Until then, you have deposited some value in a number of lightening network nodes and have been negotiating a set of pairwise IOUs with them for later.

DeFi/staking has a similar problem and I believe waiting until gains and losses are realized will be the way it goes down.

For now, make a good faith effort to pay taxes or expect some friction later.

IAAL. Specifically, a tax lawyer. It would not be reasonable to treat the on-chain event as sole the taxable event.

Every transaction in a cryptocurrency is a taxable event.

This is the same tax treatment that applies any time a non-USD currency is used in a transaction (by an American). Similar rules apply to citizens of EU countries.

wouldn't that be an easy way to bypass taxes ? make all your transactions off-chain and just withdraw once a year ?

I do 1000 streaming transactions on a channel. When the channel is closed (withdrawn back to the L1 chain, or settled - offchain is the wrong term here Lightning is an L2 "channel"), the transactions are summarized and you can tax that summary event.

It's a linear sum of taxes. Of course there are scenarios that complicates things like variable sales tax rates based on transaction type/location/good, but that's an extended conversation.

If you really want tax enforcement, governments should be looking to develop CBDC integration on the merchant side with bridge support for major crypto currencies. Given Intuit's iron grip on tax lobbying I don't have much hope for innovate tax schemes though.

But currency exchange for 'ordinary purposes' is not taxed, if my company bought some Euros to pay for foreign goods and the Euro rallied against the dollar before the purchase, no tax is owed.

Well, BTC is legal tender in El Salvador, and there's no rule that the (in the above) Euros in question have to be paid to a country where the Euro is legal tender: perhaps they're a Singaporean business which mostly exports to Europe, so their prices are in Euros and it shouldn't matter.

The US might not like that El Salvator made BTC official, but that shouldn't matter either.

Better keep your books very carefully though, because buying currency with the intention of selling it later (aka exchanging it for another currency) is investment purposes.

Can you imagine the hassle if a country adopted Apple stock as a legal tender? That's basically what happened last year.

BTC is a kind. If I pay you in silver rounds, you are responsible for paying income tax for the convertible value of the silver at the time of payment, but not capital gains at any point.

In that context cap gains vs other sorts of income is irrelevant.

They may also owe sales tax! https://support.patreon.com/hc/en-us/articles/360043054911-P...

Which, yikes, no wonder running your own business is such a drag, that feels like double-dipping to me. I didn't owe sales tax when I was freelancing, but it is what it is.

Either way though, it's not any sort of headache, because the dollar is still used as unit of account, and what's owed is the value at the time of transaction: what you owe on $500 delivered in BTC is what you owe on $500, presuming you turn it into cash within a year (IANAL, I recall that goods paid in kind become investments after a year, such that gains are owed if sold at a profit).

The problematic tax situation is when someone buys some Bitcoin, and then wants to spend it, since you have to figure out gains on each transaction and report it correctly, that's a huge hassle. I suspect most people who sincerely try to pay capital gains on Bitcoin purchases get it wrong: if you buy 0.1 BTC at 7K and 0.1 BTC at 45K, then spend $1000 worth at 20K, what capital gains do you owe? Does it depend on which wallet you reached into?

I have no idea and, really, feel like I shouldn't have to have any idea. It's the main thing that keeps me from paying in BTC when a vendor likes that form of payment. I could maybe pay a month's rent with the coin in my cushions, I have it because it tickles my fancy to pay for things with magic internet money, but it's just not worth the paperwork to actually do it.

I may have misread GP.

re: " if you buy 0.1 BTC at 7K and 0.1 BTC at 45K, then spend $1000 worth at 20K, what capital gains do you owe? Does it depend on which wallet you reached into?"

These are not new problems, stock works the same way. You may feel like you shouldn't have to have an idea, but that's not how any of this works in practice.

I guess this is a good question for the hosts of the podcasts that use these features (Like Linux Unplugged, and other shows from Jupiter Broadcasting or the No Agenda show by Adam Curry and John Dvorak.) Perhaps this is not answered yet.

