Peer-to-peer electronic cash has numerous uses beyond tax evasion and money laundering, just as physical cash does.

But to your point, even these laws are part of a new trend. Money laundering is a relatively new crime, and widespread taxation of private transactions only came into force in the early 20th century, with governments around the world instituting income taxation.

50 years ago, almost all transactions were in cash, and the income tax was widely evaded through the use of cash. The government knew very little about what people were buying and how much wealth they had. With the emergence of electronic payment systems, large Trusted Third Parties emerged that collated transactions, and settled them periodically through the respective central bank. These TTPs became gatekeepers and information gatherers, and enabled central authorities to monitor the most intimate interactions of the population - their financial interactions - in incredible detail. Cryptocurrency holds the promise of returning privacy and economic power back to the decentralized distribution that historically existed, but power, once attained, is jealously guarded, and those who have it will likely not want to give it up.

It is also important to say that the trend of making you most likely criminal "because you use cash" will continue.

It is already known restaurants owners are getting in trouble for small deposits. Its not even $10,000 or $9,000 you deposit.. if you happen to make daily deposits of even few hundred dollars you are guilty of "structuring" aka smurfing.

Another thing is to make sure you can track back your physical hoard of cash. My friend's father is in deep explanations with FBI (and over $50,000 in attorney fees) because when his wife passed away he took all the money they hoard at home under floor and put it in the bank. Some $600,000 of it. IRS didn't like that and proving you had a job all your life and you paid taxes on Over $10,000,000 in income did not stop the case.

He might have been better off laundering it.

Or keeping it as cash. Or buying gold informally.

I mean, why put it back into the system?

I should add his wife was an older date and back then people did not trust banks like they used to nowadays. So her husband respected her point of view. Once she passed away he simply didn't want to keep that kind of cash at home.

I rather got that. And it's a sad story.

It's pretty clear that his wife was right about the financial system.

I like the buried lead here - you jump from "inconvenienced restaurant owners" to over half a million dollars under floorboards. That's taking, conservatively, >$10000 a year of losses from cash rate interest alone just sitting there.

> Peer-to-peer electronic cash has numerous uses beyond tax evasion and money laundering

What are the biggest ones? I don't see any point of physical cash personally but I'm in a country where no-one uses it.

Transactions solely transacted via physical cash don't require a middleman be paid at every step. Even if you never see a line item for the middle man its effectively part of the bill you pay when you check out anywhere that accepts plastic.

The middlemen by setting costs that include a minimum charge per transaction also make transactions below a certain threshold non viable because the transaction fee would be higher than the actual charge.

Cash comes with costs too, often paid to middlemen. Large businesses need vaults, secured trucks, extra time wasted counting and verifying it, etc. Even small business will often need extra insurance, plus the risk of getting their employees harmed on the way to the bank.

Ask all those marijuana shops trying to get bank accounts if they don't have any costs passed on to the customer for dealing with cash.

Physical cash is a primitive technology so its use cases are quite limited given the superiority of alternatives.

Electronic cash in the form of cryptocurrency can make money transfer much cheaper than it otherwise would be. It also doesn't require you to jeopardize your privacy every time you form a financial relationship with a new company, as happens every time you use a credit card with a new company. In fact, your privacy is at risk every time you use an identity linked payment system, given the possibility of hacks/leaks.

I don't agree with the idea that the value of bitcoin was always to evade taxes and launder money. Maybe that's a primary motive for many, but I don't think that constitutes the value of bitcoin in toto.

I have no skin in the bitcoin game--I've never possessed any bitcoin and don't feel any burning desire to in the near future.

As monetary transactions have moved to the electronic sphere, there's been an important shift from how value is verified. With paper currency, the physical form of the coin or bill acts as verification of its value (thus the focus on counterfeiting, etc.). The trust in the value comes from the physical object possessing certain characteristics. Electronically, though, in the current system, everything is based on verification by trusted institutions. So there's no way of Alice paying Bob without it being verified by Ted, who then makes a lot of money and has lots of control over the financial system.

Bitcoin and other cryptocurrency tries to get back to the idea of peer-to-peer financial exchange without needing that third party, which I think is really valuable in society.

I agree with the concerns being raised in the article that there's a danger of criminalizing peer-to-peer financial transactions, because it basically starts granting new power to institutions that were previously held indirectly by the currency issuing bank.

