest with you back then, there wasn't a lot of discussion of the tax implications. So fast forward a year or two, one day he receives a letter from the IRS. And listen, if you get one of those letters from the IRS, I did a show about that a week ago, go check it out because it really gives you a step by step process.

But that's not for today's discussion. And this letter from the IRS, he's looking at this thing. He's waiting. What? They found some discrepancies in his tax return and they issued an audit notice. And I remember Timmy calls me right away. My secretary said, Hey Ralph, Tim's on the phone. He is freaking out.

You need to talk to him. He was in a full fledged panic. And you might say, ok, big deal. He got a notice, the IRS said that there was an issue on his return. They want to audit him. Ok Ralph, you said that the IRS treats it like property but here's the problem. Tim never kept detailed records of his transactions because he didn't understand the tax law surrounding those digital assets.

He didn't know that he would have to keep track of, well, he paid this much for this currency and he paid this much for this currency and this one went up and this one split and all that kind of stuff. And all of a sudden he's thrust into this audit. It was stressful. It was time consuming. And ultimately though, the good news is Tim learned a valuable lesson.

He realized the importance of staying informed. He was on the front end of what we call the bleeding edge of this cryptocurrency rush. But he really wasn't informed. He had just been told by a friend of a friend. Hey, Tim, you got to get into this, man. People are making money. They're doubling their money overnight, which leads me to another funny story.

Listen to this one. So I had this client and we'll call him Joe. So Joe all of a sudden calls me one day and he says, Ralph, do you know about this cryptocurrency? I'm like, sure. Yeah. They are a little bit about it. I'm not an investor in it myself. He says, Well, you're never gonna believe this. He says, last night I logged into my wallet, and we're gonna talk about wallets in a second because this is why the whole point of the show today is talking about IRS coming after your digital wallets.

But he says, Ralph, he says, you're never gonna believe this. He says, I logged into my digital wallet last night and I made a profit in the last week of $456 million. I said, what Joe? And I'm tapping. I wear a headset when I'm talking with clients in the office here, and I said, well, wait a second. Did I hear him right?

So I said, Joe, hold on a second. What did you just say to me? He says, yeah, Ralph. He says, you're never gonna believe this. He says, I earned 460, 56, 465, doesn't really matter. Huge amount of money. And I said, Tim, I said, hold on a second. Where are you seeing this? Well Ralph, listen, I can send you my credentials.

You can log into my digital wallet and you can see it. I said, okay, well, let me ask a real simple question too. How much money did you invest in this cryptocurrency? Oh, Ralph. I don't know. You know, I've did a little bit here and there, you know, I get an incline over the weekend. No, I got a little extra money from a job I did. Let me invest that. I said, okay, well give me a number. Give me a basic idea of how much you've invested. Well, if I had to think about it, I probably invested about $20,000 over the past year or two. I said, okay, Tim. So what you're saying to me is you've invested $20,000 and now you really think that crypto went up to two or 400 and some million dollars.

Oh Ralph, you don't understand. People are making money hand over fist. They're becoming multimillionaires overnight. I said, well, send me your credentials, which he shouldn't have done, but he trusts me. You know, we have a good relationship. I log into his account and I'll be doggone. I look, it says $465 million.

And I'm thinking, wait a second, there is no way this is true. Well, then all of a sudden I see an asterisk at the end, and this is why you got to stay informed. Then the asterisk says, you know, see down at the bottom, I see down at the bottom. And that number was not in U.S. Dollars. It was in the value of that currency.

So I said, okay, well, maybe he did have a return. So I go and I find a value that currency. And that's when my jaw dropped. Because rather than making 400 and some million dollars in profit, Tim had actually lost most of his money. That investment of, and I don't think we figured it out, but maybe 20, $21,000 was actually worth about $2,500.

So I summoned the courage. I said, well, I got to call Tim and tell him the story because he is not going to be happy about this. So I pick up the phone, I called Tim and I said, Tim, listen, I appreciate your enthusiasm. It's cool. You're getting engaged in this cryptocurrency trading. It's great. You're taking, you know, time to invest.

