Bitcoin is getting hammered today. The Caixin website says it has seen the draft of a Chinese central bank ruling that would require banks and payment service providers to stop dealing in Bitcoin as of April 15. The implications:
This means people will only be able to use cash to buy bitcoins, an analyst who has been following the matter said, and will force all trading websites in the country to close…
The requirement, which Caixin saw in a document the central bank’s headquarters recently sent to regional offices, says money can be taken from the accounts before the deadline, but no deposits can be made. Banks that fail to close the accounts will be punished, the PBOC said, but it did not elaborate on what those punishments would be.
And notice how the thinking of the Chinese authorities is similar to that of their counterparts in Japan and the US, albeit even more forceful:
The circular said bitcoins are a commodity, not a currency. It added that investors are free to trade in bitcoins at their own risk, but should know they cannot be used as legal tender.
This would be a serious blow, since roughly 60% of global Bitcoin trading occurs in China. Bitcoin prices fell by almost 10% today.
Separately, Bitcoin enthusiasts seem not to have grasped the implications of the IRS notice in the US on the status of Bitcoin. As we predicted, the IRS has deemed it to be property, which means that Bitcoin mining will be subject to income taxes. While Bitcoin may be viable as a speculative vehicle, this ruling will make it impractical to use it in commerce. I spoke about the record-keeping and reporting burdens, since any end user who holds Bitcoin will be subject to short or long-term capital gains treatment when he cashes in his Bitcoin for stuff or services. I may have done readers a disservice by not spelling out in more detail what that means in practical terms. Georgetown law professor, at the Credit Slips blog, filled in that gap:
For a payments geek, the real lesson from the IRS Bitcoin ruling is that for a currency–or any payment system–to work, its units must be completely fungible. One reason dollars work really well as a currency is that one $20 bill is entirely fungible with another $20 bill. This means that when I pay, I don’t have to make a decision about which $20 bill to use (unless I have some idiosyncratic attachment to the crisp ones or the like). It means that when I accept a payment, I don’t care which $20 bill I am given, in part because I know that my ability to spend that $20 bill will not depend on which $20 bill it is. If payment were in, say, camels, then it would probably matter a great deal which camel were tendered. Camels aren’t fungible. And we know that’s not going to make for a very good payment system.
So what does this have to do with Bitcoin?
The IRS ruled that Bitcoin and other virtual currencies are property, not currency. This means that they are subject to capital gains taxation. And that means that Bitcoins are not fungible. The price at which a particular Bitcoin was acquired (and this is traceable) determines the capital gains on that particular Bitcoin when spent. If I spend Bitcoin A, which I bought at $10, but is now worth $400, I’ve got a very different tax treatment than if I spend Bitcoin B, which I bought at $390. (Poor Satoshi–he’s got a lot more capital gains than most…) This means Bitcoins are not fungible, and that makes it unworkable as a currency. If I have to figure out which particular Bitcoin in my wallet I want to spend and what the tax treatment will be, Bitcoin just doesn’t work as a commercial medium of exchange. Bitcoin still works as a speculative medium, but Bitcoin’s claim has always been to being more than the latest iteration of the trading sardines–it aspired to be a commercial medium. I don’t see that happening now.
And despite the confidence of Bitcoin enthusiasts in the technology, the Mt Gox bankruptcy revealed a significant flaw, that of “transaction malleability” and cloning. In simple terms, a peer-to-peer network supposedly tracks a public ledger of Bitcoin transactions. But the bugs apparently have not been worked out (I have this from a writer working on a story. Intuitively, you can see how this would be easily done on via a central ledger; a distributed ledger adds complexity and hence the potential for mischief). Transactions can be both cloned and hidden from the network. While the core developers have been working on a fix, one can see that this could easily become an arms race, not just in terms of technology but conceivably speed. If so, the continuing effort to keep ahead of fraudsters will not just add to perceived risks (for mere mortal users) but also to the costs of active market participants like exchange operators.
