Bitcoin Is Forcing The IRS And Central Banks’ Hands

As Bitcoin becomes increasingly prominent within the global economy, there is a rising concern as to how it will be taxed. Other digital forms of currency, like credit cards and EMV card technology have made transactions more convenient, but they are still tethered to the old banking formats, which require personal information to create accounts. With Bitcoin identities are not used and that creates some concerns with the establishment’s methods of money creation and taxation.

There are two problems surrounding the taxation of Bitcoin: first, its users are unknown and therefore whom to tax is a challenge. Secondly, there has been a question as to its legitimacy as currency or even commodity. Both of these issues make taxing the Bitcoin economy a challenge.

The nature of Bitcoin is that the ledger of all transactions is open, but the identities of those who conduct the transactions is hidden. This is the opposite of normal current transaction models, where it takes personal identification to gain access to banking and thus credit and debit cards, but the transactions are encrypted. The problem with this model is that if any transaction is hacked, the personal information can be uncovered. This has been a skyrocketing problem with the rise of the cybercriminal.

With Bitcoin and the blockchain, however, there is nothing to reveal except for the fact that a transaction occurred and that is on display on the public ledger between anonymous participants. So how can these transactions be taxed? This has the IRS and the Central Banks in a bit of a frenzy. The IRS recently declared Bitcoin both currency and capital asset in an attempt to tax it. This doesn’t solve the the problem of anonymous transactions, but creates the groundwork for if people want to self-disclose, much like the revenue from a yard sale.

The IRS has an issue with the Central Bank, however. The Central Banks resist calling Bitcoin currency because that undermines their monopoly on fiat currency. If the Central Banks allow Bitcoin to be currency, then they are no longer the only ones who can demand treasuries to manipulate the money supply. This is great for everyone but the Central Banks, but Central Banks are used to making the rules and don’t like not winning.

Further undermining the Central Banks’ stranglehold on money creation is the fact that Bitcoin is a worldwide phenomenon given value by the participants and solving banking issues globally. Currently you can transfer money to someone in China using Bitcoin in minutes for free. With Paypal or other forms of ‘legitimate’ currency, it would take days if not weeks and cost a large percentage. This has increased the enthusiasm of Bitcoins use and created an increasing marketplace among merchants. And again, it’s covert nature makes the taxation contingent on self-reporting.

Ultimately, Bitcoin is disrupting the way we tax, transact and interact economically. I have no doubt that the IRS and the Central Banks will eventually devise a strategy to overcome the subversive potential of Bitcoin, but for now, it’s a convenient and frictionless way to have a digital, global yardsale.

  • Sun Drez

    Taxing Bitcoin is not going to work, Bitcoin is not at this stage yet… It will need another 10 years before thought on this should even be considered… The only taxing should be on large scale Bitcoin mining facilities, as this is the only aspect of taxing it that makes sense…
    If the Federal Reserve had any intellegence at any level they would be already creating mining facilites and would begin moving into this space as fast as they could, as it is getting close to the collapse of the USD empirer.
    China is now taking over and that is the way it will be…

  • SapphireSpire

    Instead of taxing Bitcoin, the U.S. Treasury should adopt it as the new monetary standard. We no longer needed the Fed.

  • GameKyuubi

    Bitcoin is effectively untaxable. If the government wants their tax money they’re gonna have to make the public WANT to pay their taxes by adopting money spending policies that the public actually agrees with.

    • Pvblivs

      That’s the thing. Nobody wants to pay taxes. They want the things taxes pay for. And they want other people to pay taxes. But they don’t want to pay themselves.

  • J_O_N_A_T_H_A_N

    why does everything “need” to be taxed again?

    it does not

    we should tax the government for being so murderous and controlling

    get out of my data and stop murdering foreigners (soon to be civilians)