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A counterparty wishing to use cryptocurrency for a domain is a red flag – domain name wire

By on May 11, 2021 0

There are few legitimate reasons to use cryptocurrency in domain transactions.

I have thought a lot about cryptocurrency as a payment and disbursement option for domain transactions. The key question is why someone would buy a domain or accept payment for a domain in cryptocurrency, and whether markets and escrow services should support it.

I have found three reasons why someone would want to use crypto rather than fiat for a domain transaction.

To avoid taxes. As in, deceive the tax authorities.

Tax laws vary from country to country, but in the United States and some other countries, buying something with cryptocurrency or selling something for cryptocurrency is a taxable event. So there is no tax benefit to using the cryptocurrency for a domain transaction … unless you intend to cheat by hiding it.

If you pay for a domain in bitcoin, you must realize the gain or loss on that bitcoin at the time you acquire the domain. If you are selling a domain for Bitcoin, you need to recognize the value of that crypto that you receive when you sell the domain.

(Same goes if you buy an NFT with crypto or trade in a different cryptocurrency, by the way.)

There is therefore no real tax advantage to buying or selling a domain with crypto compared to fiat. I guess if you want to take a loss on the crypto, you can do that through a domain transaction, but you can also do that by just selling the crypto for fiat and using it.

To be untraceable. Cryptocurrency transactions are generally irreversible. They also have a certain degree of anonymity. So if you want to sell a stolen domain, this is how you want to get paid. It is also useful if you are laundering money.

For convenience. Transferring money between banks can still be a slow (ish) process. Depending on the amount and the jurisdiction, it may take a few days. Cryptocurrency transfers can be fast. In addition, as they are generally not reversible, this could comfort the domain seller in a transaction.

This convenience can also be a way to avoid government transfer restrictions. But using crypto to bypass government restrictions means someone is breaking the law.

The net-net

I can think of a few legitimate reasons why someone would use cryptocurrency to pay for a domain name unless they are in a jurisdiction that treats them favorably from a tax standpoint. So I would be very careful if your counterparty in a transaction requests to use cryptocurrency. This is not an okay killer, but think carefully before completing a transaction if the counterparty insists on using the cryptocurrency.