So I remain baffled as to the hooplah about Bitcoin. It is not a replacement for currency. Building out the infrastructure for it to be a grown-up payments system would involve all sorts of investment by parties expecting to make a profit (did you miss how Silicon Valley is salivating about the potential of Bitcoin-related services). Its cost advantage over current payment mechanisms rests solely on the fact that it is now begin done on a hobbyist basis. Add all the overhead, and a profit motive, and any fee reductions to merchants were likely to be thin even before the IRS designation made Bitcoin use in commerce extremely cumbersome. Sure, it may be an interesting speculative medium, but if you want to gamble, Vegas is a lot more fun.
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You are correct that capital gains make retails difficult. But.. if hundreds of thousands of people start using bitcoin they are going to have to work something out. For the most part people will be holding and spending small amounts of bitcoin and even with the volatility the gains/losses will be ridiculously small and the IRS may not be interested. The administration will cost more than the generated revenue.
Some of the other points are incorrect. For example, you mention that the system is run by hobbyists ;-) Have you not heard about commercial bitcoin mining?.. this occurs on a massive scale and the hobbyists are long gone.
Whoa, did you miss that merchants who accept Bitcoin will be required to track and report gains and losses in their revenue? Why pray tell, should retailers, who generally have thing margins to begin with, bother with such costly transactions?
You presume that Bitcoin is inevitable, when history is littered with promising-sounding technologies that went nowhere because they didn’t meet customer needs and/or were inferior to existing alternatives. Mere coolness and the fact that some people have holdings in Bitcoin they’d like to use to buy stuff isn’t a compelling reason for others to get on the bandwagon. I accept merchant payments, lest you forget, and I find Bitcoin to be wildly unappealing.
As to “hobbyist” I am referring to its level of use in commercial payments. And as for Bitcoin mining, I suggest you look at total revenues compared to any established industry. It too will show up as trivial.
The tax position is not fixed. There will be lots of discussions going forward. Perhaps some form of personal transactions exemption will apply. Either way, reporting or indeed auditing every single “tax event” is going to be unworkable.
Bitpay alone processed > $100m in transactions last year, none of which were considered “barter” by either party (and all of which should, presumably, feature in tax returns — but won’t). Overstock expects sales in excess of $10 million this year alone. Tiger Direct reached $1 million in sales within two months of accepting bitcoins! And it saved tens of thousands of dollars (their words, not mine) in credit card processing fees. In two months. The incentives are there, they are real and I fully expect these trends will continue in the US through 2014 and beyond, notwithstanding the IRS ruling.
It’s also worth noting that the IRS decision rests upon the fact that bitcoin is not legal tender in any country. If this were to change — for example, by some country declaring bitcoin as their recognized legal tender — then the IRS ruling would likely be revisited.
Bitcoin would be treated as a foreign currency and merchants and investors would still have to track gains and losses. It would reduce a few of the tax issues, but it would still be very cumbersome to use in commerce and make accounting hell for merchants. Why should anyone bother? You promoters seem utterly unwilling to consider the perspective of the customers you want to enlist. This “customer be damned” attitude is not going to be successful
Yves, do you think there will be more merchants accepting bitcoins in the US by the end of this year, the same number or less?
“The tax position is not fixed?”
What are you smoking?
The IRS has told taxpayers this is how they need to report and pay taxes on Bitcoin, and that that is true RETROSPECTIVELY too. That means people who file April 15 are expected to comply. I would anticipate a lot of accountants would also recommend that any business that accepts or deals in Bitcoin at a meaningful level amend its March 15 corporate return
The tax status is clear right now, I agree; what I’m saying is the IRS can change its mind. It might have to if, for example, another country declares Bitcoin to be legal tender.
That would just change the character of the income from capital to ordinary. It doesn’t change the fact that individual lots must be tracked.
Yes, the hobbyists have been replaced by speculators.
The economists have been replaced by idiots.
Tautology
Thanks for posting this. And thanks in general, for articulating the flaws of the bitcoin industrial-complex so well.
Even if governments had decided to treat Bitcoin as a currency, it would still have limited usefulness. It would still be subject to sales taxes, income taxes and any other taxes applicable to monetary transactions and monetary income. Because those taxes must be paid in the government’s money, and because the Bitcoin economy is small, there would be a constant need for currency conversion for Bitcoin users, adding transaction costs. And because Bitcoin is not centrally regulated and transactions are not legally transparent, it will remain volatile and subject to fraud.
