- Published: Friday, 28 March 2014 08:03
- Written by Editor
Now the dust is beginning to settle on the recent IRS ruling that Bitcoin is to be taxed as "property", the implications for the crypto-currency are becoming clear, and not looking at all positive. While the ruling removed "uncertainty" at one level, it also introduced the absolute certainty that while this tax remains in place, mainstream application of Bitcoin as alternative currency for American citizens is most definitely not going to happen.
So what then are the implications and what does the future hold??
First of all this ruling by the IRS affects citizens of the USA and not of any other country. The tax authority of Britain - HMRC - have recently ruled that Bitcoin is currency and therefore not taxable. That said, in terms of wealth, expenditure, commerce and technology the USA represents at least 25% of the global economy, and for technology related matters as much as 80%, certainly in terms of influence. It is further likely that many other countries who are confused or undecided as to how to tax Bitcoin will now follow the lead of the IRS and USA. So clearly this represents a global threat to Bitcoin that will need to be addressed.
The ruling by the IRS is clearly politically motivated from Washington and not a sound financial decision. The US Government - or rather their controllers - are fiercely protective over the US Dollar because it is their source of power and control in the world in advancing the hegemony, and clearly Bitcoin is now perceived as a threat to that domination. The IRS ruling has very effectively killed Bitcoin as a mainstream currency or even as an alternative for frictionless, inexpensive Internet payments, leaving it as a vehicle for speculation with few growth prospects. With limited potential for user growth there is limited potential for investment growth.
There is a lot of positive spin on the effect of the tax ruling among the Bitcoin community, but when one looks objectively and dispassionately at the facts and reality, there is little to be optimistic about.
No one, not even the most dedicated Bitcoin enthusiast is going to undertake a major accounting and tax reconciliation exercise for every single Bitcoin transaction, even for a cup of coffee. It totally destroys the value and ethos of Bitcoin as a simple, frictionless, convenient, global, trustworthy, accountable and sound store of value and method of payment, which again is the hidden agenda by the authorities.
Buying goods and services should be an enjoyable and stress free experience as it is with cash or cards and what people expect. If all consumers from the young to the elderly people are now expected to learn and undertake major book keeping and tax accounting exercise for every single purchase of goods, services with Bitcoin, to reconcile profit and loss against Bitcoin exchanges, then it ceases to become enjoyable, simple and stress free, instead to become a major chore, very time consuming, difficult and stressful experience that totally defeats the object of a currency and especially of Bitcoin.
It must also be noted that this is another tax on goods and services on top of regular sales tax making goods and services more expensive to purchase with Bitcoin.
This is what Andreas Antonopoulos of Blockchain.info had to say about the IRS tax ruling at the Coin Summit.
It is clear then that neither Bitcoin or the Bitcoin exchange rate is going anywhere fast, certainly not in the USA, until this situation is resolved. But what can be done?
While it would be fairly simple to avoid detection for tax purposes this is clearly not advisable or desirable to most. Who wants to use Bitcoin while constantly covering tracks from the prying eyes of the IRS, NSA and others? The vast majority of the general public will want to be within the law and not have to worry about being caught for tax avoidance or evasion, even it could be done legally - which it no doubt can be.
There are hundreds of millions of Dollars being invested in Bitcoin by very well known and highly respected investors, many of whom no doubt have influence in Washington, so clearly they should consider using their collective money and influence to protect their own investments by lobbying in Washington and anywhere else appropriate. Clearly a dialogue needs to be opened with the IRS with view to a modification of their ruling or at least some sort of workable compromise. This is exactly what took place in the UK which resulted in the HMRC reversing their original ruling in favour of declaring Bitcoin a tax free currency.
The Bitcoin Foundation purports to exist to protect the future of Bitcoin and the interests of the Bitcoin community and users, as well as to promote widespread use of Bitcoin. They should, if true to their word, pursue this matter relentlessly and exhaustively until resolved. Failure to to so will heap on even more doubt as to the validity, sincerity and honesty of the unofficial Bitcoin Foundation that is raking in money - hopefully not under false pretences.
Until this taxation matter is resolved, both Bitcoin take up among the mainstream and the Bitcoin exchange rate will be seriously held back.
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