I said, but man, you do not understand how this works. I said, actually, Tim, you've only got about $2,000 in your crypto account. He goes, no, Ralph, you don't understand this. Thank you, Ralph. I appreciate what you're saying, but I'm going to go figure out, I'm going to get that money transferred to my bank account because I know you're wrong.

And it's so anyway, long story short, a couple of weeks go by, he calls me and he says, Ralph, I'm sorry, man, you were absolutely right. So you gotta understand, you gotta stay informed. Now you might be saying, well, why is the IRS all of a sudden interested in these digital wallets? Well see, here's the thing.

Dirty little secret nobody wants to talk about. I honestly think these cryptocurrencies were intended at the front end to some extent to be this black market currency. And see, the IRS wants to pay attention to that because there's money change in hands. And they want to make sure that both individuals and businesses are accurately reporting their digital transactions because that's income to them.

So there's different sources that come, like cryptocurrency trading. That's what we talked about. You know, that's that capital gains. A lot of businesses or many businesses are now taking that for goods and services. And you know, they have to report that as income. That's just ordinary income. And then of course, there's these folks like, let's go to that picture of the person who hasn't showered in a couple of weeks, sitting in their parents basement, you know, with that chisel hitting the computer, mining those cryptocurrencies. Well, those rewards, it's not just found money.Those aren't gifts. That's income.

So now you have a good understanding of what it was. So you might be saying, okay, Ralph, explain this to me. So this is a currency I can't feel, I can't hold, I can't touch. How do I keep it? Great question. And that's what we talk about when we say digital wallets.
And there are a couple of different types. There's what's called a software wallet. It's what's called a hot wallet. This is connected to the internet. It's a user friendly, which is like, you know, my client Joe had. These are things like Coinbase Wallet, Exodus, basically log into a website. You have two factor authentication.

You got a password. A lot of them have biometric authentication. So you have to scan a finger or something like that. And then there's also these cold wallets. So the hot wallet's connected to the internet. The cold wallet's not connected to the internet. A lot of those are electron, Bitcoin core, but they're not connected to the internet.

You basically have a hardware piece, a device for lack of a better term. And the thing that people like about that is they're strong encryption because you physically have it. And you've got this private key to unlock that. And there's this offline transaction signing. So those are the software wallets.

Something you store on your own computer. Now, there's also hardware wallets. So think about it like a physical device that stores your cryptocurrency. There's Ledger Nano S. There's Trezor. But these are what a lot of people think are more secure because you physically have this thing. It's got a pin number connected to it.

It's physical buttons you have to push for transactions and it supports multiple currencies. And of course, there's also paper wallets that's printed pieces of paper containing your, so basically whenever you make a Cryptocurrency transaction, you have a private and a public key. So you've got to have those private and public keys to make these transactions go through. So the thing it's about the paper wallets, and there's mobile wallets all of these things. There's web wallets, and again, I could spend an hour talking about those things, but just know that's how you store those things. Either through a website.

And what I'm seeing most of my clients and people I interact with, they've got like a Coinbase account, or they've got one of those online accounts. And it's kind of like a brokerage account. So you might say, Oh, Ralph, man, man, dude, I'm right there with Joe. I'm right there with Tim. This is exciting. And it can be exciting.

But here's the thing you don't understand. Anything that you, here's the thing that annoys me. And I think they target Christian people more than any other group. You hear people start this like buzz starts, right? Oh, this is great. You got to get into this. You know, I've made such and such, look at the value of Bitcoin.

It's gone from 2000 to 20,000. You better get into this now. But there are dangers you got to be aware of. So let me talk about those dangers right now. First one is price volatility. And prices can swing wildly in a short period of time. Like my client, Joe, he thought he had all this money, but you know, Bitcoin, for example, I've seen it dropped 20 to 30 percent in just a couple of days or maybe even a couple of hours.

So you got to have the stomach for that. And there are other ones. Like one of the things I found in my research today, this thing called Altcoins, these things can crash to near zero because people just get rid of them. They dump them. They're going to move on to the latest thing. So that's the first thing you've got to worry about, price volatility.

