I guess it’s fitting that the first official post on this site is Bitcoin related since the big IRS news this week was something of note to those trying to spread Liberty and Financial Freedom. One of the best overviews of the Guidance was presented by CoinDesk which is consistently gaining journalistic respect, at least from me, with the details of their coverage.
(As a side note before moving on as to why CoinDesk earned respect is with their article on the two men from LocalBitcoins who were arrested in Florida for selling bitcoins to undercover law enforcement. In that article they actually linked the statutes that were allegedly broken and clearly stated the charges. Something that even Bloomberg did not attempt to do in their coverage)
So getting back to the CoinDesk article on the IRS and what it means for the common person interested in the latest and greatest technology. It is pretty clear that the ruling favors the VC’s, Hedge Funds, and the already wealthy. Most of whom have no interest in using bitcoin in day to day transactions and are simply looking for another place to park their money while paying the least amount of taxes (which they can clearly afford). In a way it’s not surprising at all that the IRS came in their favor since they were the ones most vocal about the need for this guidance. But for the person looking to use it on the street, this is just another way to turn everyone into a criminal since the accounting that is required is impossible to keep track off. The articles authors clearly recognize this fact with the following:
In practice, though, it seems unlikely that anyone would do this. Greg Broiles, an attorney specializing in estate planning, trust and probate, who spoke on bitcoin and taxation at Bitcoin 2013, argues that accountants have a concept called “materiality“. This essentially argues that transactions should only be included for accounting purposes when they’re significant enough. An $8 sandwich paid for in bit coins probably doesn’t count. A $30,000 Harley probably would, though.
But what people might not realize is that the only way it is possible for a person to keep track of these individual sandwich and coffee purchases while calculating capital gains/losses is if someone is keeping track of your particular wallet. It would be very unfortunate if this is the first step to standardizing these digital wallets so that a company like Coinbase will be doing your accounting for free so that they know exactly when you spend and on what. And since the connection is not always clear, it’s somewhat irrelevant if Coinbase knows how you spend your money, they are just a company, it’s whether the Gov’t already has a back door to their data with or without their knowledge.
From here it seems that bitcoin is still looking for direction. Neither the common person just looking for the simplest and cheapest form of payment nor the criminal enterprises have embraced the new payment network. One still thinks it’s a fad and will be crushed by Gov’t while the other might be thinking it’s easier to track than paper especially as the regulation continues to pour in stomping on anonymity. There are a few paths it can take from here:
- With the new IRS laws some people might get scared to use it day to day, while the rich investors will slowly begin to pile in once again driving the price to new high. This time however the bubble will be different because what these investors do not realize is that the price must be in sync with adoption and this guidance will destabilize bitcoin without it’s day to day utility.
- People would soon realize that the IRS does not have the smarts/resources/understanding to go after their day to day use. This will continue to drive adoption that give some credibility whenever the price once again begins to rise. The difficulty would be to ignore the large investors along with the regulators.
Point 2 is not without some smart choices on the part of the consumer. They will now need to be more careful in distributing their coins across more wallets than they considered before and most important don’t fall in love with any particular wallet address used day to day. The idea of innocent till proven guilty is slowly devolving but in this case there would need to be proof that the digital wallet is yours and it’s harder when it’s no longer on any of your digital devices.