A self-directed Bitcoin IRA is an individual retirement account held by trustees or custodians that permit investments in a broad array of assets, from virtual currencies, including Bitcoin, gold and other precious metals to real estate, promissory notes, or private placement securities.
Earnings in a Bitcoin IRA grow tax-deferred, which means you won’t pay capital gains taxes if you sell, but gains will be taxed at your normal income tax rate when funds are withdrawn in retirement.
What is Bitcoin?
Bitcoin is a convertible virtual currency, a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies.
Bitcoin is currently the largest convertible virtual currency by market capitalization (close to $165 billion (as of March 2018). Bitcoin was created in 2008 by a person or group using the name “Satoshi Nakamoto,” with the belief that: “[w]hat is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
Bitcoin is “pseudonymous” (or partially anonymous) in that an individual is identified by an alpha-numeric public key/address. Bitcoin relies on cryptography (and unique digital signatures) for security based on public and private keys and complex mathematical algorithms.
Bitcoin runs on a decentralized peer-to-peer network of computers and “miners” that operate on open-source software and do “work” to validate and irrevocably log transactions on a permanent public distributed ledger visible to the entire network.
Bitcoin solves the lack of trust between participants who may be strangers to each other on a public ledger through the transaction validation work noted in the sub-bullet above; and enables the transfer of ownership without the need for a trusted, central intermediary.