Bitcoin Is Officially a Commodity, According to U.S. Regulator | Hacker News Reader

Bitcoin Is Officially a Commodity, According to U.S. Regulator

bloomberg.com

296 pointsshill233 comments

Set aside what Bitcoin enthusiasts want it to be for a moment, and think about the transactions that are actually happening.

Is the majority of the usage pattern currency-like, where people are getting paid in BTC and buying things with BTC?

Or is the majority of the usage pattern that of a commodity, where people are mostly buying and selling it for fiat currency, and trying to do so at a profit?

I would strongly suspect the latter: the vast majority of BTC transactions (other than transfers between personal wallets) are the buying and selling of BTC for fiat currency.

Even most "Pay with Bitcoin" businesses are this way: in reality, all you're doing is selling your Bitcoin to an exchange who will convert it to USD and pay the USD-denominated price of the item you're buying. Gold certainly can't do this so conveniently, but the principle is the same: I want to buy something, so I sell some gold and use the USD to buy things.

This. Also don't forget that currency and commodity are not always mutually exclusive:

https://en.wikipedia.org/wiki/Commodity_money

Commodities are increasingly behaving like this, though not to the extent that BTC does. The economy is very, very financialized. Bitcoin is an asset that appeared well into the financialization trend, so I don't think it is that surprising that such activity dwarfs actual uses of BTC as a medium of exchange. Who is interested in bitcoin? Consumers for whom the use of bitcoin is better than currency (so, like, contraband over the Internet), technophiles, libertarians and investors, really.

From the outset bitcoin was set up to be digital gold...

Exactly this. The precursor was Szabo's bitgold [0]. Also, the feeling in the community has always been that bitcoin would remain as the gold of the cryptos, used as both money and a commodity with some industrial applications.

[0] http://unenumerated.blogspot.com.es/2005/12/bit-gold.html

Meh, i hold that what made gold money was the face stamped on them to verify they were of a certain weight.

Straight gold without it is a questionable commodity as the usage, at least for the time, was ornamental at best.

But once measured up and stamped you had an item that would not lose its weight much over years of storage (even it if was down a hole or at the bottom of a lake etc).

What made it money was not the metal itself, but the process.

Or digital cash. Where do you actually draw the line?

It's both.

Bitcoin's supply is strictly limited. Most cash these days can be printed at will. So the comparison to digital gold coins is apt.

Thing is that i think the reason they picked gold back in the day to make coin out of, was that it was durable. You could bury it for decades, or even drop it at the bottom of the ocean, and it would not lose any noticeable weight etc.

These days, "paper" notes etc do just as well.

Oh, it's more complicated. Pebbles are super durable, too. But they are not rare enough. Gold wasn't the only commodity money, and it's wide popularity is actually fairly recent. Silver was historically more popular, even copper and in some cases iron.

Was there not some stone wheels used as currency on some pacific islands?

I doubt that is nearly as true any more. It is likely exotic to be payed in bitcoin, but buying things is a breathe of fresh air. Any electronics, anything that can be bought at overstock, some local food delivery (through restaurant menu startups that take btc), vpns, Louis CK's latest release... If I can pay by btc then I do. The convenience is fantastic. No fraud, no punching in numbers, no hassle from some extension messing with e-commerce tracking that messes up the order, no fraud false positive from using a vpn or privacy tools... The list goes on.

If they take BTC? Click a QR code/link, put password into wallet. Done.

How many of those places do not instantly convert to USD?

Is this an advantage over paypal where I am insured as a buyer?

Try buying something using your Canadian PayPal account on an American IP address with a shipping address in Vietnam.

I did, my account got insta-blocked and I could not complete my transaction. I would have been perfectly happy to risk losing my money instead of having a 100% chance of not receiving the thing I want because of PayPal's paranoia.

Frankly, I see that as a positive.

If I made a similar transaction I'd be up set if it didn't at least trigger a fraud alert.

If there was an easy way to unblock my account I wouldn't mind much, but they wanted me to pick up my Canadian landline to prove that it was actually me buying things in Vietnam...

Can't make this stuff up.

Buying with BTC is a breathe of fresh air, huh? How about when taxes are due?

If you're a US taxpayer, you are required to report the profit/loss of every single purchase made with bitcoin.

Which means that you need to dutifully look up and record the current price of bitcoin every time you make a purchase, so you can properly report the fair market value, and then copy that information over to Schedule D in the proper format.

And according to the tax rules, if you've made several purchases of bitcoins over time, then you have to separate the purchases into lots. So if you bought 0.3 bitcoin on Mar 1st and 0.2 bitcoin on Mar 31st, and you bought a video card for 0.4 bitcoin on May 2nd, then you have to decide from which of the previous lot(s) you want to take bitcoins on to report the profit/loss at the time when you bought the video card. For each separate lot, a separate line needs to be created (or you may put VARIOUS, and figure the correct gain/loss and just add that to the form, its up to you)

Of course, if its been more than a year between the time you made some of those purchases, you need to separate out the gain/loss into long-term vs short term gains.

