Bitcoin is Not a Currency

Japan has just decided that Bitcoin is not a currency, which subjects it to sales and income taxes. This is consistent with the view of the Canadian Revenue Service, which has found Bitcoin to be property and not a legal currency, and the United Kingdom, which leaning towards treating Bitcoin as a voucher and subject to VAT.

Bitcoin is not a currency any more than gold bars or collectable baseball cards are. Or as tax maven Lee Sheppard puts it in a recent article in TaxNotes, Busting the Bitcoin Myths: “If Bitcoin is a currency, any tradable store of value would be a currency.”

That means the branding of Bitcoin as a “cyrpto currency” or “digital currency” is promoter hype which credulous journalist have repeated verbatim. As we’ll see, the fact that Bitcoin is not a currency in the eyes of many tax authorities, and the US will probably follow suit, has serious implications for this “innovation”.

The US Treasury will be determining what Bitcoin is for tax purposes. Sheppard is pretty confident that, like the Japanese, the US will deem Bitcoin not to be a currency. And Sheppard is not shooting from the hip. She’s a world-recognized tax authority and her article (sadly paywalled) is chock-full of references to the tax code, court cases, and regulatory practice.

Sheppard points out that a currency is defined as issued by a sovereign and accepted in legal transactions. Per Sheppard:

A privately issued medium of exchange is not a currency for tax and money laundering purposes. That does not mean that users of Bitcoin can’t get into tax or money laundering trouble, as the recent arrest of Charlie Shrem, vice chair of the Bitcoin Foundation, demonstrated.

Similarly, Financial Crimes Network enforcement regulators (FinCEN) have stated that Bitcoin exchanges need to register as money service businesses. New York’s financial services superintendent Benjamin Lawsky is also studying whether to regulate Bitcoin exchanges as money transmitters. Sheppard again:

FinCEN specifically stated that Bitcoin isn’t money, but when Bitcoin is exchanged for money, the exchanger has to comply with money laundering rules, which include reporting of large transactions.

And since FinCEN is part of the US Treasury as is the IRS, it’s highly unlikely that the IRS would go against the decision of another part of the Treasury (particularly since FinCEN is a big player in “terrorist financing” and hence has a lot of power, both domestically and internationally).

And don’t take any comfort from the SEC saying Bitcoin is a currency. The SEC does not have a vote on this matter. The only thing the SEC gets to decide is whether Bitcoin is a security. And it isn’t per SEC v. Shavers, a 2013 decision out of the Eastern District of Texas. Similarly, for real tax nerds, Section 988 isn’t germane either: “Section 988 is a property rule, but is applies only to property that started life as legal tender” which in the tax context, means foreign currencies and bank deposits.

The fact that some people might sell you stuff for Bitcoin, or baseball cards, or cigarettes, does not make it a currency. Moreover, merchants who accept Bitcoin quote their prices in government-issued currency.

So what is Bitcoin likely to be in the eyes of the IRS, and what are the implications?

Bitcoin is property. When property is exchanged for other property, that is a taxable event. Moreover:

Barter exchanges are reportable. Barter exchanges are required to report their members’ transactions to the IRS on Form 1099-B (section 6045 of the tax code). Section 6045(c)(3) defines a barter exchange as any organization of members who contract to trade or barter the property or services.

So not only is a venue that takes Bitcoin taxable on the revenues (which should be no surprise), the owner of the Bitcoin that traded them in is also taxable if he has a gain on the Bitcoin relative to when he acquired them. How that gain will be taxed depends on whether he is considered to be an investor, a dealer, or a trader.

Oh, and what about Bitcoin miners? Their income from mining is also taxable on the dollar value of the Bitcoins received.

And the fun part the IRS will not find it hard to enforce against Bitcoin users, since Bitcoin provides a complete audit trail of transactions. Sheppard agrees with our reading that the idea that Bitcoin is some sort of revolt against governments is delusional:

Libertarians, drug dealers, and tinfoil hatters like Bitcoin because it is not issued by a central government, but the irony is that it is more controllable and more traceable than the U.S. banknotes sloshing around former Communist countries…

Central bankers’s job of baby-sitting fiat currency would be easier if it existed only in digital form and not as counterfeit $100 banknotes. And a cashless system could have negative interest rates. So U.S. regulators seem to have decided to allow for Bitcoin to continue, while Russian and Chinese regulators are cracking down, and European central bankers worry about fraud on their customers.

And no, Bitcoin is not a way to solve the problem of the unbanked, particularly since Bitcoin will create all sorts of complicated tax reporting/compliance issues for users. As Sheppard tartly notes:

The problems of the unbanked are political….Provision of banking services to poor people at reasonable cost could be made a requirement of a banking license. Thinking that Bitcoin will solve banking problems is yet another example of digerati arrogance.

So while Bitcoin may play a role in commerce, it’s likely to fall well short of what its enthusiasts anticipate. And rather than striking an anti-government blow, its audit trail is a huge plus for official supervision and tracking. Indeed, if Bitcoin does attract something more than a fringe following, it will probably encourage to nudge it and bona fide digital currencies forward so as to eliminate much more difficult to track cold hard cash.

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130 comments

  1. R Foreman

    Last night I bought a year of vpn service using bitcoin. It went smoother than any prior transactions I’ve had (took about a minute; would’ve gone faster but I don’t keep the bitcoin app running all the time). The bitcoin I used has gone up 50% in the past 6 months. #BitcoinDeflation #DollarDevaluation

    1. Peter

      Scan the QR code with your phone and press send! No credit card number and personal details to type in. Bitcoin makes online payments more accessible to people like my gramma because it is so simply:

      -scan QR code
      -press “send”

    2. OMF

      That is, until the “currency” has another shock and your VPN provider turns around and asks for more money because their wallet stores are not worth squat.

      Also, are you certain that the block chain was verified by the time the transaction was completed? I notice that a lot of services payable by Bitcoin seem to be giving out instant transactions, and this can only lead to trouble.

      As to whether bitcoin is a currency, I say no, but I don’t see that bitcoin is a good or voucher either. Bitcoins are fundamentally distributed and ethereal things. I think the closest possible thing bitcoin can be said to be is a service. When you exchange dollars/euro/sterling for bitcoins, you are paying someone to communicate with the bitcoin network in a certain way. You are buying, not a thing, but a very special service.

