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Cryptocurrency Mining and Income Tax

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Cryptocurrency Mining and Income Tax

Cryptocurrency ‘Mining’ is how many of the coins, including Bitcoin, are generated. We discuss the basics in our “What is Bitcoin” article. It takes a powerful computer to mine, but with the right set-up, it can be a lucrative business! These computers run around the clock solving complex equations in a block, which in turn ‘mines’ whichever coin you are mining. There are, however, several expense associated with doing this. The main problem and expense is powering these super computers. Since we are tax advisors, cryptocurrency mining is a form of income, so don’t forget about the tax consequences! At Arizona Tax Advisors, we assist clients in how to properly treat the income, and of course the associated expenses.

One Chinese company came up with a unique solution to the power and security challenge around mining, from our friends at Coincentral:

Chinese Company Considers U.S. Defense Department Facility for Crypto Mining

Chinese holding company Wuhan General Group is currently working on plans to re-purpose a US Defense Department data center for its crypto mining operations. The facility, which is situated in Nevada, will apparently be able to meet the necessary security and power conditions to help the company set new market standards.

Negative market sentiment, stratospheric mining hashrates, and tumbling cryptocurrency prices are pushing out less efficient miners who struggle to break even. As such, the facility will provide substantial scalability capabilities by enabling the operation to benefit from low power costs, high-speed internet, and a cool environment, subsequently maximizing profits.

On power generation, the 55,0000 square feet crypto mining farm will be able to deliver over 3 Megawatts of electricity and is intended to initially power about 1,300 cryptocurrency mining devices, with an estimated 12,000 more later on. If negotiations are successful, the company will receive the first order of mining machines from Asicminer in late October.

Revenues from the project are expected to exceed $3.5 million after the first 1,300 miners are delivered. According to Wuhan General Group’s CEO, Ramy Kamaneh, the company had to wait for three months while it assessed its strategy amid a bearish market outlook.

According to the company’s analysis, the cryptocurrency market has hit its lowest point, and things can only get better. The company believes that the new facility will add value to the industry as a whole and create new opportunities.

Current Crypto Mining Trends

More crypto mining companies are investing in cheaper, renewable energy sources, advanced cooling technologies, and highly efficient miners. Just recently, DPW Holdings announced the acquisition of the previously decommissioned Valatie Falls hydroelectric dam. The facility, according to the company statement, will be instrumental in scaling mining operations.

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