Have to legalize it to tax it.
Step one, rule its a legal means of exchange
Step two, levy taxes on Bitcoin transactions.
Step three, profit.
The price of Bitcoin has soared to astronomical heights after a US Senate hearing on the "promises and risks" of the crypto-currency. One Bitcoin was worth $637 (£396) on the Mt Gox exchange at the time of writing, but hit highs of over $900 (£558) during the hearing, prompting analysts to warn the bubble is about to burst. …
Step one, rule its a legal means of exchange
Step two, levy taxes on Bitcoin transactions.
Step three, profit.
I hate paying taxes as much as the next man, but if people are going to use it as currency it needs to be legally established as such. That means it's taxable, as well as falling under all the other laws regarding money.
I don't understand why currency should be taxed.. Is it not the goods that you buy with it that are taxable ?
As long as this does not turn into yet another method for the bankers/traders of Bitcoins to get rich at the expense of others then I don't see much of a problem.....yet....
There are no bankers of Bitcoin, that's the whole point of it being a decentralised system.
Trading in and out of Bitcoin with other currencies will attract a fee, as would buying gold or dollars with pounds, but in my opinion that's fair enough. Once you own bitcoins then transactions are easy and free.
Incredibly hard to do tho, being as it was designed as a crypto-currancy.
I'm wondering if they will take the easy option and make it illegal, rather than attempt to tackle something that's well past their technical understanding.
Agreed but once it looses its USP interest in Bitcoin will dwindle.
Any transfer of wealth is taxable unless you have an expensive accountant.
Once all the bitcoins are mind there will be transaction fees as an incentive for people to keep running "mining" rigs which compute the blockchains that make up the decentralised ledger so it wont be free to send money. Granted the fees are/will be tiny.
Also Bitcoin is not anonymous by design, it uses a distributed public ledger so you can trace every transaction on the network. e.g. Silk road sized coins wallet: http://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5GNn4xqX
Granted you can "tumble" the coins which is what SR used to do to anonamize transactions.
Currency is NOT taxable. Income and wealth ARE taxable, in whatever currency or non-currency commodity. Doesn't matter if Bitcoin is recognised as a currency or not, it just needs to be recognised as a value store or commodity and it's taxable. A particular government can also insist that it's taxes are paid in its own currency even for bitcoin value.
For example in many countries, having a company car or other benefits are taxed on an assumed value, with the tax is paid in coin of the realm. Similairly US gov does not need to recognise bitcoin as a currency, they can still argue that it is a value store (like gold bars etc) and tax owners (in US dollars) on the presumed bitcoin value. Of course this all depends on tax law detail, but strictly speaking any government can already tax people on their bitcoin holdings/earnings (if they know about it of course)
And I think the "if they know about it" bit that is the nub of the matter. By classifying a bitcoin depository as a financial institution under law, the tax authorities can request information on depositors/account holders and their holdings/earnings.
It's not all bad though... if a bitcoin depositary is legally equivalent to a bank then it is covered by depositor insurance or equivalent, meaning that if the bitcoin depository goes titsup, the government (or government-mandated insurance) will repay depositors in full up to a given amount (that can be quite high eg €100,000 in the EU)
"I don't understand why currency should be taxed.. Is it not the goods that you buy with it that are taxable ?"
It's a bit abstract, but you would not expect tax to be levied on swapping a chicken for a cat, say. So in that sense, it's the currency transaction which is taxed. Whether that's just because it CAN be taxed and barter can't is a moot point.
"levy taxes on Bitcoin transactions" - if you're earning them in some way and you convert them into a real currency you're going to be liable for taxation as earning/investments anyways. Probably worth noting.
If you spent 100 quid and now they're worth 20k you're going to have a major cap gains issue, otherwise you're committing tax evasion.
The thing is people are treating it like an asset rather than a currency. If you ask me this is going to end up like tulip-mania. It is essentially valueless because there is little you can actually do with bit coins at the moment. It is based an a perceived value rather than anything that is real, a bit like fiat money in general but at least I can spend a tenner in the pub or buy groceries.
Don't know about groceries yet, but I can spend bitcoin in my local pub.
worth £283. Not bad since I only paid £20 ....
Its only worth that if you cash out before it crashes
then it should be listed and accounted for on every Yank's tax return. If not, then say hello to the IRS at 4am.
"say hello to the IRS at 4am."
See Chris_J post above
They didn't endorse BitCoin, only that a virtual currency is potentially viable.
They will float their own version with central tracking and historical database of who owned what and when.
Bitcoin already has this in the form of the blockchain which contains every transaction ever transacted on the network.
Law enforcement don't even need a warrant as its publicly accessible.
The thing is, all the Bitcoin identities are hashes, meaning they're like Swiss bank account numbers. They need to attach names to those hashes.