The real impact of the IRS ruling, UCC Article 9
In summary if a business with a loan comes with a lien on it from a bank over general assets, accepts Bitcoin and then uses them to (effectively sells them) without their banks approval, then the bank has the right to chase and lay claim to those Bitcoin should the business with the lien be in default.
Worse still the bank can chase and lay claim to every Satoshi no matter where it ends up until the bank has satisfied it’s debt.
Meaning you could be contacted by a bank in the years ahead and asked to hand over Bitcoins that form part of a transaction that you had no part in.
This in effect makes the taking of any Bitcoin from anyone risky as any Bitcoin could have passed through a business in default and consequently your Bitcoin or cash, from the sale of Bitcoin can be seized.
Sorry folks but I think the IRS, working with this code enforced by the banks has successfully stitched up Bitcoin and sadly and by all accounts, to get UCC Article 9 changed is like expecting reforms to the Tax code.
As I understand it, Bitcoin is ‘moveable property’ and that’s what UCC Article 9 addresses.
That’s nice in theory. In reality, those bitcoins are going to be diffuse throughout the network, and no bank is going to be willing to incur the expense of trying to secure all of those diffuse bitcoins. Similarly, there’s no practical way to enforce a lien against the entire bitcoin network. At a fundamental level, bitcoins are not actually property (despite being treated as such). They are cryptographic information.
If so, then if I were a lender, and someone could escape my blanket lien in bankruptcy by cheating me through the use of Bitcoin, I’d make them foreswear the use of Bitcoin as a condition of the loan. And I might add that if they violate that provision, that I get to seize personal assets to the extent that business assets won’t repay the loan in the event of default.
The IRS wants their Satoshis.
Yes, and further up the food chain, the state wants to maintain its power. Bitcoin gets in the way of states, and the IRS’s ruling provides the U.S.’s “legalistic” and soft-spoken blow. “What kind of weapons have they got? The softest bullet ever shot” –The Flaming Lips
I guess you missed that the bitcoin dudes are now calling for the state to step in and regulate their so-called ecosystem. After all those awkward thefts. So it looks like they want the state to maintain its power, too.
Or perhaps just the banks want to maintain their power (in the actually existing system in this U.S. anyway).
I do not think the not fungible argument is (totally) correct. If you keep all you bitcoins in one address, there is nothing that connects the specific bitcoin amounts you send to specific bitcoin amounts you received. I do not see why the accounting is not just FIFO.
You’ve just proven the fungibilty point. You have to identify the “first in” by time and price to know how much you owe in taxes. Each Bitcoin transaction is unique.
Yves is correct.
Wallet software could do this automatically, of course (receive bitcoins, software pulls the USD value from an exchange, spend them and the USD values are compared). It just doesn’t exist yet.
Typical of most media writing on Bitcoin, the author is behind the times. Malleability has been completely addressed and it looks like MT.Gox lost a minimal amount if a Bitcoin to that factor, even as they mislead the world.
Those of us who mine Bitcoin have never considered it a currency and those of us who do pay taxes already track our conversion from Bitcoin to fiat currency (in my case $$) as taxable income.
That is not what I am hearing from an author who has a story in progress on this matter. And the update is as of two days ago. So you may be the one who is behind on the state of play. I also may not have been sufficiently precise: the transactions can be duplicated, even if the coins cannot be. That creates real risk for users.
Steve is right, malleability was fixed long ago, Gox just didn’t do anything about it. 386 coins were lost at Gox due to malleability, that’s it. You need to find a different reason to bash Bitcoin, there are plenty enough to go around. Let’s all just pile on to make sure it doesn’t work…because the current monetary arrangements are just so successful and just and inclusive and fair. Please, sir, can I have some more?
http://www.pcworld.com/article/2114200/malleability-attacks-not-to-blame-for-mt-goxs-missing-bitcoins-study-says.html
Sorry, but Extreme Tech says transactions can be replicated:
http://www.extremetech.com/extreme/177609-asleep-at-the-wheel-how-mt-gox-lost-400-million-of-customer-money
From a user perspective, having transactions replicated means they are every bit as ripped off as having Bitcoins cloned.