Second thing, you've got scams and frauds. Listen with anything, sound the red siren, sound the alarm, because there are a ton of scams, things called rug pools, where a developer, you know, starts this project. They take in the investor money, you know, they promise you all these returns and they just rug is gone.

And they're out there. You can't find them in that money. That digital currency is gone. There's Ponzi schemes. Think about it. You know, they got Ponzi schemes at real money, got Ponzi schemes at investments. Well, the criminals came to cryptocurrency as well. There's fake investment programs. And these are those things you're going through social media and you get that clickbait.

It says, Hey, you want to double your money overnight. Listen, if you're a Christian person, have some discernment, think about this for a second. Did you make that money overnight? Do you really think you're going to double your money overnight? They give you these huge promises. But again, it's just to try to get as many people in as they can.
And the people at the beginning make a lot of money. And then the people at the end get left with nothing. And of course you've got to worry about phishing attacks too, because you're targeting people who are dabbling in technology. You'll have somebody, let's say you have a Coinbase account and you start getting these phishing attacks.

Like, Hey, we noticed that you've got the issue with your Coinbase account. Hey, just do me a favor and log into your account, but they send you to a fake website and then you lose all your stuff. There's hacking and security risks because see, these digital wallets. If you think about it, you've got all these people working to mine this data.

They got these super computers. Well, you don't think they're going to turn those computers and use those to try to hack you, to try to get into your security. And the truth is that the statistics will scare you. Billions of dollars have been stolen in these crypto hacks. And here's a big one. You can read about this on your end.

I want to talk about it here today at the show, but what happens if you lose your private keys, you lose those passwords, if you will. There are untold stories on the internet about people who had millions of dollars in Bitcoin, and all of a sudden they can't find their key. They can't find their password to unlock it.

Another thing that problem is a regulatory uncertainty. See, because governments are getting wise to this. We talked about this decentralization and governments are saying, wait a minute, we don't like this ability to not be able to control the currency. So you're starting to see a push for more governments to ban or even heavily regulate this crypto.
For example, China is an example that they banned crypto trading. Now, in the U.S. We're seeing a lot more regulations on that. Now I think Trump is going to try to soften that or ease that up a bit. And then as we talked about, the IRS cryptocurrency laws are pretty strong.

When you look at other countries, they're not so clear in other places. And one of the things you really need to understand with crypto, there are very little consumer protections. See like a bank, go to a bank or you, you know I love credit unions. If you go to a credit union, the government is standing behind those investments.

There's the FDIC for banks. There's the NCUA for credit unions. They ensure you up to a certain amount, but here, and hear me on this. Crypto doesn't have a safety net. If that exchange collapses, if there's one of these billionaire Ponzi schemes, you've read about them in the news, you've seen them on TV, like FTX.

That's the big Sam Altman one or Celsius. The users could lose everything and there's no refunds. There's no charge back if you send crypto to the wrong address. Too bad. So sad. You sent it. And that way it's like cash. If you use a credit card, you can always put in a fraud alert. You can ask to get that money back.

You can stop payment on a check, but with these crypto things, man, that money is gone. There's also market manipulation because there's pump and dump schemes. There's these groups that are trying to build, and this is what I'm really worried about. Cause I think people don't understand the impact of this.

You know, they want to be first in because I don't want to miss out. But there are groups that are playing games with this currency. They inflate prices, they play games with the computers to make it look better than it is. All the suck in that money, then they cash out of it and it crashes the market.

There's whales, these big investors, you know, they can influence prices by buying or selling large amounts at once. And of course, we talked about the environmental concerns. I'm not going to spend a lot of time talking about that because of these supercomputers, the amount of electricity they have to use.

And the biggest one, I think this is the one that I want to take a minute to talk about. And it's this, and I see a lot of it in the Christian community. It's this fear of missing out. It's that emotional investing thing. Everybody's talking about it around the water cooler or you know, your family get together and Hey, you know, yo, Mark, do you do any crypto?

Oh yeah. You know, I'm doing a lot of crypto trading this day. I'm making a ton of money. And see what that leads to is it leads the people making decisions based on hype. Not even research, it's like, Oh, you don't want to miss out. That fear of missing out leads to buying it high prices. And then when it starts to go down, you're like, Oh, sell it sell it, get out of this.

