Crypto currencies may have been around for less than a decade, but they are proliferating so quickly that our established tax and regulatory systems can't keep up. And that could create serious tax problems for those who would join the digital currency revolution.

The total market value of the crypto currency market rose to over $177 billion in the third quarter of 2017. Crypto currencies are no longer just an adventurous and futuristic investment opportunity; they are making over-night millionaires and rapidly becoming an alternative payment method for everyday goods and services. For example, major companies like Microsoft, DISH Network, Overstock.com, and at least one Subway sandwich shop accept Bitcoin for payment.

But crypto currencies are not like real dollars. The IRS considers crypto currencies to be a form of property, which means that every crypto currency transaction, no matter how small, triggers a separate tax gain or loss. So, the seemingly casual nature in which one might exchange Bitcoins or other virtual currencies for everyday items could leave users and businesses with untold tax liabilities and a record-keeping nightmare, depending on the frequency with which they are used.

Here's how it works. For tax purposes, a bitcoin is treated as a piece of property, like a diamond. Of course, anyone who receives a bitcoin in exchange for a good or service has taxable income. What is less obvious is that anyone who uses bitcoin to pay for a good or service also can have taxable gain or loss.

For example, if you trade a piece of bitcoin to Subway in exchange for a sandwich, you have a tax realization event, meaning the IRS treats the transaction as if you sold the bitcoin for the sandwich. When you sell property, you have a tax gain or loss measured by the difference between your basis, or what you paid for the property, and the amount you received on the sale of the property.

Any gains realized by a person buying something with a crypto currency are taxable and must be reported to the IRS. And, under the logic of the Internal Revenue Code, any losses may not be deductible if the transaction was personal in nature. Only losses on transactions entered into for profit or in the course of a trade or business are deductible.

The use of Bitcoin in a routine transaction, such as grabbing lunch, buying a couch online, booking a hotel room, or paying for a massage or other service constitutes a taxable transaction that must be tracked and reported to the IRS at the end of the year on your tax return. It is easy to see how an enthusiastic user of bitcoin could have a hundred or more taxable transactions to report at the end of the year. The recordkeeping requirements, which are necessary to prove the amount of each gain or loss on every single transaction, are a nightmare.