You are all so wrapped up in the technology that you have completely lost the plot as far as real world implications are concerned.
The extreme article is very clear; it was a problem with Gox’s software. Gox was tricked, not the Bitcoin network. You can try to replicate Bitcoin transactions but the network will ignore them (double spending is nigh on impossible, hence we still have a ~$10b network). Unfortunately, Gox did not ignore them.
(http://arxiv.org/pdf/1403.6676v1.pdf – this explains why people think Gox is lying.)
Geez, Yves, the link you sent says clearly in a bold sub-heading “This Isn’t a Bitcoin Issue”…since we’re being proctological here…
Yves, I think you and your colleague at Georgetown don’t understand. Your view is based on the assumption that one cannot have derivative instruments on virtual currencies in order to lock in it’s particular value and that it’s not possible to easily track and to maintain a ledger to easily track and calculates these balances. But at the end of the day it’s neither here nor there unless one has a narrowly US centric view of the world.
In places like Germany, it’s considered private money. If I’m not a US citizen nor doing any business in the US why would I give a flying f about what the US treats bitcoin or another virtual currency for tax purposes? Also when (not if), the dollar, renminbi, etc blows up, I doubt you’ll see much business being done in those currencies.
Yes, the powers that be are desperately looking at ways to undercut virtual currencies, because they know that between the disintermediation which is built into the DNA of virtual currencies, the transparency of transactions, the inability to inflate the currencies is a direct threat to banks, brokerages and most importantly the government itself. But all they are going to do right now is to push it underground and you’ll see more black market business with people anonymizing their transactions (just as you see now in places like Italy, Spain and Portugal where at least of 1/3 of the economy is done in the black).
Actually the inability to inflate the currency isn’t a threat to governments so much as a threat to any growth in the economy at all … as Japan’s experience with deflation over the last 10 years proves….
Actually the inability to inflate the currency isn’t a threat to governments so much as a threat to any growth in the economy at all … as Japan’s experience with deflation over the last 10 years proves….
And as US experience over 100 years in 19th century disproves.
Huh? You’ve just shown that you like making stuff up.
Google “Long Depression” and then we might have an informed conversation.
I love the counter-intuitive and counter-factual “inflation/deflation” debate. Yes, sure…I want to be able to buy less goods with my money when I go to the store. Oh, yes, please!
I guess it depends if you think money is wealth. If so then hey! Print away, we’ll all be billionaires! I happen to think goods and services are wealth, and money represents them. Printing more money to represent the same quantity of goods and services means…that each unit of money is now representing LESS goods and services. Unfortunately you have NOT succeeded in magically “creating wealth”. So enjoy your nice inflated currency as your STANDARD OF LIVING GOES DOWN. Is it that you just like seeing a higher number of them in your account? Dow 30,000 anyone?
And while we’re talking “depressions”, try James Grant on the depression of 1920-21. Why exactly did it end so quickly again? Oh, look, they raised rates and markets cleared and we had the Roaring Twenties.
“… the DNA of ….” I wish that trope would go away.
1. Deriviatives involve basis risk, particularly when derivative markets are not deeply liquid. Credit default swaps have huge basis risk and they have a very large markets.
2. Who the hell wants to deal with derivatives and basis risk for something to use as a payment medium? All these fixes prove my point, that Bitcoin is unworkable for commercial transactions.
I don’t see how it’s any different than using cash to pay people off the books, and that happens all the time throughout our economy. The IRS rules are going to be flouted by many people.
You are assuming “many people” want to be crooks and want to deal with the considerable hassles of Bitcoin. In our “all surveillance all the time” society this is not going to be an attractive position.
You are assuming “many people” want to be crooks and want to deal with the considerable hassles of Bitcoin.
They don’t, but they might be forced to as it happened in later years of Soviet Union when large number of people had to switch to black markets, barter and hard currencies to survive.
Just pointing out that transaction malleability was a very well known bug – so well known that it was very low on the core developers’ list of things to do. If Mt Gox did lose any coins due to transaction malleability (and that’s a HUGE “if”), it was through their own gross negligence. Heck, they already “found” 200,000 of the supposedly stolen bitcoins.
