⚡ StackSats Saturdays | 2021 Week#8
👛 What's the point of bitcoin donations? 🆕 Introducing smart contracts to Bitcoin 💸 Giving away crypto
🤔 What would be required to introduce smart contracts to Bitcoin?
Smart contracts on Bitcoin are possible, however not much can be done using Script programming language directly on the Bitcoin blockchain. Compared to Ethereum, Polkadot, Cosmos etc, Bitcoin is not as programmable as its sole purpose is to be sound money. Bitcoin is minimal by design and is meant to not change. In other words, its easier going off and starting a separate blockchain, which in some ways it's actually the easier thing to do.
Still, there’s a couple of projects that are built adjacent or on top of the Bitcoin since its the most durable and secure blockchain.
Enter Stacks, the team that developed:
(1) Consensus: Proof of Transfer (PoX)
A new class of consensus algorithms that connect blockchains together and more importantly directly connect to Bitcoin. A unique feature of PoX is that it enables two cryptocurrencies to build a native exchange pair. In order to mine newly minted units of a new cryptocurrency, miners use a base cryptocurrency to launch.
(2) Token: Stacks cryptocurrency (STX)
Used as fuel for smart contract execution, transaction processing, and digital asset registrations. STX is a unique crypto asset that can be locked by STX holders to actively participate in consensus and earn Bitcoin (BTC) rewards from the protocol. STX holders can either (a) lock STX in consensus to earn BTC rewards, or (b) use STX as fuel for smart contracts and transactions.
(3) Language: Clarity Language for Smart Contracts
Developed jointly by Blockstack and Algorand, Clarity is a decidable language, meaning you can know, with certainty, from the code itself what the program will do. Clarity is interpreted (not compiled, like Solidity)
(4) Blockchain: Stacks 2.0
Layer-1 blockchain that uses the Bitcoin blockchain as a secure base-layer and brings apps and smart contracts to Bitcoin. Stacks implements PoX consensus and natively connects to Bitcoin. With PoX there is no need to modify Bitcoin to enable smart contracts around it. There are two types of participants on Stacks (a) STX miners, and (b) STX holders. More details here.
There’s adoption from the dev ecosystem and users, with 400+ dapps on the Stacks network, 2.1 million usernames on the explorer, 300,000 STX holders globally and +125 Clarity smart contracts on Github.
Fundamentally, Stacks 2.0 aims to fully unleash its potential to be the foundation of a user-owned internet. The the native connection created between Stacks 2.0 and Bitcoin can unlock (a) a Bitcoin-based crypto economy and (b) a crypto web directly on the secure foundation of Bitcoin. This convergence might carve out space for BTC to become a new source of liquidity and the default reserve asset for DeFi.
🤔 What's the point of bitcoin donations?
Bitcoin donations seem counterintuitive especially for Bitcoin HODLers. Why would someone donate a capital asset that appreciates in value?
It’s about being smart about taxation. Helping those in need is the highest good one can give. Donating bitcoin will allow you to save on taxes.
Eligibility for charitable deduction depends on fair market value (FMV) of the cryptocurrency and cost basis as highligted by this article. When you made the donation, you must have kept the cryptocurrency for at least one year (“long-term”). You would not incur a taxable benefit on an appreciated asset if you owned the cryptocurrency for less than or equal to one year (“short-term”).
Example of Donation of a Long-term Appreciated Asset:
You bought 1 BTC for $5,000 on Oct. 15, 2017
You donated 1 BTC toNo Kid Hungryon Feb. 11, 2020 when it was worth $10,000.
If you sold your long-term, appreciated BTC for $10,000 rather than donating it then you would incur a $5,000 long-term capital gain that you would owe taxes on. By donating it to a qualified charitable organization, you will not recognize any gain and you are eligible to deduct $10,000 in itemized charitable deductions.
Example of Donation of a Short-term Appreciated Asset:
You bought 1 BTC for $5,000 on January 1, 2020.
You donated 1 BTC to No Kid Hungry on February 1, 2020 when it was worth $10,000.
FMV is Greater Than Cost Basis
If you sold your short-term, appreciated BTC for $10,000 rather than donating it, you would incur a $5,000 short-term capital gain that you would owe taxes on. By donating it to a qualified charitable organization, you will not recognize any gain and you are eligible to deduct $5,000 in itemized charitable deductions. Please note that unlike the long-term donation example above, you are only allowed to claim your cost basis of $5,000 as an itemized charitable deduction, not the FMV of $10,000. This illustrates why donating long-term appreciated assets comes first in the preferential order before short-term appreciated assets.
Example of Donation of a Short-term Depreciated Asset:
You bought 1 BTC for $5,000 on January 1, 2020.
You donated 1 BTC to No Kid Hungry on February 1, 2020 when it was worth $2,000.
FMV is Less Than Cost Basis
If you sold your short-term, depreciated BTC for $2,000 when your cost basis is $5,000, you will be able to claim a $3,000 capital loss. You could then take the $2,000 you received as cash consideration and donate it to a qualified charity to receive a $2,000 itemized charitable deduction. If you were to donate the BTC directly to a qualified charity, you would receive the $2,000 itemized charitable deduction, but you would not be able to claim the $3,000 capital loss reflective of your BTC depreciating in value before donating it.
🤔 How can I get a donation in bitcoin?
There are use cases for donation in cryptocurrencies like Bitcoin. As crypto is quickly becoming the preferred way for millennials and Gen-Zs to invest, giving to non-profits and charities will trend towards this form also.
Billions of people have smartphones, but don't have access to basic financial services. Crypto donations solve this as it eliminates middle-man financial institutions and settles instantly. The receiver actually gets the donation as a bearer instrument instead of IOU.
These are the ways to donate and receive donations in bitcoin:
It may also help spark economic growth by giving access to property rights and financial services on an open network.
Cash out crypto to their local currency
Buy goods and services they need
Transact in crypto or hold it long term
👀 Highlights of the week:
How Nigerians Are Reacting To The Cryptocurrency Ban. (Bitcoin Magazine)
Purpose Investments Launches World’s First Bitcoin ETF, Invested Directly in the Digital Asset. (GlobeNewswire)
Bitcoin Becomes 6th Most Valuable Asset in the World With $1 Trillion Market Cap. (CryptoBriefing)
Bitcoin Is Now a Trillion-Dollar Asset: Where Do We Go From Here? (CoinDesk)
What are privacy coins and how do they differ from Bitcoin? (Cointelegraph)
Paid in Bitcoin: NFL Offensive Tackle Russell Okung Considered the Highest Paid in the League. (Bitcoin.com)
Elon Musk Changed His Twitter Avatar To Bitcoin: BTC Soars To New ATH Above $56K Immediately. (CryptoPotato)
Scaramucci: Bitcoin will Reach $100k by End Year. (BTC Manager)
Bitcoin is “eating” Gold: GOLD/BTC ratio falls to an all-time low. (Cryptoslate)
One Year Later: Bitcoin Emerges As “The Stimulus Asset”. (Bitcoinist)
PS - Joined our community on Quora yet? A bunch of Bitcoin ₿elievers sharing, learning and looking out for each other.
Not financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Do your own research.