Having said that, there are services like Coinbase that work within the confines of the law in that regard. They treat Bitcoin like a foreign currency which has a well-established set of rules, practices, and regulations, and they keep records for tax purposes. If Bitcoin exchanges behaved like Coinbase or equivalent, then I don't think the US Government will be too concerned.
It's an interesting technical exercise but Bitcoin itself is never going to work for the masses.
The supply of new coins decreases with time, which is exactly the opposite of what you want for a stable and useful currency if you want to grow the user base, since (bubbles and crashes aside) it becomes more and more expensive for new people to start using it. But it's made the early adopters rich.
I have approximately 0.05 of a Bitcoin myself (acquired via an experiment with mining, before the kit needed became prohibitively expensive) worth at today's exchange rate around £25.
There's nothing special about "1 bitcoin". The fact that 1 USD costs 62.36 Rupee doesn't make it more expensive to get into dollars, it's just different units.
The thing about Bitcoin is that it is a deflationary currency - a Bitcoin will become worth more with time, where as most currencies become worth less. There may well be valid arguments why this is a bad thing, but it doesn't mean things will become more expensive for people to start using it. People who convert $1000 to Bitcoin will always get 1000 dollar's worth of Bitcoin, which they can use to buy 1000 dollar's worth of goods. If Bitcoin is deflating in value, then anything priced in Bitcoin will drop in price. (Similarly, the fact the normal currencies inflate doesn't mean things become cheaper.)
Except that that's not how "proper" currencies (something that can be used as an everyday means of exchange) work. Internal market prices/wages should NOT change in response to the external exchange rate (or at least only slowly, over time).
If you're saying that 1000 dollar exchanged into Bitcoin can always buy me 1000 dollars worth of goods, (ignoring the supposed anonimity advantages) I may as well just use the dollars in the first place and avoid the exchange costs.
Bitcoin is just a speculation investment and at the moment has all the appearance of a south-sea bubble one at that.
" Internal market prices/wages should NOT change in response to the external exchange rate (or at least only slowly, over time)."
So they do change then. Yes, it's a problem that Bitcoin is deflating so rapidly, but that would have to slow as it moves towards mainstream usage (as there's only a finite population/market).
"I may as well just use the dollars in the first place and avoid the exchange costs."
Of course at the moment Bitcoin's uses are limited - I don't think anyone's denying that. However I can see uses growing - e.g., as an alternative to Paypal, or for international transfer. You have to compare the exchange fee (0.5% at Bitstamp) to things like Paypal or bank fees. There is also the point that as Bitcoin becomes more mainstream and widespread, competition may well force exchange fees down.
"Bitcoin is just a speculation investment"
It is a speculative investment, but it is not only that - it is a new technology with plenty of potential. Few technologies magically spring out of thin air with mainstream acceptance and lots of uses.
"has all the appearance of a south-sea bubble one at that"
I look forward to it bursting then. So far all the so called bubble crashes have resulted with a stable value far higher than before that bubble started growing.
"Internal market prices/wages should NOT change in response to the external exchange rate"
I used to have a salary denominated in USD and paid in GBP; changed every month and sometimes (through 2008-2010) a lot. Stop thinking of Bitcoin as something directly related to USD and think of it more as a separate currency.
Think of it this way...
Bit Coin only has value as long as two parties agree that it has value and then does a barter between bit coin and the other object.
(Converting Bit Coin to cash is an example. )
So if I put on my Heisenberg Hat... I'll sell you this bag of meth for either $200.00 (USD) or a Bit Coin.
This would mean that I and you believe that a Bit Coin would be worth approximately $200.00 USD.
Or one bag of high grade meth. (Not that I know anything about Meth. ) Just pointing out the use of Bit Coin for illegal transactions....
If all of a sudden either you or the other party decide not to accept or use bit coins... the value is going to drop. So if you're holding 100s of coins and want to buy meth, but no one wants to sell you meth for bit coins, you're going to be SoL...
Its simply supply and demand at work. Who cares how many bit coins there are, or how many you own if no one wants them.
Its like the Pet Rock of this century.
"Bit Coin only has value as long as two parties agree that it has value and then does a barter between bit coin and the other object."
So you're saying that Bitcoins are just as good as gold, then?
I think cryptolocker may have just a bit more to do with the price bump than a random senate hearing.
Cryptolocker's authors' decision to demand ransom in Bitcoins is probably the luckiest move they ever made. The wider the malware spreads, the more people who pay, the more the value of the payments soars.
In malware terms, it's the Perfect Storm.
It looks like it's already down to $450 and still falling. So much for that, one hell of a short-lived bubble there.
And falling and falling.
Eeeexcellent. Soon, cheap opportunities to buy will arise :)