“Its cost advantage over current payment mechanisms rests solely on the fact that it is now begin done on a hobbyist basis.”
Wrong. It’s cost advantage as it currently stands is 1.000:1. Even after intermediaries get involved it will be 500:1.
Competitors who actually bother to do the math will realise this, and adopt it. Just like it happened with VOIP for telecoms.
Please bone up on payment systems and the infrastructure required for a large scale payment system, which among other things, includes accounting. It is really hard to take enthusiasts seriously when you make clear you haven’t familiarized yourself with the issues. And let me repeat: I”m a merchant, I’m the type you need to get on board, and I would’t even consider taking Bitcoin. The volatility alone more than offsets any cost savings. I had no interest in getting paid in something that is so inconvenient and costly in terms of dealing with the IRS. You don’t get accounting and you can’t reverse transactions, as you can with mature platforms.
And the folks who bundle in the latter on a large enough scale will make significant investments on a large enough scale that they will want to see a return on that investment and the ongoing operation. Bye bye cost advantage.
” And let me repeat: I”m a merchant, I’m the type you need to get on board, and I would’t even consider taking Bitcoin. The volatility alone more than offsets any cost savings. I had no interest in getting paid in something that is so inconvenient and costly in terms of dealing with the IRS. You don’t get accounting and you can’t reverse transactions, as you can with mature platforms.”
1. Bitcoin sales would likely be completely new sales for you. You are simply missing out on sales. Hide some of your Bitcoin related posts and I think you would do well!
2. You already pay taxes. It is no more inconvenient and costly to accept Bitcoin payments (or if you think it is, use e.g. Bitpay – you would receive USD and still get new sales).
3. Why would you, as a seller, want to reverse transactions? And what do you mean by “you don’t get accounting”? What accounting software do you use?
There are tens of thousands of merchants accepting bitcoins. They will continue to do so (the IRS ruling has clarified matters from their perspective). You are making excuses because you don’t like and/or fully understand Bitcoin. Or maybe you are lazy and you think using e.g. Bitpay would not be worth the additional sales.
I can’t think of a reason not to accept bitcoins at the moment, particularly given the extra attention new merchants get.
Also, in accepting BTC, you have no expenses related to credit card fraud and chargebacks. There are plenty of problems with bitcoin. IRS treatment and UCC matters are not the most significant of those problems. I find this topic very interesting because I don’t think bitcoin is the future, but I do believe it’s going to spawn a successful second iteration.
You clearly aren’t a merchant. Anyone who likes my work can pay in dollars or euros or any established form of legal tender. And they don’t decide to pay me due to Bitcoin, they pay me because they like what I do and want to support it. The idea that accepting Bitcoin would make an iota of difference in my case is silly.
If they don’t like my work enough to pay in dollars, I don’t need them. Technology expert Michael Schrage says most business need to fire 15% of their customers, they are more trouble than they are worth, and spent their time finding better customers. People who would pay me ohnly in Bitcoin are in that 15%. They want to make a point about Bitcoin and don’t care about my work, and I don’t need to accommodate their demands.
I am not about to go through the hassle of keeping track of Bitcoin, maintaining a separate account, and all the accounting hassle. You clearly don’t know what bookkeeping costs. I’ll pay more in that than it’s worth.
And it’s not just cost. My most valuable asset is my time, and this is a huge tax on my time. Same defect as Obamacare, BTW.
Can’t merchants isolate themselves from tax headaches by using payment processors like BitPay and Coinbase who are willing to keep the Bitcoins and send only real dollars to the merchant? I would think the tax issues would only be of concern to entity that received and kept the Bitcoins.
Then how are they “accepting Bitcoin”?
1. If the person making the purchase converts from Bitcoin to dollars, he’s paying in dollars. The merchant is effectively taking my position, “Bitcoin is too much hassle and cost, I just take legal tender.”
2. If the merchant is using these services to accept Bitcoin and then converting them to dollars himself, all the Bitcoin tax and reporting issues apply.
BTC would be no more complex tax-wise than euros. Same tax issues, only difference is the character of the gain on sale.