And then you end up selling it, losing, you just lose a ton of money. So I told you, I promised you the good. I told you how it works, the bad and the ugly. Well, now let me tell you how you can reduce those risks. Number one thing, if you listen to my show, I talk about this all the time. Knowledge is power. Do your research.

If you find that you're compelled to do some investing in cryptocurrency, make sure you're investing in one that's stable. And I'm not going to get into a discussion about that, but don't invest in these random coins. Somebody new came up with this new cryptocurrency because like I said, there's thousands of these. They're coming out day in and day out.

Once you make that investment, use a secure wallet. Keep your crypto safe from hackers. And here's the thing. Only invest what you can afford to lose. Because unlike a lot of investments now, and people will argue with me on that. They'll say, well, Ralph, you know, invest in the stock market. Is it that much different than crypto?

I'm going to argue and say, yes. Because yes, there is money to be made, but I think crypto is incredibly risky. You've got to understand. I've done a good job of explaining to you the basic, but I am by no means an expert. So just understand that you shouldn't invest any more than you can afford to lose.

Hey, if this is extra money, you've already got that emergency fund. You've already put the money away for retirement. You've bought all the insurances that you need. Then if you want to play like the lottery for lack of a better term, then do it, you know, but it's highly risky. And then you got to know the rules.

And especially if you're not in the U.S. Understand what those other countries are going to do with this cryptocurrency. So here's some practical steps to manage the cryptocurrency and avoid the tax issues, because that's the other side of this. So pay attention to what the IRS is coming out with, because I actually think this is going to be an area they're going to change, because I think this whole idea of it being treated as property isn't going to work out for the longterm of this.

It just doesn't make a lot of sense because each bill and each coin is a separate piece of property. How do you do that? Money is fungible means it's all kind of runs together in this big lump of stuff. So I think the IRS is going to make some change. You got to be aware of that. Second thing, and Tim learned this the hard way.

You got to keep detailed records of all your digital asset transactions. Now I will say this. The good news, most of these online trading platforms have that information. Why? Because the IRS said to them, you are going to give us the transaction information so that we have it to make sure people are reporting it.

You got to know the purchase date because again, long term capital gains versus short term capital gains. You need to know what you paid for. You need to know the sales price, what fees you paid because there's transaction fees. And you got to seek professional advice in this. If you've got complex digital asset transactions, and you're one of these people that was in at the front end, or you've got a big stake in this, do yourself a favor. Hire a tax professional who specializes in cryptocurrency taxation that can really help you understand what you need to do.

And then overall, you got to worry about your stewardship and integrity. Remember that our finances are a gift from God. Like I started at the beginning. They're not ours. We're called to manage them with wisdom and we're called to manage them with integrity. One of the big things is making sure you pay your taxes and act in obedience with that and then maintain that, you know, that responsible stewardship.

And again, if you've got these digital wallets, you strong passwords. A lot of these things go without saying. Enable two factor authentication, keep your software updated, pay attention to those private keys, and here's a big takeaway with those digital wallets. Avoid public wifi. Don't ever access your digital wallet from there.

And I guess the big thing, stay informed, keep accurate records, seek professional advice. And John, you do have the power. I'm gonna get back to John for a minute because I kind of got lost there in a little bit of the details of the crypto, but I want to get back to your question, John. You do have the power to overcome the situation, John.

So take the steps I talked about today. And you can ensure that you're compliant with the law. You can avoid the stress and the hassle of being audited by IRS. Nobody wants that. Because here's the deal. It's not just about avoiding trouble. Yeah. Nobody wants to get audited. I deal with those everyday basis is what I do for a living.

It's not just about avoiding trouble. It's about being a faithful steward of what God has given us and what he's entrusted to us. You got to make sure that you're doing the right things.

Now, this got really deep today. It wasn't really my intention to do that.
But like I said, there are so many people who are listening to the hype. They're seeing all the fantastic things. Oh, this is a great thing. You should do. You should do this. You should do that. I really wanted to cover it. Well, if you want to go even deeper. Every day, I write a blog post and I share resources.