In the Netherlands this only becomes relevant over a certain amount, and I think you can then just bundle all amounts. But I'm also not sure.

If you buy Bitcoin for $X and then buy something with those Bitcoin, then you have to record the "fair value" $Y of that something and pay taxes on $Y-$X. On the amount that your "Bitcoin speculation" has earned you.

Looks like in the Netherland, it is different indeed. Making it much easier to use Bitcoin.

Blockchain is remarkably ill-suited for micropayments.

Most blockchains are worthless and have nothing in the way of transaction fees or indeed transactions. Doge is perfect for micropayments! This was a fad on reddit back in the day.

In particular, well, the title of the article says it all. If you have BTC, and you want to send a few sats and pay basically nothing, Lighting has existed for years and works just fine.

Edit: I don't think micropayments are such a great idea to begin with, but the arguments for that have nothing to do with the medium of payment: assuming a perfect micropayment system, people still won't want to use it for off-topic reasons.

Bitcoin was not designed to be “maximally profitable to miners”, it was designed to be a currency that could not be captured and controlled by state actors or other large players yet would be able to sustain itself and its network by incentivizing miners to set up nodes and resist attempts at hostile takeovers of the network. [1]

No other solution has managed to achieve this. There are proof-of-stake cryptocurrencies that opt to be more easily scalable on L1 at the cost that they are controllable by whoever holds the largest stakes.

[1] https://bitcoin.org/bitcoin.pdf

The fact that I personally know people keeping hundreds of thousands of dollar-equivalent-sats on Lightning, who are happy with that arrangement, is what I'm balancing against that guy on the internet with strong opinions with 'throw' in his name.

But hey maybe you know what you're talking about. It's possible. I don't.

Regarding my name: The short explanation is, I have a throwaway account in protest. If Satoshi's anonymity was enough to convince your friends to put down large sums of real money based solely on a hope, it should be enough for you to consider my (non-monetized) comments on this internet forum that's mostly pseudonymous anyway.

As for their happiness, I know people with a lot of Bitcoin, and I know a few people who are underwater on their BTC, but there's no overlap in those groups. They might feel a twinge around 7k, more likely, they'd buy as much as they can afford.

* support for millions of transactions per second

* very fast, basically instantaneous

* if a small fraction of transactions is dropped randomly, no big deal

* easy, simple, cheap on- and off-ramps

* support for anonymity

* good customer support (lost password, lost device, maybe chargebacks)

* support for local currency

* compatible with local law

* very simple API, easily integrated into browser or other devices

* energy efficient

For those requirements blockchain is a terrible solution.

But sure, you can use a helicopter to open a beer bottle, go ahead.

Lightning "solves" this problem by moving transactions off-chain, bundling them into batches, and then emitting batches of transactions to Bitcoin mainnet. That means a transaction against Lightning is only valid once the bundle in which the transaction is placed is committed on mainnet. A confirmation from Lightning isn't good enough; users have to wait for a confirmation from mainnet.

Batching is a common optimization! But it's not a solution to performance problems. It weakens the guarantees afforded by transaction confirmation. Those guarantees are important. They define the consistency model provided by the system. The model of Bitcoin which includes Lightning is fundamentally different, and weaker, than the core model of Bitcoin.

And so Lightning isn't a solution to the problem. It weakens the transactional model of Bitcoin, and so provides a totally separate system to Bitcoin proper.

tl:dr Unlikely

Unsure what the regime in your area does, but...

Here (Aotearoa) the tax authorities are not interested in rats and mice. I play in a rock band as a hobby. Occasionally we get paid ($300 is the most ever).

We had a promoter not pay us because we had "not given him the tax forms".

I contacted our tax authorities and was told, in no uncertain terms, if it is a hobby, if you are not making serious money, do not tell us about it. Please do not tell us.