But how many people are willing to use euros in the US for commercial transactions? I have a small handful of readers who pay me in euro but the service (Paypal or the credit card company they use to pay Paypal) handles the conversion and I am only dealing in dollars. I have no interest in accepting foreign currency as a US merchant, and I can’t imagine you’ll find many who operate differently now.
Exactly the same happens with services such as coinbase. Customer pays in bitcoins, coinbase converts instantly to dollars, merchant receives dollars, they don’t need to do any additional accounting at all, it’s a dollar transaction to them (but costs less than a credit card one). Have you looked at that?
Calling bitcoin property makes every transaction for other property a barter exchange. There are fundamental differences between an “executory” (receive intrinsic value later) and “executed” (receive intrinsic value now).
We should remember there can’t be a direct tax on property. An estate holding BTC might be a legal head spinner.
Anyhow, IRS says, “BTC is property.” Now , I “sell” bitcoins for a cow. That is a barter exchange & not a sale of goods.
There is the taxable event, the barter exchange.
Only one party can potentially have a gain, so the relative “fair market value” needs to be determined.
Furthermore, the coin is intangible. The only other intangible “property” I can think of are rights. The best functional description of BTC would be a right of access and a right to add data to the blockchain.
The Supremes ruled on a case like this , an exchange of marital rights for stocks.
United States v. Davis, 370 US 65 – Supreme Court 1962
http://scholar.google.com/scholar_case?case=5633115544229474334
The previous courts rules the taxable basis for the property is impossible to ascertion
The Supreme’s disagreed saying cost can ascertained. The value is fixed by the transaction itself
“It must be assumed, we think, that the parties acted at arm’s length and that they judged the marital rights to be equal in value to the property for which they were exchanged. There was no evidence to the contrary here. Absent a readily ascertainable value it is accepted practice where property is exchanged to hold, as did the Court of Claims in Philadelphia Park Amusement Co. v. United States, 130 Ct. Cl. 166, 172, 126 F. Supp. 184, 189 (1954), that the values ‘of the two properties exchanged in an arms-length transaction are either equal in fact, or are presumed to be equal.’ ”
So we have a trade of property at par.
Of course this would only apply to miners not people that received BTC by trade. That initial trade would fix the value.
As a side note, there is a case called Moffit’s Issue (It could be spelled Moffet) out of Massachusetts. I don’t have a link ATM but it’s on Google Books somewhere.
Moffit was a private minter of gold coin. The coins circulated in the west. Somehow a coin made it’s way to Massachusetts and was sued on. The court held that because the coin was not legal tender, only the intrinsic value could be used to determine the worth.
The case is
Chapman v Cole 1883
http://goo.gl/g6Qoka
Gold Coin the is not legal tender was held to be chattel.
It would seem BTC would be incorporeal chattel which is a right or interest arising of property.
All I know is lawyers are going to get filthy rich over this.
RE Indio007
“We should remember there can’t be a direct tax on property.” Please explain
“An estate holding BTC might be a legal head spinner.” Why would it be any different than an estate holding collectibles?
“Anyhow, IRS says, “BTC is property.” Now , I “sell” bitcoins for a cow. That is a barter exchange & not a sale of goods” No difference between a barter and sale for tax purposes. The sale price in either case is based upon FMV of what’s received (Unless the exchange qualifies for deferral treatment –e.g. Section 1031)
“ Only one party can potentially have a gain, so the relative “fair market value” needs to be determined.”
Sorry- say the guy who traded the cow got $5,000 worth of BTC. Let’s say he originally bought the cow years ago for $2,000. He has a $3,000 gain.
The guy who traded roughly 10 BTC for the $5,000 cow, originally bought the 10 BTC way back when for $1,000 so he also has a gain ($4,000).
“The only other intangible “property” I can think of are rights. The best functional description of BTC would be a right of access and a right to add data to the blockchain.”
What about intangible assets? – e.g. goodwill, patents, covenants not to compete, customer lists, domain names, etc.