And then, if you decide to refill your bitcoin account within 30 days before or after a purchase, and the bitcoin price went down from the time you bought it until the time you made your purchase, then wash sale rules come into play. In those cases, you need to report the sale, and then further mark it as a wash sale, reverting the loss on the form. Then those bitcoins that you sold and rebought have to be put back into your lots of bitcoins to use for further purchases, adding together to the final sale in the future the total loss and gain made by all the wash sales those bitcoins may be a part of (all while respecting the long term/short term gain split).

---

Yea, what a dream! :/

There is no law that says you have to record every transaction. On your tax form, there is a field where you put in the total amount gained or lost over the entire year. For 2014 I lost money, so in my tax form, I didn't put anything. For 2015 I will probably break even across all buys/sells. Maybe for 2016 the price will rise and I'll end up making a net profit after adding up buy and sell spreads. You don't have to be exact, you just have to give it a goo guess. If you guess too large, you pay more in taxes, if you guess too low, you pay less in taxes, but run the risk of getting in trouble if audited.

I guess if you wanted to get brownie points with your accountant, you can record all transactions, but if you don't you certainly aren't breaking any laws.

Uh, sure... a field on your tax form... that you can't even be bothered to give the form and line number of. Sounds trustworthy.

Sounds like something that's very easy for a machine to calculate.

That's not unique to Bitcoin though, is it?

I have a box of foreign money at home which I use every time I am abroad. I bet most people have something like it.

If I were to trust you on this, I'd have to record the price of that currency with every cup of coffee in every airport I buy. In practice nobody has done that, ever. I'd say that's safe.

Should I suddenly pay cash for new sports cars or houses out of my little box that would be different of course. I doubt the difference between a cup of coffee and a sports car is really encoded in law, but the difference is there and should you find yourself in a grey area (old used car perhaps?) there are people specializing in this very matter that can help.

>I have a box of foreign money at home which I use every time I am abroad. I bet most people have something like it. If I were to trust you on this, I'd have to record the price of that currency with every cup of coffee in every airport I buy. In practice nobody has done that, ever. I'd say that's safe.

This is not true.In the US there is a tax exemption for small denomination purchases in foreign currency's(I think $200) [1]. I can't find a source right now...

*Edit updating citation: User icebraining cited this source in this discussion.

1. https://www.law.cornell.edu/uscode/text/26/988

well, for one, the IRS doesn't treat bitcoin as a currency, but as a commodity. While some foreign currency transactions fall under the regime of capital gains, a transaction resulting in the gain/loss of less than $200 are specifically excluded from capital gains [1].

Note that this relates specifically to changes in value of the US currency in relation to the commodity or foreign currency. In this sense there is a difference between a sports car and a cup of coffee encoded in law. If the euro you bought for $1 is suddenly worth $1.02, and you buy a 1 euro coffee, you'll only realize $0.02 in gains, and not hit the $200 threshold. If you buy a 100,000 euro sports car, you will realize a $2000 gain, and have to report that on your taxes.

Since bitcoin is a commodity, it doesn't matter if the value moves 2 cents or 2 dollars or 2 million dollars, all gains are capital gains.

So if you buy a coffee with euros you specifically don't need to report that, but with bitcoin you do. Whether the IRS is going to notice that you don't record every single capital gain arising from a bitcoin transaction is another question, but there is a major difference between foreign currencies and bitcoin as far as the IRS goes.

[1]http://www.maximadvisors.com/2013/12/us-taxation-of-foreign-...

All of this can be done easily with software.

Would you happen to have a link to where you got this information yourself?

I actually called the IRS and asked them. They told me to treat it just as securities, which has all these rules attached to them.

I actually know someone who receives her salary in Bitcoin. She's a remote contractor who lives in a country where the banking industry imposes really unreasonable fees on international transfers. To me, she is using Bitcoin the way it was originally intended: to break the stranglehold of the monopolies in banks for financial transactions.

Similarly, I'm not entirely sure that the "Pay with Bitcoin" approach, where an exchange converts the currency for you is that far removed from this idea. Before Bitcoin, my options for payments were pretty limited. Either credit card or Paypal -- both of which are convenient in the US, but at the time very inconvenient (to the point of impossibility) for people living in poorer countries.

I've read the early mailing list archives for Bitcoin to see if I could understand Saotoshi's intent in creating Bitcoin. Interestingly, he doesn't seem to discuss it much at all. It seems to be all about the tech. I think the "bitcoin is going to replace fiat currency" narrative is something that was adopted by overenthusiastic people who arrived on the scene later.