Also, if everyone in my city wanted to start trading in tulips, why should the government criminalize the tulip trade (as opposed to criminalizing not reporting the value of the tulips you own)?

> Bitcoin and other cryptocurrency tries to get back to the idea of peer-to-peer financial exchange without needing that third party

No, it doesn't. Because it relies on validation by a number of third-parties (whose identities and degrees of influence are opaque), who must (collectively, if not individually) be trusted and who (again, collectively, though this can end up fairly narrowly concentrated) control the financial system in the same way as “Ted” in your hypothetical.

That's a silly argument. Bitcoin does not rely on validation by 3rd parties. It relies on validation by a large number of independent third parties who can only act in a way inconsistent with the rules of the system if a majority of them collude. And even then what they can do is very narrowly prescribed (a double spend attack, specifically). That is vastly different from trusting a single independent third party like a bank who has literally no restrictions whatsoever on what they can do unilaterally.

Well, banks have tremendous restrictions on what they can do, in collusion, or unilaterally.

One very good reason for this high level of regulation is that banks are a primary component of the money supply system. Having a functional monetary system is a great thing, for the society as a whole.

It has aspects of being a public good. (Some people argue that banking should be made a government supplied service, for this reason.)

Almost every aspect of modern life is subject to laws and regulations, by a sovereign entity of some sort.

Such an entity has very valid reasons for regulating the use of bitcoin.

Even people using bartering systems have gotten in trouble with the IRS.

> Bitcoin and other cryptocurrency tries to get back to the idea of peer-to-peer financial exchange without needing that third party

What's the benefit? I suppose it becomes faster but seeing that Bitcoin transfers takes hours to verify currently I don't know if that's an argument.

While I am sure those reasons play a part I think thats not even close to all of what makes it valuable. Ease of use is a huge one. I can set up a wallet in less than a minute and someone from across the world can send me bitcoin in the time it takes for it to clear the block, other cryptos even faster.

One can post their wallet address and make jokes on social media and receive bitcoin just because people like the content and are happy to support it. (yes that works)

You can receive bitcoin without giving anyone your name,address,etc,same with sending it to someone and do so for legal purposes.

Try to do any of those 3 above with dollar bills and its just not even in the same realm. I see great value in that.

> Ease of use is a huge one.

Bitcoin is very complicated to use, doubly so to use securely. I've lost count of the number of stories I've read of someone losing everything, and then being chided by the community because "you deserved it, you weren't doing it the ~right way~", and of course there are a thousand mutually incompatible explanations as to what the right way is. This happens so often there's an entire subreddit for it.

(EDIT: For example, 12 hours ago an Ethereum startup burned $13 million because of a typo: https://www.reddit.com/r/ethereum/comments/6ettq5/statement_.... The top comment, of course, is "you deserved it, validate your inputs". I'm not kidding when I say this happens every day)

> I can set up a wallet in less than a minute and someone from across the world can send me bitcoin in the time it takes for it to clear the block.

Which is anywhere from half an hour to days and days, depending on how much you're willing to pay in fees.

> One can post their wallet address and make jokes on social media and receive bitcoin just because people like the content and are happy to support it. (yes that works) You can receive bitcoin without giving anyone your name,address,etc,same with sending it to someone and do so for legal purposes.

I can do all of this with a PayPal account, both more quickly and with lower fees than Bitcoin. I need a real name to cash out, but you need that with Bitcoin too unless you're using a service that's breaking the law and not doing KYC.

> Try to do any of those 3 above with dollar bills and its just not even in the same realm.

Yes, digital transactions are certainly faster and more convenient than physical ones, because that's an apples-to-oranges comparison. On all these metrics though Bitcoin loses to PayPal, and when you're losing to a company that is the embodiment of pure evil, that's not a good look.

Paypal has been found to have done a whole lot of shady crap. What comes to mind right now is that numerous individuals have had their money held for 6 months with no recourse. They are also famous for letting fraudsters reverse transactions after they already received your goods/services.

That is a UX problem, though. The comparable problem in the 'old' financial system is legislative and cultural. I have tremendous faith that the rough UX edges of cryptocurrencies will get smoothed out by designers and coders looking to make a buck on-boarding people. I don't have the same faith regarding the vested interests of the existing financial infrastructure.