I share the references for the show and you can get to that by going to askralphpodcast.com/blog. You can go check it out every day. We do one of those for every show. So when I talk to you about something on the show, I've got the receipts. I've got the details to back it up again. You find those at askralphpodcast.com/blog.

Well now, let's get to our reflection questions. I want to leave you with three deep reflection questions you can think about as it relates to this digital currency. Number one thing. Maybe you've decided, Hey, I'm going to do this, Ralph. I hear what you're saying, but I got a little extra money.

I can make this work. So number one thing, are you staying informed about the latest IRS guidelines regarding your digital assets? Do you know what they're asking for? Do you have those details ready? Which leads me to number two, do you have a system in place for keeping accurate records of your digital asset transactions?

You've got to have that. Pay attention to that, log those details in. And third thing, have you sought professional advice for those complex digital asset transactions? I met with a client, it's probably been three or four months ago. And he's one of these folks that got into these, and I don't know which one he owns.

We didn't really get into that deep about the particulars, but he's, you know, he's got a lot of money in this Bitcoin and he needs some guidance because all of this stuff is capital gains and he's got a ton of it. I think he's basically put all of his retirement savings into this. And as he gets closer to retirement age, he doesn't want to have that volatility that he can't afford the price that had to go down.

So he reached out to me, we started to put together a plan. So if you're in that same position, I'm going to encourage you to do that. So if you're feeling overwhelmed, if this is just so complex and with the digital assets and how's it taxed, you can reach out to me for guidance. You know, cryptocurrency can be a great investment opportunity.

I'm not saying it's not, I'm not a big fan of it personally. But it comes with its own set of challenges, especially those tax compliance and financial decision making. Let me help you navigate that together. I can help you stay compliant with the IRS. This is what I do every day and make a better financial decisions about investments, such as crypto.
And you can book a call with me by going to askralph.com and together we'll ensure you're on the right track and make the most of this exciting financial frontier.

Now, one thing I want to ask you to do as we close today, first of all, I want you to share this with everybody you know, because as you hear more about this online, people are going to be brought into these decisions.

They're going to be thinking about, yeah, I get a little extra money. Why don't I invest in that? So do me a huge favor and do them a favor too. It's not just for me. I'm just trying to put out good information. I'm trying to be that financial evangelist to shepherd people. If you found value in today's show, two things you can do, share it with everybody
you know. And then the other thing you can do is I'm going to invite you to buy us a virtual cup of coffee. Now again, this is a virtual cup of coffee, kind of like digital currency if you think about it. Just go to askralphpodcast.com/support, and you can buy me what they call a virtual coffee.

Now nobody's going to show up in my office and deliver a cup of coffee. But they're just going to, it's just a way to show that your support for the show and what did, and you might be saying, Ralph, okay, what does that support look like? Well, it helps us continue to reach more people. We're able to do more advertising.

We're able to get on new platforms and new networks. And why do we do that? Because I want to share the message of the Christian hope, the message of the Christian faith. And again, you can do that by going to askralphpodcast.com/support. You can do a one time support, or you can do a recurring support.

And I highly encourage you to do that. Well, let me close today. You know we covered a tough question. We talked about why is the IRS eyeing your digital wallet? We talked about the basics of it. We talked about how it's being used, the expected growth. We talked about the tax implications of safety and all that.

Now, tomorrow we're going to talk about 10 easy tax deductions and credits to cut your tax bill. It's one you don't want to miss because I'm going to give you 10 things that you can do real easy to cut your tax bill. Everybody wants to get their taxes done. Now as I close, remember this. My passion is to help you achieve financial success.

I want you to not get scammed by these new, you know, financial frontiers and these new computer and I, you know, these great ideas. Cause at the end, I want to see you live out your dreams, but at more important than that, I want to see you grow in your faith. And I know together you made the first step by coming to listen.

I encourage you to share those to others so they don't get scammed. They understand what cryptocurrencies, but I know together we can master your finances from a Christian perspective. So as I close today, stay financially savvy out there and may God bless you abundantly.

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