  2. mmckinl

    Bitcoin will be destroyed by the US through hacking operations if taxing it doesn’t work … there will be no competition for the dollar reserve currency. Current US military and clandestine operations around the world are now dedicated to preserving dollar hegemony through espionage, threat of destabilization or use of force …

    1. jrs

      Well what a wonderful currency that is, just so love this currency whose power comes from empire, imperialism, and hegemony everywhere and all the bloodshed it implies (and I’m pretty sure it does – taxing authority may grant some legitimacy, but I dont’ think you can really say U.S. empire doesn’t matter – it’s how the U.S. attempts to maintain economic primacy which has to effect the currency).

      Really anything traded with can be a currency – yes even Ithica hours. But tax treatment of stuff can get sticky. I don’t know if they really want leftist alternatives (Ithica hours, LETS, community currency, even state or city currencies – and the states DO have taxation power! most have income taxes) any more than they want rightwing libertarian ones (bitcoin).

    2. Banger

      That may be the plan, I don’t know. On the other hand they may want in on it to control it and spy on others–Bitcoiners claim this isn’t possible–but in 5 years in might be. I think something like Bitcoin will emerge and there are other E-currencies around and something may emerge out of all this.

      But I don’t see the dollar threatened at all any time soon–it is too convenient for everyone.

  3. docg

    Thanks so much for this heads-up, Yves. The tax implications and legal status of Bitcoin are far from obvious, so this definitely clarifies the situation.

    I, nevertheless, welcome Bitcoin — as an endless source of amusement. It’s so obvious it’s a tulip mania thing, and so hilarious that so many “serious people” feel obliged to take it seriously. What I find particularly amusing is the theory that Bitcoin is a superior medium of exchange since, unlike all other currencies, it isn’t based on trust. In theory, Bitcoin is based on a self-regulating, fully automated, system that’s fully transparent to all users, so there’s no need to trust some central authority, such as a bank or government, as a guarantee of authenticity and value. The catch: well obviously you DO have to trust the Bitcoin system itself, which is by no means transparent.

    We’re told that certain people have invested huge sums in computers and the enormous electrical resources necessary to power and cool them. We’re told these computers are huffing and puffing day and night, mining new Bitcoins by solving esoteric math problems. But how can we be sure any of that is actually true? I read the original paper on which the Bitcoin concept is based. It’s certainly well written and looks authoritative. But how many of those invested in Bitcoins are capable of understanding it? And how many of those who can understand it are also capable of understanding the C++ source code that guides all those computers? From what I’ve read it’s written in almost incomprehensible “spaghetti code,” filled with goto’s — the mark of the programming amateur. Since Bitcoin isn’t regulated then, literally no one is responsible for checking any of this. And what reason does anyone have to trust those who’ve claimed they’ve checked it? What are the qualifications of such people, what does anyone know about them?

    For all we know, those computers don’t even exist. Or if they do, they could be running code that has nothing at all to do with Bitcoin. No matter how “sophisticated” the process, the result hinges on the person who records and then transmits it — who is that person and why should anyone trust him?

    So this whole idea that Bitcoin is designed, as the original paper claims, to be reliable beyond any need for trust, is pure hokum. Since I don’t own any Bitcoins and have no plans for ever getting any, then for me it’s just fun fun fun. As for the suckers who’ve fallen for the scam, sorry, but I have no sympathy for gullible fools.

    1. Vatch

      What about the tulip bulbs planted in my front yard? They’re still considered currency, correct? As far as I know, there aren’t any goto statements in tulip DNA!

      You’re right: Bitcoin is fun!

    2. F. Beard

      I have no sympathy for people who hope to profit by hoarding and deflation and neither does God according to “The Parable of the Talents” (Matthew 25:14-30).

      1. PaulW

        What deflation? The only things likely to fall in price are luxury items. The essentials keep going up and will continue to do so.

        Hoarding or saving is how one builds up capital, which used to be important in capitalism. Without savers you have debt and we’re going to find out what capitalism backed up by only debt leads to.

        Have sympathy for everyone, even those in a different financial situation or with a different viewpoint. Our ruling elites are banking on people not having sympathy for each other. That’s how they continue to divide and exploit.

    3. MyLessThanPrimeBeef

      The whole exercise reminds me of what ‘education’ was for me.

      It’s esoteric, not many understand it – it must be good, and, for those wondering what the bleep do we know, it must be god, as god is anything awesome that we don’t understand, which for a time, was thunder, the sun or the moon. Now, it’s quantum uncertainty or math algorithms.

      Because we are all ‘educated’ these days, it’s easy to buy into this kind of stuff.

      1. F. Beard

        Yep so you best seek out the true God so you won’t be ensnared by a false one.

        (I wouldn’t waste much time since faith is simple but not easy.)

        1. zapster

          Or simply assume that there are no gods and anything you don’t understand thus requires more investigation.

    4. Banger

      Actually the tulip mania thing may not be correct–see the article by Dean Starkman in the New Republic (restating, elegantly, what Yves and others have been saying here) where he refers to the issue of mania.

      I think it is more than a mania–it is fitting a real need and one kind or another of these sorts of currencies will become popular as people lose faith in central authorities. I’m on the fence about Bitcoin–and I can’t say I know enough about it to comment further.

    5. liz

      “Since I don’t own any Bitcoins and have no plans for ever getting any, then for me it’s just fun fun fun. As for the suckers who’ve fallen for the scam, sorry, but I have no sympathy for gullible fools.”

      I am enjoying this Bitcoin fall too and knew it was coming. I wasn’t sure how fast it would take. The fact that the wall street crowd has convinced the govt and most citizens that they couldn’t see fall of the sub prime scam coming, worried me that the same could happen again. Guess too many in this crowd were not already in the 1% elite from Harvard and Yale.

      1. jrs

        I suspect wall street will fall. I certainly wouldn’t invest most of my retirement in it. Neither would I put my retirement in bitcoins, but I think at least everyone recognizes the later to be stupid and not so much the former.

        But I don’t think anyone who has ever dabbled in bitcoin was speculating, that also seems pretty silly. They may have just been buying drugs. Or experimenting to see how bitcoin worked. Etc.

  4. Jesse

    All these things that Yves says are correct.

    Government fiat currencies are based on confidence and force.

    As confidence in the currency fades, force will increase. Until ‘exhaustion and collapse’ if necessary.

    1. F. Beard

      So gold is the solution?

      Come on. Don’t be shy, admit you worship a shiny metal. Confession is a good first step to recovery.

      1. Bobbo

        -100

        Instead of arguing about the way the world should be, let us recognize reality for what it is.

        Fact: The U.S. does use and threaten force to protect the hegemony of the USD.
        Fact: The USD’s chief competitor is the shiny yellow metal (which is why the U.S. refuses to sell off its reserves of this barbaric relic)

        Reasoning from the two established facts: Like it or not, gold is now and for the last century always has been the center of gravity of the world’s monetary system, and it will play a major role in the future. Love it or hate it, it is what it is!