Two things:

1) Bitcoin isn't new, it has been around for years now, and millions in venture capital has been poured into it. It's still a pain in the ass to use at all and basically impossible to use securely. I'm starting to think that if it could be fixed, it would be by now.

2) Not all those problems are UX faults. A lot of us happen to consider transaction irreversibility to be a bug and not a feature, for example.

> 1) Bitcoin isn't new, it has been around for years now, and millions in venture capital has been poured into it. It's still a pain in the ass to use at all and basically impossible to use securely. I'm starting to think that if it could be fixed, it would be by now.

I think it's improved quite a bit in that time. Especially so if you consider some of the newer cryptos. Is it there yet? No. But these things take time. Computer interfaces took a long time to get where they are today. It takes a while to find the right abstractions, and people are constantly iterating on these things in the crypto space.

> 2) Not all those problems are UX faults. A lot of us happen to consider transaction irreversibility to be a bug and not a feature, for example.

Well, I respectfully disagree. You may want to build reversibility as a layer on top of Bitcoin. Perhaps something mediated by trusted third parties. But that should be opt in. You want the underlying financial infrastructure to have immutable, irreversible transactions. On top of that base, you can and likely should build support for reversibility in certain contexts.

> You may want to build reversibility as a layer on top of Bitcoin.

How is that supposed to work? Once the money has been sent to someone's private key, you rely on their cooperation to get it reversed.

To effectively force them to give it up, a trusted third party would have to hold an even larger amount in escrow. But then what if that third party refuses to cooperate? You would need a larger escrow service to hold the escrow service accountable ... or they would have to make their identity public and be personally liable for any losses, putting government regulation back in the loop.

And this is assuming the transaction was made voluntarily in the first place. If someone steals your money they are not going to make the transaction reversible if they can avoid it. Unless you have the clout to convince a majority of miners to do a hard fork, good luck getting your money back.

In Ethereum, reversibility could have strict constraints. For instance, you could devise a contract in which the funds are held in escrow for 90 days, during which time a neutral third party may reverse the transaction using their key.

The important point is that the actual parties to the transaction may choose how they want to mediate this, whether they want reversibility, what conditions they want it to have, and have it all enforced by code and cryptography.

Of course, this burden would only really take place on high value transactions. For most transactions, there'd be a standard configuration people and merchants would use.

A major innovation by Silk Road was its escrow system.

> I can do all of this with a PayPal account, both more quickly and with lower fees than Bitcoin.

Thanks for pointing out that the fees of Bitcoin are actually currently higher than those of Paypal, for donations up to around $60. I'll add the details here in case someone else was skeptical about this.

Fees for donations via Paypal are $0.30 + 2.9% per transaction https://www.paypal.com/us/webapps/mpp/fundraising.

Fees for Bitcoin transfers use an auction system based on the transaction size, but according to the current statistics and median donation size for https://bitcoinfees.21.co/ one arrives at a fee of 81,360 satoshis, i.e., $2.02.

I can get Bitcoin in Nigeria. Try doing that with Paypal.

None of those things necessitate bitcoin, though. If your bank let you setup a public deposit-only account with an anonymized alias, you'd get al the same benefits, except that it would not be viable for criminal enterprises. Electronic payments don't require anonymity to be convenient, which is where all the value you refer to comes from.

Bitcoin does much more than that though. It gives you sovereignty. If you've ever tried to get illegitimate bank fees refunded, you may recognize the value of this. When you and the bank disagree about whether or not a fee was appropriate, you have no recourse. Your account balance is what they say it is, and they may choose to deduct what they like from it. This is not possible in Bitcoin. In Bitcoin, nobody else can originate a transaction from your account. Only the holder of your private key may do that.

The existing money/payment ecosystem is pull. Vendors, merchants, and banks pull money from your account. Bitcoin and other cryptos are push. You push money to others. Push is obviously the right underlying architecture for a financial system. Pull architectures are singularly responsible for basically all credit card fraud, for instance.

Still, are those benefits really worth it? Seems pretty minor to me but maybe I fail to see the bigger picture. Sounds like these things can be achieved easily with traditional money as well (like how it works in South Korea, where the social tipping you speak of is very popular). How are states supposed to collect taxes if they can't see anything?

I would also add that there are many cryptos, that comes into play in a few ways. One major difference with traditional "money" right now is the wild price fluctuations. You can have $100 worth of a crypto one day and the next its worth $1000. In some ways that is bad, but in others it is very very good!

