HMRC is reported to be reviewing the tax status of the Bitcoin. So it should. But not, I suggest, to make it a legal tender, as seems likely, but to make sure its use as tender can either be traced or its use is made illegal.
As someone who has in the past expressed himself in favour of alternative currencies I find myself a little surprised to be suggesting such action. But, as far as I can see one of the major (not sole, but major) design features of the Bitcoin is its lack of traceability.
And again, as far as I can see, that lack of traceability permits the use of Bitcoins by those seeking to subvert the ability of tax (and many criminal) authorities to monitor the use of this 'currency'.
I have not read enough to know if this is chance. What does seem obvious is that it is extension of the libertarian ideal to operate outside the state. The consequence may be unintended, but the result is a currency designed to move across borders without trace. And to be earned, whether that is the intent or not, without tax being paid. Seen in this way the rise of the Bitcoin could make Google look like amateurs in the game of shifting income for the purpose of not paying tax.
The consequences are, of course, worrying. In an era when the $100 bill is of no more use for money laundering the Bitcoin could very easily take its place, and may already be doing so.
This 'currency' appears to be designed to facilitate what some call freedom, but that freedom is designed to be beyond the law. The price for all of us could be very high indeed. Seen in this way the Bitcoin is not about economic liberation, it's about the destruction of the state. And unless it's held to account now we need to be very worried.
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How are you going to make Bitcoin illegal? Have a tax officer in each house? Preload government software on each new ps, laptop, smart phone?
Sorry, you’re stuck in old thinking and lack knowledge of new developments: it is called “digibethis”.
Time to educate yourself and come up with new ideas rather than to suppress. You know you will lose that battle: adept or die.
a) You tax it as a voucher
b) You make it illegal to trade in it
c) You penalise those who accept it
It does not stop the trade entirely
It goes a long way to doing so
sounds like efforts to stop file sharing…
Someone was saying earlier Bitcoin’s like Napster for currencies.
Bit coin was trumpeted as a non fiat currency system but because its evolution relies on access to increasing computer power to be ‘mined’ it is hardly a ‘leveler’ for the citizen and is now only accessible to those with powerful computing access as well as a great deal of computer literacy -so a new kleptocracy will arise (has arisen). Local. currencies are a better option.
The ‘adapt or die’ philosophy cited above is indicative of the lowest level of functioning of human potential -some things we should not adapt to!
Don´t worry about it.
There are a rake of bitcoin-harvesting items of malware going around, like cryptolocker.
You don´t even have to earn bitcoin….
And, if someone offered to enable everyone to be paid in bitcoin and pay no tax, there would be a rush of people joining.
It would also seem that traceability of ordinary money is very hard to do, billions being shifted from country-to-country and bank-to-bank on an every-second basis, and most to avoid tax.
Bitcoin will just join the queue.
The various countries tax authorities, and in the case of the EU, the entire structure of same, have been subverted (some would say infested) by placemen from the large accountancies and banks. The politicians are bought people, corrupt almost to a man.
Good luck.
I am surprised that you see Bitcoin this way.
Small payments and cross-border payments can be made without incurring disproportionate charges.
The majority of bitcoin holders, whose surname is not Winklevoss, have the potential to evade relatively small amounts of tax compared with the users of tax havens.
I would suggest that cash, in any major currency, holds far more potential for tax evasion.
But Richard with the Blockchain all transactions are recorded. Every single one. Academics in Europe recently studied the history of every single transaction so far. Never been done with existing money. And with a little bit of investigation user IDs can be traced quite accurately.
There are actually some people looking at this who see this as a first step to the elimination of cash where all transactions are traceable…
Also if you read around you’ll find out that the Blockchain is more than about money. As a decentralised model of information exchange it could transform society by providing a trusted system of communication which some believe could rid the need for intermediaries (like banks, brokers, lawyers and accountants). Now there is a thought…
So why are some quite sure these deals are not traceable
And how can £4 million be lost then?