        1. Coldtype

          You’re completely delusional. Only a fool believes that a shiny metal of uncertain supply can provide the monetary base for a monetized world economy of 7 billion people.

          1. weinerdog43

            So I guess there is no need whatsoever for the US Treasury to keep all those useless gold bars locked up in Fort Knox. Why is it still there? In fact, why do ANY central banks keep the shiny metal stuff?

            1. F. Beard

              In fact, why do ANY central banks keep the shiny metal stuff?

              Because central bankers themselves don’t believe in central banking and believe that that primitive relic is some sort of insurance against calamity.

              But how ludicrous! Progressive Gold-bugs! Have you guys not earned enough derision that you have to be metal worshippers too? Are you the clowns of the Universe?

    2. F. Beard

      FYI,

      From an ethical viewpoint, inexpensive fiat is the ONLY proper money form for government-debts since otherwise the authority and force of government is misused to profit private interests such as gold owners.

      Caesar is to be rendered Caesar’s money because it is Caesar’s – regardless of what it is made of.

      If you run Jesse’s Cafe then you should wise up since you quote Scripture.

      1. weinerdog43

        Believe whatever you want. I happen to believe in the Flying Spaghetti Monster, but that doesn’t diminish Jesse’s point. I very much enjoy having some Federal Reserve Notes in my pocket. I also enjoy having a genuine silver dollar or 2 as well.

        1. F. Beard

          Moses had a solution for worship of the Golden Calf: He ground it into powder, added it to water and made them drink it.

          Maybe you should get a metal detector and hunt for the latrine they used afterwards? If you have no human dignity?

          1. weinerdog43

            Yum! Can I have more of your delicious projection?!?!

            Seriously though, I’m not denigrating anyone’s belief. If you want to believe in gold, or paper money, or bitcoin, knock yourself out. If you believe in the old testament, or new testament, or no testament, that’s fine with me. But you are not qualified to lecture me, nor anyone else on this board.

            1. F. Beard

              I won’t recap my OLD comments pointing out the idiocy of commodity monies or the fascism of a government enforced gold or any other standard.

              Refute if you can but criticizing my style will just get you more of the same if anything.

              Hint: Your spaghetti monster is short changing you if you expect anything from it – such as wisdom. And you are truly a pitiful idiot if you equate the probability of existence of the God of Abraham-Isaac-Jacob-Moses and Jesus – not to mention the most successful culture the world has ever seen – with a silly fantasy.

    3. Hugo Stiglitz

      Whether or not Bitcoin is a currency, it is interesting for many reasons, not the least of which is that it contributes to undermining the legitimacy of the US dollar as the world reserve currency, rather ironic since Bitcoin is also fiat money, though, in theory fiat money that is not controlled by the whims of humans.
      IMHO, in the long run, the world is better off if the petrodollar is destroyed (assuming something more heinous does not replace it). The reason the US is able to bully weaker nations on behalf of its corporate elite is primarily due to its ability to simply create the money needed to run the machinery.
      A money system that is not based on eternal debt creation and not in the inevitably corrupt hands of bankers, central or otherwise, can evolve from the destruction of the de facto reserve currency. Exactly what will replace remains to be seen. Money backed by oil or a basket of strategic commodities, including precious metals, I think is something to consider.

  5. casino implosion

    The fact that bitcoin is not a currency, ie is not created by a sovereign government, is of course the entire point of the thing for the libertarians and goldbugs.

  6. allcoppedout

    I suppose we will have to wait to find out if and how Bitcoin got hacked and stolen. There were about 80 crypto-currencies last time I looked. None of them are directly exchangeable for beer. I can’t pay off my slate with any of them. Of course, breaking into a Bitcoin vault as opposed to your local Barclays leaves one needing to do further transactions before paying off your tab. There are deep questions as to whether Bitcoin was ever more than a Ponzi designed to allow whoever had control to have it away on their toes with real currency investments.

    The experiment does seem to demonstrate a world currency is possible and that any attempt to form one will be killed.

    1. milesc

      @allcoppedout
      “None of them are directly exchangeable for beer. I can’t pay off my slate with any of them.”

      Not that I would question a man’s (or woman’s!) choice of local pub, but there are, in fact, pubs that accept bitcoins. Maybe yours will too, one day.

    2. jrs

      Well a guy on firedoglake managed to live on bitcoin for awhile, even to buy food with it. Beer particularly I have no idea.

    1. diptherio

      Because the rich engage in currency trading while the poor are the only ones bartering. Just a guess.

      I had no idea that barter was a “taxable event.” Seems like a pretty tough one to enforce…(not in the context of bitcoin, of course)

      Anyway, time to go work off my rent….

      1. MyLessThanPrimeBeef

        It’s possible to have taxation without a currency.

        It’s also possible to have a currency without taxation.

        Basically, neither is conditional on the other.

        1. Coldtype

          That’s incorrect. Taxes drive money. The mechanism necessary to drive sufficient demand for a currency is for the sovereign issuer of that currency is to require tax liabilities to be paid in the currency of account and only that currency.

    2. F. Beard

      Because it rules out truly private currencies. Caesar is to be paid with Caesar’s money but the Bible nowhere says Caesar’s money must be used for private debts and in fact it was NOT allowed for the Temple Tax in Jerusalem.

      Fiat has enough natural advantages that it shouldn’t need to cheat. We’d avoid a lot of contention if people agreed to be ethical wrt money creation.

        1. F. Beard

          You’re welcome.

          Meanwhile it is 2014 and so-called modern man has NOT YET been wise enough to leave usury and oppression of the poor via unethical purchasing power creation behind DESPITE it being a major cause of WWII and 50-65 million deaths.

          I suggest YOU wise up: Proverbs is a great place to start. With the Ukraine heating up you may not have much time.

          Otherwise: Oink! Oink!

          1. PaulW

            Not so modern man did outlaw usury. From the beginning of its control of Europe the Roman Catholic church prohibited believers from money lending. This was during the Dark Ages and it didn’t exactly lead to utopia.

            Ukraine will lead to an economic war. With Russia and China holding so many US dollars and owning so much of the West’s debt I’m not sure your precious fiat currencies are going to like the consequences. Maybe you need to be the one to wise up?

            1. F. Beard

              From the beginning of its control of Europe the Roman Catholic church prohibited believers from money lending.

              False. The Bible (not that the RCC necessarily follows the Bible to any large extent) ENCOURAGES lending but NOT at interest.