I am no bitcoin evangelist by any means, but I do try to see both the positive and negatives. With taxes I have a feeling in due time because of the "recorded" nature it will be even easier to track than cash. How is the government supposed to collect taxes if I sell someone a baseball card for $1000 cash? I personally would pay taxes on cash or crypto just to avoid any hassle.

What is missing from this picture is that whoever wants to send you bitcoins needs to get them. This is still a huge barrier especially with having no idea what your bitcoins are actually worth and also it's a given that your wallet will be stolen sooner or later so you want to buy only a little at a time but that has overhead so...

As for transferring money, Transferwise is leagues ahead in usability when you consider that the sender has some sort of currency and the receiver wants currency (and bitcoin is not a currency, no matter how hard these Ayn Rand types insist, not without a nation state backing it). All you need is a name and an account number and the UI is super friendly and the transfer is cheap.

Transferwise is stupidly expensive. Costs about $140 in fees to transfer $10k from US to Canada vs. ~$0 for BTC depending on how sophisticated you are in timing the trade.

How much does it cost to buy and sell those BTC? And are you saying transaction fees are zero?

No, I'm saying the market is illiquid enough (or it was a year ago when I was doing this) to write a bot and wait for the price difference across the US exchange and CA exchange to cancel out the 0.5% round trip trading fees.

Which, by the way, are already much cheaper than transferwise at 1.4%.

I can't understand what you are talking about. I am in Canada, sending EUR to my brother in Austria. With Transferwise this takes as much as entering the amount, my ebank username and password and it's done.

With bitcoin, hell, I dunno. https://www.quadrigacx.com/account-funding-withdrawal this wants me to do a bank wire to avoid fees which I can't do online, it's one of my major complaints how the simple transfers in Europe are missing in Canada but I digress. If I use interac online, ding, 1.5%. Then I get bitcoins which I need to store securely, send them and it seems https://cex.io/fee-schedule#/tab/trade there are fee schedules expressed in a language I sure never heard of and then my brother also needs to find an exchange to get EUR out of. Seems hell of a bother to me to save a little money. I am not sending 10K, good for you if you do, I am sending 1000 EUR a time or so, we are talking of saving a few EUR. No way.

There are all kinds of legal and legitimate reasons to pay for something in a way that isn't easily tracked. You can do it now with cash and it isn't illegal. Just because you want privacy does not mean you are a criminal.

Bitcoin is the opposite of private. Everything you do, every single transaction, is recorded, shared with everyone, forever.

But Bitcoin is just Pseudonymous, not anonymous and tracks all transactions publicly.

Regular banks offer better privacy.

Do you have any examples of those?

Buy a surprise gift for someone who shares your bank account.

Don't share a personal bank account. This problem is solved, plus it avoids a few pitfalls in case the relationship or other person goes sour.

Whistleblowing websites or donation to banned media sources.

Criminal to governments, sure.

But peaceful political activism is criminal to many governments. Bitcoin serves an important purpose of helping to circumvent local product/service bans.

Yes, that is likely illegal. But it's certainly not categorically wrong.

Perhaps the value is the fact a central bank can't obliterate the value of the currency based on a whim, using a bunch of esoteric economic logic to justify such policies?

No, instead a small set of Chinese miners can obliterate the value instead.

Miners can't change the issuance schedule. They can only delete blocks and form new ones with valid* transactions, and only if they collude, and are okay with destroying the value of their capital assets.

* transactions where the private key associated with a public key holding value authorizes an outgoing transfer of value.

They can stop you spending the money, and the "they wouldn't do it as they would kill the goose" applies to banks and governments too.

Yes they can do that. But that's not what the parent comment asserts. With respect to Banks and governments, they're different in that they have a monopoly over their jurisdiction.

How can they do that?

I would recommend going and reading about how the blockchain would in depth, it is complex but interesting.

In short, miners build up a log of all exchanges of currency. While you have to "sign" any payments you make so no-one can steal your money, miners can choose to ignore your payments, and not add them to the blockchain.

Now, if the mining power was spread among many people, someone would put your payments on the chain. However, we are currently in a situation where a very small number of groups (between 4 and 6, depending on when you check), control over 50% of all mining. If they went rogue they could, in principle, lock the account of anyone they like, stopping them spending any of their bitcoins.

