If you move money from one pocket to another, or one savings account to another (that you own), that's not taxable. Very many transfers between bitcoin addresses is just like that: the 'change' from a transfer goes to a new address owned by the same person.
Even when the addresses are owned by two different people, the transfer often isn't taxable. You don't pay a tax when you pay a bill, but that's a currency transfer between two parties. Even when you buy something it isn't necessarily taxable; in many jurisdictions many products are sold tax-free based on either the type of product or where the buyer and/or seller are based.
I don't think there's a way to enforce taxation on bitcoin that's not already being used to enforce cash sales taxes and cash income, despite the tracability of the coins, because the address owners may not be identifiable, and the nature of the transfer is definitely not identifiable from the blockchain.
Sure, there will be small amounts of fraud— there always is— but if cash didn't kill taxes, Bitcoin sure won't. The incentives are just setup to make tax fraud at any real scale unattractive.
Each person must publicly declare the bitcoin addresses that they hold. Any legitimate business accepting payment in bitcoins can only receive bitcoins from other registered addresses, else they are black flagged and no longer a registered address.
Now, your average business and the banks are not going to circumvent these rules. The Banks will probably give their business customers payment gateways that enforce these rules without the business having any choice. Black market bitcoins will still exist, they will just be useless as "normal" currency and will be completely separate, with no way to cross over. Since all transactions are public it is trivial for the government to enforce these rules.
You'll still be able to run your exchange in some other political jurisdiction, but unless the Government white lists your addresses, nobody will be able to spend those coins on legitimate businesses in your country.
This particular implementation wouldn't actually work. Anyone can send BTC to any address, so it would be easy to poison the well.
(But I suspect some similar scheme could be feasible. You might be able to enforce the rule on BTC->$ withdrawls? I wonder about mixers, though.)
You could easily have software that would automatically turn over to the government any coins sent from addresses that are not registered. It's like if you found a briefcase full of money: you'd turn it over to the police (or maybe you wouldn't, but that's what you should do). With software, it could just be automatic.
If you refuse to run software that does this, or you don't turn over coins received from blacklisted sources within some period of time, you get blacklisted.
[1] By design, Bitcoin addresses are supposed to be single-use. Reusing them is a security risk and not recommended (recent android vulnerability is a good example - it only affected reused addresses). Every transaction done with the standard client usually creates a new address (to send the change), which is not even visible in the interface. Merchants accepting Bitcoin usually create a new address for each invoice, etc. etc.
In other words, the way Bitcoin is used is fundamentally incompatible with the public declaration of addresses. If the government has the power to change this, it might as well make Bitcoin completely illegal and not bother.
The way the US tax code is set up, any income is taxable unless there's an exception for it.
If I gift my friend $X, and then he gifts it right back to me, and we proceed to do this back and forth ad infinitum, is it the case that the IRS would eventually bleed that money to $0?
And as ebiester noted, there's an exemption for gifts under a certain amount.
Actually it'd be very interesting if it was. A lot of 20-somethings in New York get more than that from their families.
Enforcement could put an end to many unpaid intern jobs.
It is in Norway - any cash or deposits in excess of 750.000 NOK (around 125.000 USD or so) is taxed in addtion to interest being taxed as income.
Now, cash isn't easily detectable, so it is a very easy asset to hide -- but while possible, that would be tax evasion and is illegal.
2. Banks stopped making most of their money from deposits a long time ago.
I'm curious where you think they put all that currency. You could argue they're hiding it from the tax authorities by putting it in a safe deposit box, but by definition nobody knows how much cash there actually is in those boxes, and of course raising taxes on such cash hoards isn't going to affect such.
> Banks stopped making most of their money from deposits a long time ago.
Consider this advertisement:
https://www.key.com/personal/promotions/dda/200cash.jsp?sqkl...
If banks were not making money from deposits, why are they offering $200 in cash to open a checking account?
Monthly account-maintenance fee. ATM fee. Fee if you don't have direct deposit. Fee for cashing checks. Fee for using a teller. Fee if they process debits before credits so as to push you into overdraft even though, by chronological transaction order, you never overdrafted.
They don't make money by accepting deposits and making loans; they make money by squeezing fees out of people who don't have much money.
https://www.coastcapitalsavings.com/Personal/Banking/Chequin...