Bitcoins never get lost, only the private keys to move them can get lost.
That’s different, is it?
And this question perfectly proves my suspicion that you actually know little to nothing about bitcoin.
The bitcoins aren’t ‘lost’, they’re still out there on the public ledger. What has been lost are the private encryption keys in order to prove that you own them.
Encryption that is so strong that it would take the entire energy output of the sun for one year running on a perfect computer to run through all the potential keys for one lock. And then there are billions of locks to be tested.
But this doesn’t matter – that’s just the ownership side. It’s the underlying trustless peer-to-peer public ledger (the blockchain) that’s the real value behind bitcoin.
Do some reading, it’ll help.
In response to Robert – do you think that encryption will last with Quantum computing on the horizon?
I suspect it’ll be more likely if the government want taxes they’ll eventually have to implement something like LVT and scrap sales and income taxes. Without transaction records how do you tax people?
Whar I say without transaction records, I mean anonymous, as here BoomBustBlog.
There is a letter in today’s FT supporting Bitcoin. It acknowledges the problem of traceability and says “Every transaction is recorded. All it requires is for Bitcoin transactions to be linked to identifiable entities, such as a bank account, or personal ID, and a regulated digital Bitcoin economy will grow rapidly.”
All a lot of things require is traceability
It does not happen
Bitcoin and its descendants are out there and will be impossible to kill off. It will never, ever go away now.
The concept will create new industries and new opportunities. Any country going all out to strangle it will simply be left to wither by others who do allow it to flourish.
Believe it or not most people just want to make money and have a quiet life. If there’s sensible taxation on crypto currencies then everyone wins.
Your comment is naive
No currency can survive without regulation
Only law can provide that
Did I say anything about zero regulation? Maybe I’m being naive. You are being a blinkered dinosaur.
Bitcoin cannot be stopped. It can be harnessed. Do more research.
The view that Bitcoin is untraceable by design is widespread
What is wrong with that view
And if true what is wrong with my analysis?
Bitcoin is regulated by the algorithm. And the laws of Mathematics.
That is utter drivel
The technology behind Bitcoin is an unstoppable innovation. This innovation, The Blockchain, allows for decentralized exchange of currency. I mention this because the “No currency can survive without regulation” statement you made in the previous comment is a *little bit* less definitive. This is because with this new technology, there is no need for a central authority to generate and approve currency exchanging hands. However, this doesn’t mean that there is no need for regulation in the cryptocurrency spectrum. In addition to be taxed, and we need authorities to take cryptocurrency scams and theft seriously.
I don’t consider myself a libertarian, but I am a bitcoin enthusiast. I believe that the cause you are fighting for (taxes) is good and a necessary one. Please keep it up.
Hi Richard – got any gold?
Do a couple fo filled teeth and a wedding ring count?
the point is gold is just one example of an unregulated currency.
It is not a currency
Tobacco acts as currency in prisons by common consent, no law involved. I see no reason why BC shouldn’t do the same on a global scale.
That’s a crass comparison
Sorry. What you’re saying is BC can work in a criminogenic environment?
I think you might do better than that
As I understand it Bitcoin, by design, records every single transaction. If you participate in the Bitcoin economy you essentially have a copy of the entire history of Bitcoin, which is continuously verified and proofed against retrospective editing.
In that sense it’s actually terrifically transparent. The problem is that it’s anonymous in the sense that the blockchain records transactions between numbered accounts, not between named people.
When you say ‘the view that it is untraceable is widespread’, you are half right, then. It’s very easy to trace transactions, just not easy to discover who owns the wallets in question. This is the sort of thing you could probably crack open with network analysis, I’d imagine.
I agree that Bitcoin appeals largely to loons who regard tax as armed robbery, which is a problem.
Now why is it all regulators do not agree on traceability?
Is that because transactions are technically traceable but nothing will ever be disclosed?