              This was during the Dark Ages and it didn’t exactly lead to utopia.

              Common stock is an endogenous money form that requires neither usury nor government privileges like your precious banking cartel does.

              With Russia and China holding so many US dollars and owning so much of the West’s debt I’m not sure your precious fiat currencies are going to like the consequences.

              Let them sell. The US is monetarily sovereign and has no need to borrow in the first place.

              Also inexpensive fiat is the ONLY ethical money form for government debts. Rail against ethics, will you?

              Maybe you need to be the one to wise up?

              No doubt but I’m a lot wiser than when I started reading the Bible almost daily about 6 years ago.

        2. OMF

          Thanks for reminding us what a collection of bronze age myths has to say about it.

          Iron Age myths you ghastly philistinical boor!

    3. Yancey Ward

      This is hilarious. If you are an American who makes dollar income by trading dollars for foreign currencies and back again, I promise you- you are going to be paying taxes on net profits.

      1. F. Beard

        But what about a capital gains tax whereby a loss in the real value of fiat would register as a phony capital gain in a private money? That would not be playing fair.

        1. David Petraitis

          US citizens are ALREADY taxed like this in the present. If you work overseas and have a house which you bought in a foreign currency (because your wages were paid in that currency and the taxes on the wages and the house are paid in that currency) when the US dollar falls and you sell the house even if you sell at a loss you will be taxed capital gains on the two differing dollar amounts at purchase and sale.

  7. susan the other

    Yves’ last sentence is a portent of things to come. She mentioned a while back that Bitcoin might be a trial run for a new digital currency. If it is then there will not be a harsh crackdown on it. It will become extremely useful tracking legitimate currencies.

    1. Dan Kervick

      We already have a digital currency, although it’s units are convertible into and out of physical units of the currency as well. In order to convert the dollar entirely into a digital currency, no new platform or algorithm is needed. All the government would have to do is announce that by a given date they will be suspending the issuance of physical currency, and at some slightly later date will cease accepting physical dollars in payment of government obligations, and cease enforcing its status as legal tender for private debts. The entrepreneurs will take over from there, extending existing systems and electronic payment technologies (for example, vending machines would have to be replaced with machines accepting check cards or other readable electronic payment devices.) Perhaps the expansion of post office banks will address the problem of the unbanked.

      1. Binky Bear

        All they would have to do is stop issuing new physical currency and through attrition the supply of physical monetary instruments will decline until they are limited by the actual need of them for transactions. “Paper” money would decline relatively soon, and coinage has intrinsic value as metal that has seen copper pennies disappear in favor of zinc.
        The only place I get Sacajawea dollar coins is the post office, from the stamp machine, and many stores refuse to take them because of lack of familiarity. Where do they go? The post office and casinos. Easy to manage quantities in those venues.

      2. F. Beard

        Perhaps the expansion of post office banks will address the problem of the unbanked. Dan K

        Actually, a major problem is that people are forced to use banks for convenient, risk-free storage of and transactions with fiat since the banks have a default, government-subsidized monopoly on that. Most of us should be in a Postal Savings Service leaving 100% private banks with ONLY 100% voluntary depositors.

      3. PaulW

        Given that this is a society obsessed with convenience, the cashless society will be welcomed with little resistance. In Canada, the penny has already been abolished and the majority of the population love that decision. Doesn’t seem to occur to anyone that the people in charge are so incompetent they can no longer run an economy with the penny in it.

  8. Dan Kervick

    A lot of these decisions strike me as just arbitrary semantic games played by different governments in different ways in order to regulate and tax Bitcoin transactions without re-inventing the wheel, and by using their pre-existing tax laws and regulatory schema. The basic principle at work, I think, is that people shouldn’t be able to escape the commercial rules and tax obligations that apply to everyone else by hiding their economic relationships and transactions with a “crypto-currency”. Whether we choose to classify Bitcoin as a genuine currency or some kind of commodity is really neither here nor there, except insofar as it matters for the application of laws that contain the words “currency” or “commodity”. Presumably, disputes about the application of existing laws will begin to work themselves through the various national legal systems, and eventually legislators will have to get involved to tie up the loose ends.

    More important is whether Bitcoin is showing a capacity to achieve the lofty ambitions its early admirers had for it. And I think that is definitely proving not to be the case. Conventional state currencies aren’t just used for making purchases, but are accumulated and saved as a ready source of liquidity in between the time people use them for making those purchases. Bitcoin has proven too volatile and insecure for that purpose, since it comes with no attached monetary authorities or easily verifiable legal records of transactions. As a result, apart from the speculators, people are converting state currencies into bitcoins solely for the purposes of making a payment, with the end recipient converting back to state currency after the transaction. This means that transaction costs are added to each end of the transaction, reducing the supposed cost savings. The Bitcoin system does seem to have some definite present benefits for international transactions, but those will probably disappear in relatively short order as international payment systems continue to evolve.

    Currency and payment systems that are based on unregulated, do-it-yourself mechanisms are just not the sort of thing to which most people are going to want to migrate and accept for everyday purposes.The partly clandestine and P2P aspect of the crypto-currency, which is supposed to be the source of cost savings, comes with some heavy costs of its own. Also, it beggers belief that the enthusiasts think that responsible people in mature societies and their governments are going to allow massive tax evasion and money laundering schemes to grow and thrive in their midst.

    1. F. Beard

      Also, it beggers belief that the enthusiasts think that responsible people in mature societies and their governments are going to allow massive tax evasion … Dan K

      Taxes should be unevadable otherwise they violate Equal Protection of the Law in favor of the lawless. It seems BitCoin is making obvious the unethical nature of our tax system and our one-size-fits-all money system.

      Ya can’t cheat an honest man, tis said, so why don’t we have an honest tax and money system? It’s inevitable anyway since God/Good must ultimately triumph.

      1. Robert Dudek

        Willingly paying taxes to a corrupt system makes you complicit in its corruption.

        BTW “You can’t cheat an honest man” is horsesh*t. Have you even heard of fake charities bilking well-meaning people out of money?

        1. F. Beard

          Willingly paying taxes to a corrupt system makes you complicit in its corruption. Robert Dudek

          Romans 13:1-9

          Have you even heard of fake charities bilking well-meaning people out of money? Robert Dudek

          A fish rots from the head down. Have you ever heard of central banking?