Regarding the court case- unlike the situation in the case cited, BTC does have a readily determinable FMV which could be used to determine the value of the transaction
IRS doesn’t apportion taxes. There can be no direct tax on property without apportionment. see Pollock v. Farmers’ Loan & Trust Co. (Pollock II), 158 U.S. 601, 627–28 (1895)
The courts have repeatedly said the income tax is an excise tax that is measured by income.
The States can direct tax all day long. There is no legislation yet. Combine that with the IRS doesn’t set State tax law in regard to a direct tax on property and it becomes a head spinner.
All your scenarios involve a purchase for a specific value . The purchase causes the property to enter the stream of commerce. In the other case I posted , the marital right’s value was set when they the rights were traded for a known value i.e. the stocks of a publicly traded company. That is when the entered the domestic economy.
AFAIK there are no BTC to dollar exchanges operating in the US.
So will the value of BTC be set by the price BTC trades at in a foreign economy?
I don’t think so.
As far as your examples of intangible property go, all those examples are abstracts of something else. However a gold certificate is not gold.
I think you missed the part were i said that the scenario I laid out applies to miners only not people that acquired BTC by other means.
The income tax is a direct tax that does not need to be apportioned. We passed the 16th amendment to be able to levy it. Your statement re income tax would be true only during the brief interval between the 1895 case and when the 16th amendment was passed in 1910 or thereabouts.
I wonder which trading exchange will be the first to create a futures contract on bitcoins? The speculators will love it. Would that be considered a futures on prosecution futures or prosecution futures squared or synthetic prosecution futures?
I wonder which regulated trading exchange will be the first to create futures contracts on bitcoins? The speculators will love it.
Will these futures be considered futures on prosecution futures or prosecution futures squared or synthetic prosecution futures?
“So I remain baffled as to the hooplah about Bitcoin. It is not a replacement for currency”
I think bitcoin promoters have sought to remain willfully clueless about legal issues and basic understanding of credit and debt. Thus I would guess the hooplah will remain for quite some time. Some bitcoin promoters appear to want to somehow live out the myth of barter fantasy, and claim that bitcoin can free them from state control, or at the very least that bitcoin is some sort of threat to the state. Since these ideas are based on faulty understanding of the world, paradoxically, bitcoin could go on trading for substantial sums of money for a long time. That is, it isn’t really a threat to the finance system or the state, and it isn’t going to serve well, or at all, as a currency, so I guess there is a fair chance enough people will want to hold on to bitcoins that the phenomena will be around for some time. Or not. (As long as people don’t start borrowing to finance bitcoin purchases, I would guess bitcoin prices need not take a sharp dive, right? I.e. Ponzi finance will kill bitcoin.)
I would speculate that it is also possible that news regarding China will drive the price up, as bitcoin promoters start to believe that their “currency” really is a threat to the state. This is a selling point, isn’t it? There is a phenomena here in the States of people like Glenn Beck selling gold coins to his viewers, based on similar fears of government.
Another way to put it: bitcoin promoters aren’t operating rationally in the first place, so its hard to see how reality is going to change their views.
(On a side issue, the distributed ledger technology sounds cool to me, though I don’t understand it. Having some sort of record on that ledger associated with me, or carrying around a number that is recorded on that ledger sounds really uncool to me.)
Bitcoin always struck me as hawala trying to compete for criminal and looted cash with offshore. Debate on it is a distraction from just how expensive the use of currency has become for the ordinary punter. We pay tax to the clearing banks and see our wages depressed by such as QE, If Bitcoin tells us anything, it is that an international currency could be formed and run cheap.
This said, they will do everything they can to make it very expensive and keep it out of the offshore deal.
I think when people decided to live in gated communities, they could afford to care less about community policing.
When they started drinking bottled water, they could, again, afford to care less about clean water for the public.
The same with private education.
So, when we don’t all stick together to make sure we have a sound currency, we sure won’t have a sound currency.
The thing I love about bitcoin is, you get to sit back and watch a bunch of Libertarians discover for themselves the reasons why we have banking regulations.
Totally agree with the spirit of your comment. NC seems to have daily Bitcoin-bashing articles these days. Imagine what we could accomplish, even if it required we suspend disbelief for a brief moment. Instead we are subjected to microscopic reasoning on why it can’t possibly ever no not ever succeed. Just what they said about powered flight, nuclear fission, internet packet switching, talkie movies blah blah blah.