We’ve been here before: that’s a tax haven
I think that’s what this is really about – which is why your conclusion is correct
Yes – people are quite right to say that all the transactions are *recorded* by design. This is the fundamental thing about the protocol – if it isn’t perfectly transparent and verifiable, it doesn’t work. The whole thing is intended to prevent double-spending, and if you can’t trust the blockchain, it fails.
The difficulty for regulators comes when you try to match a person to the Bitcoin wallet identity that is being tracked.
As I say: I think there are probably network analysis attacks that you could use to make that connection, but (a) they won’t be easy and (b) there are probably counter-attacks.
I did, once upon a time, succumb to curiosity and check out Silk Road (just browsing of course – I don’t have any Bitcoins.) I noted that among the products for sale were tutorials for drug dealers and buyers on how to safely cash out your Bitcoins. This would seem to be the weak link in the chain for people trying to keep their BTC transactions secret from the government – you can’t buy much with BTC as of yet, and so it’s difficult to realise the value. #
I’d also point out that the Feds busted Silk Road, largely through good old-fashioned police work; the protection provided by lots of clever crypto etc isn’t absolute even if the underlying algorithms are bulletproof.
I’d rather they did not need to use the old fashioned techniques at all
Prevention is better
I am a peaceful person therefore I think the destruction of the State is a great idea. Go Bitcoin!
Presumably you’re in favour of rule by corporations, then? Peaceful but dimwitted.
Regulation is required when Bitcoin starts to interact with the wider world. That’s a perfectly reasonable thing to expect and many will want it.
With a tiny bit of legwork it’s pretty darned easy to trace any Bitcoin transaction. Every single one of them since time immemorial is out in the open. It’s often classed as pseudonymous rather than anonymous.
If the authorities suspected I was a Bitcoin menace they’d very easily figure that out by following my bank transfers and hacking my emails. The footprint left compared to cash is humongous and eternal.
Some libertarian nutters think it’s going to free them from the state. Others are saying that it’s a gift wrapped control mechanism handed straight to the authorities. Both are valid possibilities.
I have Bitcoin holdings. I’m fully willing to pay tax on it like everything else.
If you propose to criminalise me then I’m not going to go underground. I’ll relocate to Germany, Singapore or somewhere a little more enlightened and contribute to their society instead.
A couple of comments. Given that “Bitcoin” is “untraceable” then how did the Federal Authorities manage to identify and shut down the Silk Road? That site used the TOR network and Bitcoin to ensure that it was “untraceable”. That didn’t seem to work very well did it.
Also the view that Bitcoin is “untraceable” is wrong the fact that it is widely accepted doesn’t make it any less wrong. For example, everyone knew the Earth was flat. The fact that it was widely accepted doesn’t make it correct. They might be anonymous at the point of creation (when they are mined) but as soon as they are on an exchange then there are traceable like any other transaction. You need to do more research on this issue.
Ultimately until Bitcoin becomes widely accepted the easiest way to regulate it at the point when it is converted to real money. That is a relatively straightforward process of simply regulating the exchanges, each bitcoin has a unique identifier, so it can’t be spent more than once, all that needs to happen is to require the exchange to carry out some basic CDD on each owner. No more or less complicated than any other financial instrument.
In any event Bitcoin is doomed as a “currency” because its construction is inherently deflationary. There is alot of Buzz about it but it probably wont survive the next 5-10 years.
Ultimately however Bitcoin is a signpost of the future. It is the Netscape Navigator of virtual payments mechanism. HMRC and all regulators need to get to grips with it now because in the future there will be further developments. The genie is out of the bottle and banning it won’t stop it evolving elsewhere.
so Richard, say you pass all of these regulations in your jurisdiction, there are many jurisdictions that don’t. I can pay, with BTC for many goods and services in the permitting juridiction, and have them sent or delivered to the UK.
Eg goods I buy, or services such as say accounting.
Further the capital inflow to more permissive juridictions, bring entrepreneurs, smart people, labour and new tech.
Thus restrictive laws on economic activity will be arbitraged out, and those that pass them diminished in economic power.