              1. Banger

                So did Plato’s dialogues and the I Ching–how is that an argument? The fact is that “The Bible” was in flux 2k years ago. There were many competing scriptures and hoo-ha about heresy and Gnostics who had to hide their texts in places like Nag Hamadi–check out those Gospels if you dare. It wasn’t until somewhere near 300 AD that Christians generally recognized the current set-up and even there the Catholic, Orthodox, Protestant and Ethiopian churches (theirs is very different) have some differences.

                1. F. Beard

                  Yep, life is messy. I suggest you not waste time sorting it out to your satisfaction. It took me decades.

                  1. F. Beard

                    Rather, don’t waste any time before you start sorting it out since it took me decades.

              2. PaulW

                I hate to nitpick but 2000 years ago was 14AD and not a single New Testament book had been written. As correctly pointed out, if you give or take 3 centuries then you are “about” right. As for it existed in completed form. that’s open to debate. I’d even suggest the definitive Bible you keep referring to is the product of the 17th century King James scholars. Which makes it about 400 years old.

                I do agree it’s not nonsense. It’s just a question of how relevant it is to modern economics. Everyone is allowed their own beliefs. The art of persuasion is a bit more tricky.

                1. F. Beard

                  I said “about 2000 years.” The NT was completed by about 100 AD

                  So it seems you do like to pick nits – non-existent ones.

                  1. PaulW

                    Then why not say 1900 years and avoid confusion? Though most scholars would disagree with you that the NT existed in completed form by 100AD. Many believe the Gospel of John wasn’t even written yet. Plus ancient theologians were arguing over what books made the canon until the 4th century. Your “completed” form defies history.

                    1. F. Beard

                      For one thing, I mostly use the Old Testament which was completed by about 450-400 BC.

                      So the true age, for my usage, is closer to 2400 years, not 1886.

            1. F. Beard

              My point about the “fish rots” is that those who are victims of central banking might think it just to loot back with phony charities designed to appeal to the rich.

    2. milesc

      @Dan Kervick
      “Conventional state currencies aren’t just used for making purchases, but are accumulated and saved as a ready source of liquidity in between the time people use them for making those purchases. Bitcoin has proven too volatile and insecure for that purpose, since it comes with no attached monetary authorities or easily verifiable legal records of transactions.”
      More or less volatile than eg the Zimbabwean dollar?
      And what could be a more easily verifiable legal record of transactions than the blockchain?

      1. PaulW

        Regarding that volatility, it seems Bitcoin’s rise in value occurred while the Federal Reserve was creating $85 billion a month. Plus other central banks were also busy with money creation. That money had to go somewhere. Why not invest in Bitcoin, drive the price up but also gain leverage to control that price in the future? Of course financiers never want to manipulate markets, therefore this silly idea has only popped into my head.

      2. Dan Kervick

        You can’t recover from the blockchain who participated in the transaction. If one party cheats another, there is no legal recourse.

    3. jrs

      Right we don’t allow massive money laundering schemes to grow in our midst. Oh perish the thought!!! HSBC.

      1. Yves Smith Post author

        And Wachovia and Standard Chartered….and those are the ones we know about.

  9. Johann Sebastian Schminson

    The most valuable thing about Bitcoin — for all of its flaws — is that it presents a threat to the status quo. That alone makes me want to begin mining them and trading with the like-minded.

    Just ’cause it ain’t currency, don’t mean it ain’t money.

    That said, the analogy between gold and Bitcoin is strained, at best. While gold is trumpeted as a virtuous store of value by one group and as a barbarous relic by the opposition (both sides insisting the other is composed entirely of cretins), those shouting “Barbarous Relic” the loudest (the Skittle-shitting Unicorn Central Bankers), are in no rush to leave their gold holdings out back, by the dumpster.

    Rather than lose control, maybe they should stop shitting Skittles and go into the Bitcoin business, themselves.

  10. John B.

    And rather than striking an anti-government blow, its audit trail is a huge plus for official supervision and tracking.

    There is an audit trail (so called blockchain), but it identifies parties to each transaction only by their bitcoin address, which is randomly – looking string of letters and digits. Anybody can generate bitcoin address without disclosing anything about oneself, even email address, let alone name etc. So bitcoin addresses are pretty similar to physical cash in this respect. The only point when association between a person and bitcoin address can be made is when somebody tries to exchange bitcoins for dollars or other currency at one of bit coin exchanges, because of legal requirements that bitcoin exchanges must abide by. If somebody buys something directly for bit coins without exchanging them for dollars first, it’s virtually impossible to identify the identities of the parties to the transaction.

    1. Yves Smith Post author

      Did you miss that the authorities are requiring Bitcoin exchanges and transferres to register and be regulated as money exchanges? They’ll be required to get and keep relevant details about their customers. And remember, we operate in a NSA full surveillance state. I sincerely doubt any anonymity will last long. The digital identities can be decoded. The government has the power to make one or the other side decode.

      1. Peter

        I’ve always been impressed with your work Yves, but it is clear that you don’t really understand bitcoin. John B is correct and your point about exchanges performing KYC is irrelevant: bitcoin-to-bitcoin transfers have good privacy protection when desired.

        Here is a recent transaction I sent funds through:

        https://blockchain.info/tx/bd30831ff10344c63ff168a3491b503e366c3b56a6041b1b254aec82c4e7fd54

        You have no idea where my funds came from, where they went, or how they link to other bitcoin addresses I may control.

        1. Yves Smith Post author

          Bitcoin to Bitcoin transfers are useless if you can’t convert them into real economy goods. Do I really want to buy baseball cards and trade them only for other baseball cards? Only if I am seriously into baseball cards.

          You really need to get a grip on where the regulators are moving.

          Think of it this way: loads of people transaction for cash in NY every day, anonymously, and the law still applies. The government can find out who is transacting, even if they’ve covered it with digits, because it can subpoena people and engage in even more extreme measures, like subpoenaing records, seizing equipment, and if they suspect criminal activity, freezing accounts. Why do you think nothing is traceable, when Bitcoin provides much more evidence than cash transactions? If that were true, the government would not have gotten to Silk Road.

          1. OpenThePodBayDoorsHAL

            Yves I pay software developers, landlord, my bus to work in Canberra, dinner at the restaurant, all in Bitcoin today. I know a company that has an NFC Bitcoin chip that can be read by any merchant terminal, the merchant can decide to get bank money or hold Bitcoin. The decentralized money revolution is arriving, just like we now have decentralized journalism (blogs) decentralized lodging (airbnb) decentralized communications (email), decentralized transport (Uber) etc

            1. Yves Smith Post author

              You live in Australia. The designation of bitcoin as property will kill uses like the ones you describe. Every transaction is a taxable event to you and requires you to track and report gains and losses.