We have a transaction tax here that merchants have to charge and pay, but only when their revenues top $50,000

So there are two data points that indicate that not every transaction incurs tax

Simplest example is the EU. When you sell a digital good to someone in the EU VAT is owed on that in the country in which the buyer resides, but the seller is responsible for collecting that VAT and then reporting and remitting it to the buyer's country.

The EU makes this simple. You can register with any EU country, and then report and remit you VAT for all EU countries to that one country's tax agency. That country's tax agency will then settle with the others. Ireland is a good EU country for this if you are a seller in a non-EU English speaking place. It takes about 10 minutes to register with Ireland online for this, and the quarterly tax filings with them are a simple CSV upload that you can also do in a few minutes.

Note that this means the seller has to know how much they sold to buyers in each EU country each quarter. That necessitates some form of tracking.

The situation is similar, but more work to deal with, in the US with sales tax and use tax. For sake of this discussion I'm just going to call both of those sales taxes [1].

It's more work in the US because (1) thresholds for taxability are often of the form "N transaction or $X in sales" usually with N = 200 so you can get above the threshold on a very tiny sales amount as opposed to EU where thresholds are based just on amount of sales, (2) sales tax is often the sum of statewide, countywide, citywide, and special taxing district sales taxes, so to actually figure out the tax on any given sale you need to know the full physical address of the buyer, and (3) while there is some cooperation among about half the states to do a system conceptually like the EU's, for the other half of the states if you meet their thresholds you need to register with, file with, and remit to each of them separately.

There is a way around this (besides just ignoring taxes). You can go through an intermediary that takes on legally the role of the seller. It is that intermediary that then needs to track how much is sold in each state and country and how much tax is owed.

That's how it works for app developers selling through the Apple app store for example. Until tax laws are changed to be more friendly to micropayments directly to content creators, going through some kind of store that aggregates content from multiple creators is probably the best we can legally do.

[1] A sales tax is a tax on the sale of something. A use tax is a tax on having something. The big difference is that a state makes the seller collect sales tax, but use tax is suppose to be dealt with be the person who owns the thing. It used to be that states could not force sellers to collect sales tax unless the seller had a presence in the state. So states would impose both a sales tax and a use tax, and the use tax was the exact same rate as the sales tax and had a deduction for the amount of sales tax paid. The net result was that if you bought something from an in-state seller they collected sales tax and you owed no use tax. If you bought something from an out-of-state seller, no sales tax was collected and you owed use tax on the full purchase price. If you travelled to another state, bought an item and paid sales tax to that state then brought the item home, and that other state's sales tax rate was lower than your state's use tax rate, you owed the difference in use tax.

The use tax exactly equalling the sales tax and being discounted by any sales tax already paid is because the Constitution restricts the states from regulating interstate commerce. Applying a higher tax to goods from out out of state than you do to domestic goods would run afoul of that. By making it so that the total sales + use tax was the same for imported and domestic item the state was not interfering with interstate commerce.

But a few years ago the Supreme Court overturned the cases that had said that states could not force sellers with no in-state presence to collect taxes. Now states can make out-of-state sellers collect the sales/use tax so for most purposes there is not much point in distinguishing between sales and use taxes.

For a barter transaction, you must recognize the current fair market value of the object received, and compare it with your cost basis of the object given. If the current price exceeds the cost basis you are required to recognize it as capital gains. (If below, you are generally allowed to recognize it as a capital loss, but recognizing capital losses is not strictly required, although in some cases there may be reporting requirements even if you chose not to recognize the loss).

Given the volatility of most crypto assets, there is a very good chance that the crypto is worth more than when you bought it, and assuming the goods are fairly priced, it would be typically be required to recognize the fair market value of the goods as current value of the crypto used to buy the goods.

Thus there is a meaningful burden imposed on people buying goods or services with cryptocurrencies.

Slightly different rules but with similar net effect would occur with respect to an individual us taxpayer buying things with say Euros, except that if the increase in value of the euro used in the transaction was less than $200, it does not need to be reported or taxed. Also for personal transactions the gains on a foreign currency are always treated as ordinary income, not capital gains, so no discount for long term capital gains will apply.