Unlimited debit/atm/teller/billpay/cheque/dd/dw transactions, no minimum limit, no requirement for direct deposit (but if you use it, its free too), no monthly fee.
> they make money by squeezing fees out of people who don't have much money
They do make money from people who don't pay attention to their balance - regardless of whether they are poor or not.
> They don't make money by accepting deposits and making loans
That perplexes me since they constantly try to sell me loans.
It is unfortunately the case that being poor is much more expensive than being rich. Banks on average know and take advantage of this.
i completely disagree.
first of all, you're arguing semantics, and you know very well that there are many fractional reserve bank accounts with lots of accumulated cash available for withdrawal at any time. that is a working, popular, valid definition of "hoarding cash".
second, do not underestimate the amount of cold, hard, paper (polymer?) cash hidden in safe deposit boxes distributed around the world. you can bet your bottom dollar (har har) that this cash isn't being lent out to commercial banking clients and mortgage buyers. it's sitting in boxes, unused. in a certain sense, it's an anti-inflationary savings mechanism.
that's not even counting the gold, platinum, pearls, diamonds, precious gems, and etc.
Note that the government requires this reserve because otherwise the bank will loan it out, i.e. the bank doesn't actually desire to keep cash on hand. Neither do rich people. Even drug lords don't want cash hoards, it's why they launder it.
It's not splitting hairs over semantics. People who have money in the bank do not have a cash hoard that they are withholding from the economy.
As far as people keeping assets in safety deposit boxes, nobody has any idea how much is in them, so it's rather pointless to talk about them. I do find it hard to believe that Apple's billions in "cash" is really a hoard in a safety deposit box that's withheld from the economy.
>that is a working, popular, valid definition of "hoarding cash".
Not in the sense we are discussing of it being withheld from the economy.
(For fun, watch Breaking Bad, where one of Heisenberg's biggest problems is trying to convert cubic feet of cash into something he can spend.)
Read about how this tax work before complaining about it, please. It's only for generally big amounts of money, and your mortgage and other stuff is subtracted, making it a non-issue for almost everyone. And you can fine invest the money instead.
Wait, what?
Both inflation and demurrage reduce the purchasing power of money held over time, but demurrage does so through fixed, regular fees while inflation does so through expansion of the money supply by a central monetary authority distributing newly issued currency or through endogenous money creation (such as fractional reserve banking).
Yes it is preposterous.
Ignore my ignorance in crypto stuff, so, what's stopping us from creating a hundred accounts in one computer and having a couple of bitcoins in each one of them?
Or even spread in one hundred shared peer-to-peer bank services?
Edit: A bitcoin address is a 160-bit number. That number is associated with a public and private key. The only way you can spend bitcoins stored in an address is if you know the private key of that address.
For more information, this video gives a fairly in depth explanation: http://www.youtube.com/watch?v=Lx9zgZCMqXE
3.6e+17 times the current age of the universe. So, it looks like there are enough addresses for you to really go nuts, if you like. Block chain might get a bit bloated though.
Exchanging currency often generates "exchange differences" which (often indirectly) increase/decrease the profit.
Applying this logic, mail is the old Wild West.
You're claiming it was about commerce rather than loss of life and then using examples where there was often loss of life.
There was often loss of life during train robberies, but the economic disruption was a major component. People knew Jesse James for all the trains he robbed, not the people he killed.
It introduces a mandatory third party (the government) to transactions where only two parties are intended.
Such a virtual currency could be designed, and I don't believe it would be successful.
The Bitcoin protocol allows two parties to transact without any outside interference. If governments can restrict using a protocol remains to be seen.
...other than the entire Bitcoin network, right? When last I checked the design of Bitcoin called for transactions to be checked by other Bitcoin users and then broadcast to the entire network. That is about as far as one can get from a two party transaction.
If you want real two party transactions, you probably want this sort of thing:
I thought that idea died, was buried, exhumed, and reburied back in 1996.
Or at least that is the idea that I get from the many I know or have met.
In that sense, the larger market "winners" like the king ranch aren't really a factor, except as their presence begins to foment regulations that must apply to every single person and begin to restructure the world into one where it is increasingly difficult to live outside of a corporate structure.... ie. they fence off formerly commonly held land.