Further there are many other crypto that even if Bitcoin can be somwhere stopped or traced, will take the place and meet all the deficits.
There is simply to much money on the table now with BTC that people are not going to make a grab for it.
Classic prisoners dilelma.
Singapore is good example where they are allowing bitcoin, but at the risk of users
As a society, we must carefully weigh the pros and cons of bitcoin:
Pros:
– reduced transaction costs
– impossible to “hack” (e.g., recent credit card breach at Target in US)
– allows non-billion-dollar companies to more easily participate in international free trade
– gives the world’s ‘unbanked’ a chance to more fully participate in the modern economy
Cons:
– the government cannot as easily confiscate funds from bad people
– it is more like cash and collecting taxes depend more on honesty than on force
– the wisdom of central bankers cannot be used to inflate the currency when necessary
– people won’t want to spend their money because it will tend to appreciate in value (deflationary spiral)
You reveal the libertarian bias in all Bitcoin thinking
Hi Richard, I personally take offence to that comment because I don’t consider myself libertarian, but I do see a lot of benefit to bitcoin. To me, bitcoin is just a technology and is politically neutral.
I think bitcoin and government could work out very nicely together, and I think people in various branches of governments will eventually realize this. For example, imagine how we could streamline VAT collection and accounting. The tax authority could give a coffee shop a small discount on the VAT rate if the merchant chose to accept retail payments to a BIP32-encoded address chain that the tax authorities could monitor. The coffee shop’s payment system would automatically deduct the VAT and remit it to the tax authorities in real time. If the merchant’s suppliers were set-up in a similar way, then the coffee shop would receive its input tax credits instantly as well. If everyone was using such a system, it would completely eliminate VAT accounting since the process would be automatic and auditable in the blockchain. No end-of-the-year paperwork!
This doesn’t invade privacy either: the coffee shop owner can still have private addresses that he can do with as he likes.
Politically neutral is not possible
It is an oxymoron
And no state can function without control of its own money. Note the problems in the eurozone
I am sorry and take offence if you like, but you are being naive in the extreme
Regarding ‘politically neutral’ being an oxymoron, I would argue that ascribing political leanings just sounds silly: Bitcoin’s unalterable blockchain that records all transactions could be construed as “statist” as easily as bitcoin’s freedom to exchange money could be taken as “libertarian.” Both sort of make sense but both are sort of silly, no?
BTW–what is the political flavour of TCP/IP (the backbone of the internet)??
Regarding states not being able to function without control of their money, well, states would have control of their money. They would have control of whatever bitcoins they possess and any other money they wish to issue.
Regarding my naivety: although I admit that I am under 30, I did outline above how bitcoin would enable the tax authority to better monitor VAT *and* make life easier for merchants. Just one example of how government + bitcoin = much win.
Your suggestion on VAT could much more readily apply to pounds
It was therefore no innovation at all
“And no state can function without control of its own money.”
I completely agree with that. That’s why so many states failed in history and will fail in future. Technological innovations always have a deterministic impact on mankind beginning with agriculture and now with cryptocurrencies. If states trying to to fight determinism that will be a real catastrophe.
But by implication you want the state to fail?
Is that your meaning?
Do you understand the term determinism? Our personal feelings on that are just subjective.
Also I add, laws/regulation do not themselves back currencies, where those law result in less efficient outcomes.
That is deleterious regulation or law result in un enforceability.
I confess this is a “heart and mind”. I do have sympathy for those that view Bitcoin as a currency and use it for legitimate purposes. Like most things in life it is not the object, but the motives of the user that are the real issue.
I suspect that speculators will rig investment in Bitcoin and hence it has the the potential to be the next South Sea Bubble or Tulip mania. For this reason alone, for now it is perhaps best avoided by those of limited means.
Other crypto-currencies are being spawned and I think this is far more than a passing fad and may in time like the Internet change our world dramatically.