I still have no answer to my prior thread question. I buy euro in my brokerage account, they go up, I sell them: that’s a taxable capital gain. I buy euro, and this time I get on a plane. A few days later I spend those euro for a coffee in Rome. Does the IRS require me to note the USD exchange rate at that instant, and upon my return home file for any cap gain that was made between the time I bought them and the time I spent them? If not, why not? What if I charge something on my CC while travelling? The exchange rate between the time I bought the coffee on my CC and the time my bank bought the forex to settle the trade surely changed…aha taxable event!
I know this doesn’t apply to Bitcoin currently because the IRS thinks they are property. My assumption is that will change since it makes no sense. If they are property, then show me one. Where is it? Oh, look, it’s nowhere. I believe it might be the only property that doesn’t exist. If a right is also property, can we get a discussion of the tax treatment of rights? Maybe then we’ll get somewhere.
It’s called “intangible property.” A stock isn’t a piece of paper, it’s a residual right to profit that is represented by shares.
Thank you. It still makes no sense to tax a currency as property. And what happens when people start paying their hotel bill with shares of Google (as can be done with “colored” Bitcoins?)
IT IS NOT A CURRENCY. Just because you like to call it one does not make it so.
Even the IRS calls it a “currency”, albeit virtual; they tax it as property because they can’t contemplate a currency that has no government issuer. It’s a sticking point for most legacy tax and regulatory systems, which is understandable — Bitcoin is a completely new concept.
“Currency” surely means the fact or quality of being generally accepted or in use. Bitcoin is a fledgling, of course, but the number of users continues to grow, globally, and bitcoins are increasingly being spent rather than hoarded (per MIT Tech Review: http://www.technologyreview.com/graphiti/524796/show-me-the-bitcoins/). If it isn’t yet a currency, it soon will be.
Re your tax questions: your purchase of coffee for euro would be a taxable event (and yes, you’d have to calc basis and proceeds based on exchange rate at date of purchase and date of coffee purchase) under normal tax principles.
We have an exception at 988 (g) (I think it’s g, but could be wrong; in any event its the last subsection of 988) for personal transactions where the gain is less than $200. If you buy coffee, then, probably no tax. If you buy a car or a house or something larger you may indeed have gain.
And hey look at this – Iceland doing real non-bank money creation through cryptocurrencies with a direct distribution of money to people. Not loaned into existence with debt. Not even spent into existence by the government. But directly distributed to the people. Are you sure cryptocurrencies aren’t the future (and a much better future than we ever imagined was possible!).
http://auroracoin.org/
I think the more interesting aspects of bit coin are the underlying technologies, especially the blockchain. Two good links (possibly still too optimistic):
http://startupboy.com/2014/03/09/the-bitcoin-model-for-crowdfunding/
http://techcrunch.com/2014/03/22/enter-the-blockchain-how-bitcoin-can-turn-the-cloud-inside-out/
As money
Currency is not necessarily money whatever circulates conventionally on own credit as a medium of exchange whether it be bank notes bills of exchange government securities being those current is within the term currency;but such currency , merely spontaneous , is money which is the legal medium of exchange and the only true standard of value Griswold v Hepburn 63 Ky 2 Duv 20 23
The word currency is defined In Bouvier’s Law Dictionary to mean money which passes at a flxed value from hand to hand
Batler v Paine 8 Minn 324 328 Gil 284
Currency Is a word of exclusive application It means among other uses, a continual passing from hand to hand and circulation as the currency of coin bank bills bills of credit etc. As applied to contracts pay money it must be understood in the sense In which the parties intended it their intention can be ascertained.
Carlisle v Davis 7 Ala 42 44
The meaning of the phrase currency used in the common business of the country In a bond dated in Virginia on the 30th day of March 1864 to be paid with interest three years from date in the currency used in the common business of the country at the date of the maturity is to be determined by parol evidence showing the understanding of the parties in respect to the kind of currency in which the same was to be performed or with reference to which as the standard of value It was made and entered into.
Cal breath v Virginia Porcelain & Earthenware