              1. skippy

                lmmao what happened to Barter Card down under, and why do libertarians remind me of an Amway convention lobby bathroom crowd.

                skippy… Ross and Co did get theirs first, reincarnation after the bust with the hair dresser thingy, “C’est la vie” [!!!].

  11. Robert Dudek

    I find it amusing that so many people seem so sure of what the future of bitcoin is. Wow, you must have an incredible ability to predict the future. I wish I did too, because I haven’t a clue about what will happen in the future.

    Except that in the end all money systems turn to dust as do we all.

    1. F. Beard

      1) BitCoin is a stupid money form and could not survive in a true free market of private money creation – should we ever have one.

      2) BitCoin might easily lead to a true free market of private money creation and thus ensure its own demise in which case many thanks to its creator!

      1. OpenThePodBayDoorsHAL

        OK folks, prepare for the final word on Bitcoin from someone who has studied it intensively for 18 months (true statement but tongue located somewhere in vicinity of cheek).
        For starters can we please agree that ALL money is an illusion. The only thing that gives the little slips of green paper value is the belief that there is someone else who also believes they have value and will accept them in return for a certain amount of goods & services. Bitcoin may be small for the moment BUT IT CAN EASILY SATISFY THIS ALREADY. I currently pay a software developer in Prague in Bitcoin, he produces excellent services in return for this token of value. End of argument: Bitcoin is money because WE THE USERS SAY IT IS. We do not need a government to somehow provide legitimacy. And yes any gains are taxable under current tax law, simple.

        The second argument for Bitcoin is its utility. It can function as programmable money: for example, I can program so it is owned and controlled by more than one person, so any movement (spending) must be approved by 2 of 3 people. I can give my son $20 worth that can only be spent at Lowe’s cinema on Friday night between 8-10PM. I can program it to represent 1 share of Google, which can then be instantly and undeniably transferred with one mouse click. Can your green paper do that? Can your shiny metal do that? Money can succeed merely because it’s useful. Swedish money in the 16th century was 10 kg. copper bricks…valuable but not so useful.

        People think Bitcoin is not regulated, but this could not be further from the truth. Bitcoin is regulated by a much more reliable, immutable set of laws than any fiat bank money: the rules of mathematics. You may wish to watch like Kremlinologists, trying to divine the next moves of central bankers who create as much money as they feel like at the click of a mouse. Recall that those bankers’ current publicly-stated objectives are to reduce your money’s purchasing power by at least 2% per year, oh thank you so much for that. I prefer to have my money supply regulated by a set of apolitical mathematical rules. Changing those rules would require a community of tens of thousands of private citizens around the world to act in concert directly in opposition to their individual and collective economic interests, not going to happen. Or at least MUCH less likely to happen than the KNOWN pace of devaluation under bank money regimes.
        Ah but what about the shiny stuff? Hasn’t it protected us throughout history against governments and bankers who want to print and spend? This is the tragic part…because gold has been hijacked. Paper tricks now completely govern its fiat reference price, LBMA 100:1 trading, naked short selling, futures markets slams, fixed fixings, ETF emptying schemes. Tragic, but gold is broken I’m afraid.
        Where does that leave us? There are plenty of details still to work out with Bitcoin. The user experience is terrible (here’s a sound for you “EEEEE-OOOOOH-KXXXX” that’s the sound of dial-up internet circa 1997.). We urgently need hack-proof storage (on its way, look up Trezor hardware wallet). The current interface with bank money (exchanges) is awful but the geeks are solving that: 100% auditable, 100% transparent peer-to-peer decentralized exchanges. Can your green money do that?

        1. F. Beard

          For starters can we please agree that ALL money is an illusion.

          No, because most of the “money” we have in our accounts was created by the banks as debt and MUST be repaid PLUS interest.

          Now private money NEED NOT be DEBT but in that case a balance sheet informs the only other choice is shares in Equity, common stock, but that’s not an illusion either.

          Some fiat CAN BE essentially debt-free (if the monetary sovereign never runs budget surpluses and never borrows) but a lot of it is a debt owed backed to the monetary sovereign and that’s no illusion either.

          You were saying?

          1. OpenThePodBayDoorsHAL

            You might want to look up the essay “Money is Memory” by Kocherlakota.
            Bitcoin is private money not issued as debt.

        2. OMF

          The current interface with bank money (exchanges) is awful but the geeks are solving that: 100% auditable, 100% transparent peer-to-peer decentralized exchanges. Can your green money do that?

          Can your digital currency continue to operate beyond the time when the mining/coin ratio becomes unprofitable for even the current mining pools?

          The great unanswered question of Bitcoin is what happens when the coins, effectively, run out? There has been some handwaving about transactions enticing miners with payment fees in the block-chain, but as yet I see no evidence that the current community of Rand-ists, basement hackers, and above all finance men are prepared to pay a dime for their transactions.

          I have difficulty believing that transactions fees will “just happen” while simultaneously being a) low enough that transactions are cheap/affordable in Bitcoins, but b) expensive enough to make it economically affordable for miners to process the ever more difficult block chains.

          This is a major hazard coming down the tracks and will be the make or break moment for the entire Bitcoin project. I remain skeptical.

          1. OpenThePodBayDoorsHAL

            Bitcoins run out in the year 2140. I’m not worried, nor do I think we will be using centrally-issued violence-backed slips of green paper then. On mining, if difficulty gets too high and profitability too low, miners will drop out, difficulty will drop and it will be profitable again. All that computing power is what secures the blockchain.

  12. Yancey Ward

    Exchanging currency for currency is a taxable event, too. What exactly is the point here other than to try to take away the label of “currency” away from Bitcoin. Look, a trade is a trade is a trade. There are a lot of false and semi-false claims being made about Bitcoin by its enthusiasts, but calling it a “currency” isn’t one of them, regardless of how governments label it.

    1. jrs

      I think the legitimate point is be aware of tax consequences. Which is ALWAYS good advice. The tax code is almost endlessly complex (and even progressive taxation need not be complex) and you can’t be too careful, best not to get out of bed tommorow without consulting a CPA :).

      As for what is a “currency” based on whatever the IRS or something decides, they decide tax consequences which do affect things, but they don’t actually decide how the language is used (does currency have some platonic form now?), and as if there was no history at all, as if humans haven’t historically used many many things as currency.

      Whether it’s good that the IRS may want to quash bitcoin is doubtful. But just like no government NO MATTER how many civil liberties and democratic principles it grants (ok clearly the current U.S. government is not big on civil libs or democracy), does not allow the rise of other governments in it’s territory that will overthrow it, perhaps in the modern era no government allows alternative currencies. Of course given the system we actually live in this empowers banksters and enforces the existing system (capitalism, wage slavery etc.) which of course the existing government exists to enforce as well.