You wrote: “that freedom is designed to be beyond the law”. Have you ever considered that it’s the law that’s wrong, and not the freedom? The power of the law, which in practice equals the power of the government, should never be absolute. In the past, it has never been necessary for the government to have control over money flow, so it will not be necessary in the future either. Note that this also means that, in a Bitcoin future, taxation will continue to exist, just like it has existed in the past.
We need the government for some things; because of this, I consider the government to be a necessary evil. Bitcoin not only reduces the POWER of government, it also reduces the NEED for government: in the Bitcoin world, people have effective measures to protect their own property, so there is less need for protection by the government. I expect the net result will be a more efficient and more free society.
I do not and never have asked for absolute power for governments
I am a democrat
But you are wrong re money flows – maybe you were not aware of the world pre 1980. We did definitely control money supply and flows. The world was a better place as a result
But as with most here you reveal your antipathy of government in your post. I believe your opinion fundamentally unsound. There is not a shred of evidence that it is well informed, just dogma
I prefer evidence
When I wrote about the past, I especially referred to “the world pre 1980”, or even better “the world before the 20th century”. Because of a lack of electronic technology, people would do most of their transactions with cash, and before the 20th century, many people wouldn’t even have bank accounts(*). Even when people used bank accounts, records would be kept on paper instead of electronic form, making it much more difficult for a central party to monitor transactions.
The digital revolution made it fairly easy for governments to monitor all of us, to a degree even George Orwell couldn’t have imagined. If technologies like Bitcoin partially reverse this development, then what makes you think it will not place us in a similar situation as previous centuries? Besides the fact that there have been peaceful, prosperous times without mass surveillance, what more evidence do you need that control of money flow is not necessary?
About money supply: the United States used to have a gold standard for a long time, which basically meant that its government could not control the money supply. During this period, the United States developed into a major industrial power. What other evidence do you need that government control on the money supply is not necessary?
(*) This is still the situation in large parts of the world, although this is rapidly changing: see e.g. the growth of M-PESA in Africa.
The gold standard brought the world to its knees
“The number of Bitcoin transactions is, with about 56.000 a day (a level which hasn’t increased since March 2013) still lousy: it sustains the monetary needs of a reasonably sized village. To be a viable alternative to other kinds of money this number of transactions has to increase tenthousandfold. Literally. Won’t happen anytime soon as the total number of bitcoins is limited which means that this requires ridiculous amounts of bitcoin-deflation, considering the present price of bitcoins.”
http://rwer.wordpress.com/2014/01/22/a-little-thought-about-bitcoin/
“Won’t happen anytime soon as the total number of bitcoins is limited”
Yes, the number of bitcoins is limited to 21 million. But each bitcoin is divisible to 8 decimal places, so there are 2,100,000,000,000,000 units in total. There are enough units so that should bitcoin become a major global currency, the smallest unit (the satoshi) would be worth approximately 1 penny (implying a bitcoin value ~1000X more than it is now). What you called “ridiculous amounts of bitcoin-deflation” to create a world economy, others see as a once-and-a-life-time investment opportunity.
Bitcoin requires computer know how and powerful computing -so those without this technology and/or the skills will be sidelined -a currency that sidelines humans is not one I wish to accept.
Simon, wouldn’t the internet have fallen in to this category at one point? It is early days, easy usability will come in time.
Perhaps you shouldn’t write it off so quickly, there are droves of information online that tell people the safest and most effective ways to use this new and exciting technology.
I don’t want to say too much, you are either for it or against it, but make your decision with full information. It will make no difference to the btc network if you or Richard choose to reject it. A lot of people do. The media have only stopped crying ‘tulipmania’.
And I like my money not being inflated into oblivion. Didn’t the bail outs in 2008 smash UK savings worth down by 20%? They cannot do that with bitcoin or gold/silver.
And bitcoin is apolitical, it does not care who you are, what your beliefs are etc, you can still use it however. It does not ask you to justify how you spend your own money.
Bitcoin is not apolitical
It is profoundly and subversively political by design
The internet was not