I think Bitcoin (and potentially other digital currencies) still has a number of hurdles to get over, but it's succeeded at wresting the payment industry from the banking monopoly (plus Paypal) far better than I originally suspected it might. I certainly hope it can continue.

I don't think it matters (or should matter) to regulators what Satoshi intended, or what one person does, or what a few hundred people do. I agree paying with Bitcoin is a good option and I hope it becomes more accessible (and that the price stabilizes).

That doesn't mean regulators should treat it like currency when, practically, the real world doesn't use it that way.

> I've read the early mailing list archives for Bitcoin to see if I could understand Satoshi's intent in creating Bitcoin.

The answer could be here:

Thus, bit gold will not be fungible based on a simple function of, for example, the length of the string. Instead, to create fungible units dealers will have to combine different-valued pieces of bit gold into larger units of approximately equal value. This is analogous to what many commodity dealers do today to make commodity markets possible. Trust is still distributed because the estimated values of such bundles can be independently verified by many other parties in a largely or entirely automated fashion.

In summary, all money mankind has ever used has been insecure in one way or another. This insecurity has been manifested in a wide variety of ways, from counterfeiting to theft, but the most pernicious of which has probably been inflation. Bit gold may provide us with a money of unprecedented security from these dangers.

That quote is from Nick Szabo. Here's a Satoshi quote:

The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.

Also the text in the Genesis block suggests bitcoin was a response to the failure of banks in the GFC:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

> She's a remote contractor who lives in a country where the banking industry imposes really unreasonable fees on international transfers.

And she most likely converts her bitcoins into whatever local currency she needs to pay for her goods.

I'm not sure if this is supposed to be a criticism of bitcoin's utility or not, but if it is I think you missed the point. The point is she has more currency units now than before, because she didn't have to pay the bid bad bank, even if she had to use local fiat to buy bananas.

No, I think the point is that her method of receiving payment is functionally no different than if they drop shipped gold bullion to her. She must convert it into a usable currency in most cases.

Gold bullion is rather expensive to ship and insure.

Bitcoin seems quite promising for foreign currency transactions.

Only if someone in the destination currency is willing to trade that currency for Bitcoin.

Isn't that true for all (or at least most major) currencies at the moment?

It's certainly easier to sell Bitcoin locally than gold bullion.

I'm not convinced that's true in very many countries.

You probably won't be getting too good prices for gold in such countries either.

Yes, so it's an unprecedentedly easy to transport commodity, but that doesn't mean it's not a commodity.

If that's your mindset, then look at it like this: Bitcoin is a technology for shipping gold buillion equivalents to any remote location in the world in under the hour, for the price of a tenth of a cent. Pretty nifty, is it not?

Nifty? Sure. Deserving different tax treatment from gold bullion? Nope.

Mindset? I was simply providing a different, I think more accurate, interpretation of the anecdote presented upthread. The person was paid in bitcoin, but in this specific case, because of the circumstances, I think it's no different than if they were paid in some other easily fungible commodity, such as gold. I interpreted the usefulness in getting paid in bitcoin not that the worker now had an easily used currency, but that the worker now had a commodity that could be exchanged for a local currency to actually buy most things needed, and it was cheaper than dealing with the local currency exchange fees.

Yes, it also points to the utility of bitcoin, but this specific example also points to it's use as a commodity, IMO. As it gains in popularity, I think it will gain more utility as a currency, but until then it's a currency of limited use (limited in that there are limited venues that accept it) except as a commodity.

So when I was getting paid in dollars, and converted it to my local currency right away, I was proving that USD is a commodity? I could not get anything with USD, so it is not a currency? Interesting.

What people miss is that commodity and currency are not exclusive. And the difference between them does not really matter all that much.

> So when I was getting paid in dollars, and converted it to my local currency right away, I was proving that USD is a commodity?

Yes. It is a commodity. People trade in it every day.

> I could not get anything with USD, so it is not a currency?

For your use at that location, apparently not.

> What people miss is that commodity and currency are not exclusive.

Yes, and I said as much in a separate reply.

> And the difference between them does not really matter all that much.

Except for when they are classified as one and not the other and taxed differently.

I'm curious how she does use it though. Is there a local exchange willing to trade bitcoin for the local currency? Because she can't exactly do it through Coinbase, or she's right back where she started...

Coinbase is available is 28 countries: https://www.coinbase.com/global

(I work for Coinbase)

Did not realize that.

You might want to update your FAQ: https://support.coinbase.com/customer/en/portal/articles/182...

It only lists 4 countries.

According to our lawyers we're not allowed to advertise exchange services in certain jurisdictions but if users happen to stumble upon it we're allowed to offer them the service ;)

Not necessarily. Coinbase's fees are probably far less than it costs to wire money or PayPal's 3-4%.