Those saying BTC has no inherent value (as opposed to gold, for example) are completely overlooking the fact that BTC is the only kind of exchange that can be used for illicit activities in a relatively untraceable manner (good luck buying stuff on SR using gold).
Unfortunately, BTC is traceable if governments decide to spend the resources monitoring transactions, and I suspect this would be the primary motivator in the demise of BTC and a replacement with a more anonymous currency - the other motivator being that there's a huge financial upside for being an inventor or early adopter of a successful cryptocurrency, as BTC shown us.
Just using Bitcoin for transactions doesn't eliminate legal obligations. I imagine that if they ever got popular, tumbling services would be the first things that would be regulated (or shutdown by the gov't).
The level of regulation it would take to actually trace lots of tiny transactions between pseudonymous parties is next to impossible. How is me paying a friend back for half the pizza we shared to a new address of his going to be handled?
It's pretty straightforward for the Government to come up with a scheme to defeat tumbling services. Just make it mandatory to only accept payments from whitelisted addresses. Banks and your average business are not going to go all cypherpunk and circumvent such laws.
Under my scenario, if you used zerocoin, and anybody else using the service wasn't whitelisted, you would be blacklisted, since there would be a chain of coins being sent from non whitelisted addresses to yours. So it would just be up to you not to use it.
The key is at what stage the Government becomes involved. If they implemented this sort of proposal right now, they would just say "if you're using zerocoin, you'll likely be blacklisted- tough luck". If everyone starts using zerocoin, including all legitimate businesses, and then they try to regulate it- then people would have more power.
Well, yes. Of course, it's not like tax authorities haven't had to deal with money laundering before.
Alternative equivalents like litecoin work equally well.
That's why I think bitcoin is bound to collapse. There's no a priori reason to use one root over another, and given the choice, why would you pick the one where "satoshi" has already assigned himself 25% of the wealth?
Really? When last I checked the overwhelming majority of criminals were using paper money. This is probably because the overwhelming majority of people in general use paper money and because criminals have to pay rent like anyone else.
The biggest criminal enterprise is "outside money" vs. "inside money" and the scale is orders of magnitude larger than the folks peddling narcotics or paying for hookers.
While it's possible to generate a new wallet to mask who the user is, the transaction flow can be traceable. This seems easier to trace than the flow of money through our banking system.
Money has just two functions: (1) It has to maintain its value over time (2) People must accept it as means of setting payments
BTC seems to meet both.
It's not anonymous "enough", but I guess this could be fixed with another iteration. (another electronic currency).
It would be great for the world to have more currencies than the monopolistic currencies enforced by the modern states (fiat currencies). Just to own something that doesn't have its monetary base doubled in 4 years, would be awesome! (USD base rose two times from 2008 to 2012).
However, The fact that it's used as a form of currency is just an interpretation of what Bitcoin is. There can be other interpretations for what bitcoin-type system can be used for, for example Namecoin is used for name registrations. The judge declared that bitcoin is money by making an interpretation.
If anything, Bitcoin is just software. It will be very difficult to regulate.
1. Software using encryption is protected speech (http://en.wikipedia.org/wiki/Bernstein_v._United_States). Regulating bitcoin as in bitcoin the software would be a form of censorship.
2. Bitcoin uses many of the standard principles of cryptography we already use in e-commerce. Banning cryptography would have enormous consequences for the economy of the internet in general.
3. Banning or regulating p2p would cause an uproar.
4. If buying bitcoins in exchange for dollars is really exchanging a string of bits for money, then if this is banned or regulated, would it also ban buying software or other digital goods for money?
5. The regulations can't be too broad, but can't be too narrow. Would the laws restrict only bitcoin as a currency or other applications of bitcoin as well? If too broad, then they will unintentionally restrict other uses of bitcoin too. If too narrow, a new system will pop up again.
The reference to "fixed supply" equivocates to "fixed prices" in a growing economy, i.e. one dollar has equivalent purchasing power today or a hundred years from now.
[1] http://www.minneapolisfed.org/research/sr/sr218.pdf "Money is Memory" (1996)
It's a way to convey messages, but the messages represent value in the same way that paper money does. If bitcoins can be exchanged for goods and services, then they represent the value of those goods and services, just like paper money.