Have you looked at the current hashrate distribution?

I just did, I consulted https://blockchain.info/pools

The 4 top pools are chinese and amount to almost 40% of the latest blocks mined.

How wrong you are sir

see "taxes"

Or to avoid losing too much money when traveling abroad and using your credit card in bank-initiated currency conversions.

Seriously, some simple grocery shopping I did had a 'currency exchange' tax of about 10% - 15%.

Learn from the Greek. Use cash.

Nonsense; they are also useful for purchasing illegal goods and services!

I found it useful for lower costs in sending money across country and currency borders.

Someone will reply and say it's not actually cheaper, but what is available for the average joe it is definitely cheaper. It's also faster and more convenient if both sides have bitcoin exchange accounts.

One may wonder, however, why traditional money transfer is more expensive if it doesn't even require mining. Is it because of regulations by any chance?

Regulatory capture. It's not easy to open a competing bank.

Banks have a very profitable spread when buying and selling foreign currencies.

For transfers of money in the same currency... it's just greed, in my opinion.

I agree with this to some extent.

As much as I consider myself a 'small l' libertarian, is a society in which taxes could be evaded so freely on such a large scale really desirable? We already struggle with this problem enough with 'traditional' financial tools. It's certainly worth thinking about.

I don't fully understand the article... How is this different from the days when everyone just used cash?

On a side note, I don't really understand how bitcoin is somehow this new anonymous wealth hiding scheme. I can lookup any given wallet that's participated in a transaction (everything is public), so what stops me from de-anonymizing people? Lets say in the future everyone pays with bitcoin online and I'm working for the feds screening packages for UPS. I just saw a few amazon shipments come through for somebody's home address, one with a specific computer, one with a box of pens, and one with a pair of shoes. Go back, look up the item prices and then cross reference with transactions that took place in that time period. Yea, you can use multiple wallets and addresses but at some point, there'll be enough public domain information to track you down, especially with current advances in ML.

I would say much of the negativity is because certain very large institutions have a huge incentive to not want bitcoin to "succeed" and would paint it in a negative light any way they could.

> is a society in which taxes could be evaded so freely on such a large scale really desirable?

Tax evasion has been and always will be an issue of popular morals. All you need for evasion is a medium of exchange (or barter) and for both sides not to report the transaction.

Collecting taxes is trivial when either (or both) of the parties to a transaction report it and impossible if they don't. So the only way taxes can work is for most people to be convinced that the taxes are reasonable and what they pay for is justified. If most people are not convinced then they'll lie for each other and the government is screwed; see Italy. Central banks can't save you from that, only your own citizens can.

And the laws against money laundering have nothing to do with tax evasion by the common man and everything to do with the war on drugs. Putting a stop to that train wreck would only help everybody.

Maybe this is a sign we should switch away from income tax to use, for example, a land value tax. https://en.m.wikipedia.org/wiki/Land_value_tax

Couldn't we just primarily tax income which entities are obligated to report to the government?

And the Internet is for porn, but some of us would like to avoid paying currency exchange fees and would also like a hedge against their local government's currency. Of course, the wild fluctuations in value don't make this much of a reality today, I think the promise is real. Look at all of the people that lost everything during the cuban revolution, argentina, greece.

Don't forget rampant speculation and tulip mania. The author of the article speaks disparagingly of a "money grab" by the government, as if money grabbing wasn't what most bitcoin traders are after.

Government grabs money by force. That is the difference I guess.

Government is the legitimate exercise of force. That's kind of the whole reason it exists.

That doesn't mean this particular use of force is legitimate. Unless you mean that all uses of force by the government are legitimate, in which case you'll have much to defend.

They're almost all legitimate uses of force by definition, unless the government breaks the law. This is orthogonal to moral or utilitarian concerns, however.

But whenever I see people upset government uses force, I think: of course it does. It's like birds using wings or Emacs users using the control key.

My point is that people may be upset at this particular use of force, not of the use in general. That it is legal is beside the point.

I much prefer the government collecting a fair share of money to uphold public goods than criminals running away with all my money (happened to me with shares in a Chinese miner).

Hm, what's the difference? That the money goes somewhere you like?

With deterministic statements like this you are no different than the current President of the United States. In my opinion you should approach topics from more than one angle and then only make deterministic statements when you decided what agenda you want to push.