  13. Johann Sebastian Schminson

    There are three primary ways of creating value: Mining, farming, and manufacture. All three take effort (inputs of time, energy, and stored value). Bitcoin reintroduces the idea that value cannot be pulled out of thin air, to be controlled and doled out as a scarce commodity by those profiting from doing so. Mining a Bitcoin takes effort and time. The resource, itself (and like all others) is finite, by design.

    To TPTB and their infinite, yet scarce fiat “legal tender” scheme, Bitcoin is as much a philosophical/political statement as the opening salvo of any revolution.

    Will it succeed? Who knows?

    Right now, one Bitcoin is worth more than $600 (I have no idea what the input costs are).

    As with anything, supply and demand will determine the economic validity of the Bitcoin. Its delegitimization will further validate its underlying premise.

    1. F. Beard

      Mining a Bitcoin takes effort and time.

      That is a very STUPID, MASOCHISTIC way to prevent over-issue.

      Instead, let fiat be legal tender for government debts only and let fiat and private* monies compete for the payment of private debts only.

      Cut to the chase: Common stock will beat all other purely private money forms which is why the stock market trends ever upward in the longer run.

      *Good ONLY for private debts, never government ones.

        1. F. Beard

          No argument there. I could add thieving, corrupting, hypocritical and anti-Biblical.

          Also murderously unstable as WWII attests.

    2. jrs

      Whether those things create value in any but the shortest terms is doubtful. We are told fracking creates value. Ok it creates natural gas which heats houses say providing some value when burned. But if it pollutes the water supply for decades to come is that really net value creation? Farming creates value? Ok if it’s permaculture it probably is pure value creation, but what if it’s industrial agriculture, it creates food and people eat it, that’s a value, but what if it turns the land into a dustbowl, is it really net value creation? It’s certainly not COMPARED to permaculture! The current system seems to have no way to VALUE real LONG TERM value creation! And I don’t think bitcoin is any better in this particular regard (although alternative even crypto currencies based on very different principles perhaps might be). The problem is the existing system of “false scarcity” of artificially created scarcity, is destroying the life support systems of the environment and will lead to REAL scarcity in the long run (when all the water is polluted and all the farms are dustbowls etc.).

      Failing to get the existing system to value real scarcity and what really is valuable (soil, climate, water, and human ingenuity as well!), maybe it’s time to try a post-scarcity model?

      1. Johann Sebastian Schminson

        If I have food, heat from timber, coal, or any other source, and a blanket (yes, I gathered, and you have none of those things, you would see the value of my having grown/collected, mined or harvested, and manufactured something of value.

  14. digi_owl

    No surprise there, as the fervent believers in bitcoin seems to have a striking similarity to goldbugs…

    1. PaulW

      There is a similarity in frustration and distrust of authority. Some people are looking for alternatives. Could be money under the mattress, gold or Bitcoin. At least the last idea is new so one can appear clever and progressive(that mattress idea is so old). However there is a big difference between Bitcoin and gold as most goldbugs want physical gold in their own possession. Bitcoin is anything but physical. For some, like me who don’t understand it, that’s just a reason to distrust it.

  15. Peter Pan

    All my wealth and all my transactions are in a digital currency known as $USD.

    Crypto-currency is just another financial innovation: an innovation in fraud. Yves likes to say it’s a “prosecution future”, and while she did mention the SEC, we haven’t yet heard from the CFTC as whether a crypto-currency is a tradable future product. I suspect it shall remain an OTC product. Perhaps there will even be CDO’s, CLO’s, CMO’s, synthetic variations and CDS in crypto-currency. Financial innovation = innovation in fraud.

  16. Banger

    As I understand Bitcoin, which is not very well, it is an alternative currency that allows you to transact business outside the view of governments–I think it’s that simple. Whether it’s legal or not I don’t care for a number of complex reasons but the chief of which is that the current set-up is illegitimate.

    It would be up to the government to track these illegal transactions and I say they won’t be able to anytime soon–maybe in five years–but by then technology will have moved on. The fact is, I believe, about 20% of global GDP is illegal and that’s a very, very big sector and it will be serviced one way or the other.

    1. R Foreman

      Oh no, it’s in full view of everyone, including the governments. However, the governments don’t know which individuals are behind some of these bitcoin accounts. The bottom line is bitcoin as money is outside the control of governments, so I imagine they fear it somewhat.

      https://blockchain.info/

      The only way to regulate bitcoin is at the point of conversion from sovereign currencies (or perhaps an online bitcoin exchange also), and also with the merchant who accepts it for payment. Unfortunately these regulations would have to happen for every country throughout the world, or they won’t be applied evenly and fairly.

      Last time I checked the world population doesn’t exist under a single justice system, and until it is bitcoin will be prohibitively expensive to regulate (even with the NSA super-databases involved). Knock on wood though.. before you know it we’ll all be giving allegiance to the antichrist throughout the world.

      1. Yves Smith Post author

        What good is Bitcoin if you can’t transfer it into real world goods and services? In the US, it’s clear that we are moving to a regime where you won’t be able to use Bitcoin unless you are a registered money transfer business, and they will require customers to provide details about who they are. The US drives FinCEN regs (we get very high levels of cooperation from other major central banks and regulators on money laundering and terrorist financing issues) so broadly similar regs will be coming in all major currencies (sterling, yen, euro) soon.

        And the money laundering types cracked down long ago on the simple schemes for evading the tax man, like spending with a credit card that was paid by a foreign company from your Swiss bank account.

        So Bitcoin won’t be anonymous any place that counts. If you are rich enough to live in Monaco, or want to live in South America, you might be able to use it and keep your anonymity. But advanced economies, fuggedaboutit.

        1. Robert Dudek

          What about a crypto exchange/marketplace founded by anonymous individuals located outside the US, whose customer accounts are accessed by username and password only.

          1. Yves Smith Post author

            Doesn’t solve the “how do you buy goods and services in advanced economies” problem. Unless maybe you buy diamonds and stitch them into your clothing. But you think a diamond dealer on 47th Street will take tens of thousands of dollars of diamonds from someone not in the trade and give you cash? Hint: go to 47th Street, all the building where diamond dealers are housed say “trade only” as in retail customers not welcome.

            With jewelry, you buy retail and sell wholesale at best (and retail markups in jewelry are 2-3X, if you are really connected, you’ll pay a “thin profit” of a mere 15% markup). You’ll pay a major haircut even for this route, and that’s before we get into travel costs.