An electronic message describing a transaction involving dollars, or euros, or some other wealth representation, is just a message about a transaction. But a bitcoin is the wealth representation -- it doesn't require, or refer to, another medium of exchange.
Your argument tries to deny the identity of bitcoins as currency, but that isn't so -- they're currency.
Bitcoin ties a number to a script. By providing a cryptographic key for that script you can add that number with some other numbers from other scripts and then divide that value into new scripts (throwing away the extra). Bitcoin programs often generate new keys for just about every transaction (so it's hard to link them together).
These scripts are transactions in waiting. They can't complete until someone provides the key that decrypts them, and then puts them in another transaction. Bitcoin is deniable, no one can prove you have the key to some scripts (since you can generate the keys from something in your memory, as opposed to using the easier to use encrypted wallets), and if they tried to, it would be equivalent to a thought crime.
Now, as a legit business, you would be required to collect tax for your services (for sales tax), but you already have to do that, which is how it should be.
No, my argument only assumes that bitcoins represent symbolic value, i.e. are "currency".
I doubt that, since paper money is guaranteed by law to at least be accepted by the government for tax payments. There are no guarantees at all with Bitcoin.
Fair enough. I think over time that will change -- either the bitcoin idea will evaporate, or they will come to be accepted by all sectors of the economy.
>The fact that it's used as a form of currency is just an interpretation of what Bitcoin is.
Gold star for your comment.
Many of the other interpretations are not regulated as currency and arguably should not be.
I can understand why people are excited about it being used as a simulation for something financial institutions would want to regulate. But the real potential is in the technology, and the innovation potential that comes out of it.
Recent regulatory moves may lead to attempts to try to kill bitcoin:
As the mining reward rapidly dwindles relative to the cost of electricity, there is a huge incentive to reduce the electricity consumption while maintaining the security of the network. At what point does this reach an equilibrium depends largely on the market value of bitcoin. So it should be a somewhat fixed cost in proportion to the adoption of bitcoin, just like the fixed costs of any currency (e.g. minting coins, mining gold, etc.).
Mining rewards will diminish over time so it will no longer be feasible to mine as much as in the 'gold rush' phase. So the carbon footprint will not be growing all the time.
In fact, there's a race to make the current hardware to become more power efficient. If you live in a sunny place, you could probably pick up 240 Watt solar panels for around $300, a connect a Raspberry pi @ 3.5 watts, then a 10 GH/s Erupter blade @ 75 watts.
Current estimated power consumption of the Bitcoin network: 1.67 Mega watts. (6,028.57 megawatt hours http://blockchain.info/stats).
Typical power generated by a single Boeing 747: 140 Mega Watts. There's hundreds of these flying right now, yet no-one is appalled about the carbon footprint. http://en.wikipedia.org/wiki/Orders_of_magnitude_(power)
Which government?
This could lead to more centralized exchanges, which again is good in the short term - the more the merrier, so people can easily get Bitcoin with their dollars.
But I think the end game for Bitcoin is to be a "real currency" that gets used everywhere and people get paid in it, to the point where a lot of people won't need to exchange to dollars necessarily.
At that point you could start living entirely with Bitcoins, and you won't need centralized services anymore either. You can just use your own local wallet, whether it's on your PC, smartphone, or NFC ring.
Tracking the transactions through services like Coinbase or Mtgox is obviously going to be trivial for the authorities, since they can just request the data tied to people's names.
But it's going to be a lot harder to see them when you're using local wallets, unless the IRS is still receiving help from the NSA at that point, because you'll probably need something like the mass surveillance system of NSA tracking every transaction from the whole Internet, and using Big Data to identify who's buying what. But hopefully by then we'll fix the NSA "problem".
Also, the blockchain is 100% public. So if you can tie a btc address to a real person (perhaps via tax returns requiring you to declare your virtual currency addresses), then the entire pseudo-nymousness of btc goes out the door.
Things to think about.
They will probably start requiring that all vendors who exchange real world currency or commodities for Bitcoin pay taxes on all such trades, however. Which isn't all that unreasonable.
In my opinion, the end-game is this: bitcoin addresses are taxable, with occasional tax agents spot-checking large accumulations of bitcoin to determine if said addresses fall within their jurisdiction. Bitcoin has the unusual ability to have a very tight trace on where a given virtual coin goes: that just makes the ability to watch the money easier.