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.
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.