          2. vlade

            You mean like Silk Road? As Yves says, BTC has to be convered to real world stuff at some point to be of any use. If you transact in small amounts, you could likely deal with cash, but if we start talking some reasonable money (as in >100k), you start having all sorts of problems. That is, unless you use it to buy drugs etc. and convert that to cash. Not that’s the safest thing to do either.
            Anyways, a more serious problem has been pointed to in links in todays FTA http://www.creditslips.org/creditslips/2014/03/is-ucc-article-9-the-achilles-heel-of-bitcoin.html That in effect means once a BTC went through a business that has a secured loan from a bank, the BTC is tainted forever (short of court ruling) and no matter who “owns” it, it falls as a collateral to that secured loan. And as the trasnactions are traceable, finding the current owner of the bitcoin (or splits) is entirely possble, making it an easy and quick target.

        2. milesc

          “What good is Bitcoin if you can’t transfer it into real world goods and services? In the US, it’s clear that we are moving to a regime where you won’t be able to use Bitcoin unless you are a registered money transfer business, and they will require customers to provide details about who they are.”
          Who says you can’t convert bitcoins into real world goods and services? There are retailer exemptions that mean businesses can happily accept bitcoin payments without the need for money transmitter licences or burdensome AML/KYC requirements. Obviously very large transactions might require a little more, but that is to be expected (and it’s certainly no worse than transacting in USD).

          1. Yves Smith Post author

            Reading comprehension fail. The issue is secrecy. Now you are changing topics.

            The issue is that in the not at all far future, if you are to convert Bitcoin into goods and services in an advanced economy, you will need to do so through a registered money transfer agent. That will require disclosure to the money transfer agency the identity of the customers.

            You can have a useful barter mechanism (Bitcoin for real economy goods and services in advanced economies). You can have secrecy. But you won’t be able to have both.

            1. OpenThePodBayDoorsHAL

              Yves its just not so. I exchange Bitcoin all the time. And no one is asserting I need some kind of license. Take a look at Bit Torrent. The music industry spent hundreds of millions trying to shut it down. Fail. Today it is 40% of all web downloads (all web surfing is just 13%). If they tried to arrest everyone using it they would have to put a fence around Oklahoma and stick everyone inside.
              Money is moving from centralized top down to decentralized bottom up. Thank goodness not a minute too soon.

            2. milesc

              I’m confused – what do you mean when you say, “transfer [bitcoins] into real world goods and services?”
              Do you mean pay for goods and services using bitcoins? Do you mean covert bitcoins to USD in order to pay for goods and services? I’m not an economist – maybe “transfer” means something else entirely and I have missed the point.

  17. Steve Roberts

    I have no skin in the game but:
    how does the IRS determine ownership, sale, cost basis and assess tax if the exchange servers are in a foreign land without a US banking treaty? Is Japan going to demand an application to open an account with a tax ID number associated with every wallet?

    BTC is a bubble but I’m not sure this is what bursts the bubble.

  18. indio007

    Technically there are no bitcoins. What we call BTC is network access to a cryptographically secured ledger of network transactions.

    I do have to say that the terms money , lawful money, currency , legal tender , notes, bills, negotiable instruments, bills of exchange , yada yada yada are gamed by gov’ts.
    They all mean different things but they are used interchangeably.

    The executive branched of various countries will call BTC this or that. Ultimately the courts will decide what they are. That will be dependent on the law of the particular case and the underlying transaction.

    The easiest solution for people that don’t want to be taxed is do not convert in to a fiat currency.

    All they gov’t can set the value of BTC versus their currency to anything they like.

    If you want to be out you have to be all they way out. One foot in and one foot out is doomed to failure.

    1. F. Beard

      The easiest solution for people that don’t want to be taxed is do not convert in to a fiat currency. indio007

      Which is why taxes should be unevadeable – such as a land tax.

      Dang! I even have to tell Progressives how to tax!

  19. Johann Sebastian Schminson

    It’s a little strange that, theoretically, each dollar has a serial number — a unique identity that the government can track. Yet this official currency is ultimately used by virtually every criminal enterprise on the globe. Its recent history has seen wholesale counterfeiting (notice that we now have a pink $10 bill, among other radical changes to the design of our currency. Remember when currency design changes were rare enough to be newsworthy?).

    Bitcoin will further criminal enterprise? More so than the USD?

  20. TarheelDem

    Bitcoin is a triple-entry accounting standard for the internet that accounts for buyer-bank-seller transactions and authenticates and validates the transactions through distributed processes.

    Everything beyond this is to the specifications of the “exchange” site owners. And those have tried to commodify and monetize it in government currencies through exchange rates without developing bitcoin-to-bitcoin transactions.

    It has less claim to being a money than bills of exchange on bales of cotton did in the 19th century. With bitcoin there is no cotton.

    Conflation public notions of currency and money provided a marketing opportunity.

  21. John Regan

    Yves, I think you’re way off, although I agree that Bitcoin has its problems.

    http://strikelawyer.wordpress.com/2014/03/05/bitcoin/

    I mean, if the government wants to define “currency” as something only it can actually issue I suppose no one can stop them. But it’s not true that other media of exchange cannot be “current” in the sense that is usually meant in monetary economics.

    Also, whether Bitcoin or anything else is a “currency” would seem to me to have no impact at all on whether transactions involving them are taxable, or how they are taxed. I don’t know why the taxing authorities are at all spooked by any of this. I don’t see any difference from a taxing authority’s perspective than when people use paypal to pay for Amazon stuff.

    I assume Bitcoin gains against the dollar are taxed when realized, just like any forex trader’s gains would be.

    None of that, it seems to me, is the problem with Bitcoin. Rather, the problem might be – I’m not sure, but might be – the crazed anti-government rhetoric surrounding Bitcoin. Government I think does have a role to play in currency, mainly with respect to weights and measures.

  22. Lil'D

    Bitcoin evokes bad science fiction. Too technical for a libertarian like Heinlein. I could see Neil Stephenson creating it, though.

  23. JCC

    Bitcoin does not pass “the Grandmother Test”. i.e., how are you going to easily explain to the Grandparents how to set up a wallet, secure the wallet, purchase items, track the purchase, etc. It’s way to complicated for the average person who just wants to buy a cup of coffee or a loaf of bread.

    I think these two videos sum it up very well:

    Sh*t Bitcoin Fanatics Say – 1

    Sh*t Bitcoin Fanatics Say – 2

    Part 1 says all the “right” things. Part 2 tells the reality. Both are short, sweet, funny, and straight to the point.

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