But not less than Transferwise at 0.85%

Coinbase has an exchange (https://exchange.coinbase.com) that supports several currencies and is accessible from many countries.

(I also work at Coinbase)

North-African countries have better exchange rates for BTCs in the local market than the USD one. (because of capital flow controls). I suspect the same for other third-world countries.

She probably takes 10-20% more with BTC than with bank wire.

So it's a criticism of the bank's fees, not of Bitcoin's utility. How does she get her local currency? Volatility has to be factored in to determine the price savings. (I personally think the level of control is a much stronger argument than the cost, since savings can be wiped out by the market or the banks updating fee structures)

Nobody can force anyone to adopt bitcoin. I regularly buy Subway with bitcoin at a local store that accepts it.

The benefits of bitcoin are out there, its up to stores to offer it as an option. There should be a strong pressure to eliminate credit card processing fees though, since most companies are paying ~10% of revenue just to credit card companies, sometimes worse.

10%?

Perhaps a small Mom & Pop store that has tiny volume.

Any company of decent size would be paying significantly less than that in practically all circumstances

The main point I was trying to make is that Bitcoin opened up the transfers of money to operators other than banks. Of course this is both useful and scary :-). For my friend, she has to hope that the service she uses isn't going to turn into another MTGOX. Regulation of financial services == good. Monopolies on financial services == bad. ;-)

I'm not privy to her financial transactions, but I believe she holds some BTC for online purchases and transferring money between her and her husband. Clearly the bulk of her money is converted to a fiat currency because that is the most useful at the moment (though I'm willing to bet dollars to doughnuts that the fiat currency she most often chooses is not that of her home country).

Which would likely convert at close to the same rate as USD -> local currency if BTC -> local currency is a liquid market. If it's not liquid, then Bitcoin is essentially unspendable locally -- she would have similar results if she opened up a US bank account and had her fees paid into that.

So what happens when Bitcoin crashes? Does she just not make as much money that year?

She probably quickly exchanges it for local currency

She very likely receives payment in "dollars worth of bitcoin" and not a fixed bitcoin amount.

Surely her contract specifies she will receive $X,000 worth of BTC rather than a fixed amount of BTC each month?

Sure, but what's your point? My contract states the same and my national currency is the Euro.

You have your salary denominated in dollars even though your national currency is Euro?

Yes. It's not unusual for contractors to choose to fix their rate in any currency. Sometimes I denominate it in GBP, even if neither of the two parties is in the UK.

Perhaps she and her company should take another look at what remittance companies are out there: the 'fact' that Bit-coin is a cheap way to transfer money (and that 'traditional' money transfer is expensive) is mostly wrong:

https://www.saveonsend.com/blog/bitcoin-money-transfer

TL/DR: shop around the money transfer companies and you can save a fortune, their fees vary wildly. Online companies can be very cheap indeed. Comparisons with bit-coin mostly cherry-pick the expensive companies to make themselves look competitive.

Somewhat similarly, many Dutch people don't use credit cards (which is very wise IMO hehe), and over here we have something called "iDeal" that's really only supported by Dutch webshops. Bitcoin can be a handy alternative to cc/paypal for us.

As a Dutch person who does hold a credit card, i am always baffled by the near-taboo reaction when it comes up in conversation (noticed this in both France and the Netherlands). People seem to take pride in an almost pious/religious way in the fact that they want nothing to do with credit cards. I just don't get it. I know what the downsides of using a credit card can be (e.g., high interest rates) but they certainly have advantages, too (they work everywhere i travel, there are neat insurance policies). I use mine as a debit card for online and foreign purchases: there's an automatic payment at the end of the month from my current account into the credit card account, so i end up never ever paying interest, it only costs me the €x per year in card fees.

Credit card is more difficult to keep track of your finances. You don't notice your balance changing until the end of the month. Further, you're doing things on credit, where most Dutch mentality is to save, then spend.

The insurance policy is there because of a lack of security. Plus you pay it back anyways. E.g. if you pay with your credit card abroad they make money on the currency conversion plus they charge the merchant significantly more. Hidden costs that you don't notice. The bank cards / Meastro system is way cheaper.

If you stay within the EU you can just pay with your bank/debit card. Only if you travel outside of the EU you'd really need a credit card. Not too many people need that, so someone having a credit card is not that common (though IIRC Rabobank automatically gives you one).

Plus the whole confusing difference between credit card and the bank cards. I'd highly prefer things to go out of my bank account immediately. My bank card doesn't have the credit card number and isn't accepted. I'd wish my bank provided a better (integrated) overview.

The public attitude in Colombia towards credit cards is very similar.

Personally I wouldn't want to receive my salary in a currency whose value, relative to the money I have to use everywhere, fluctuates wildly all the time.

I think the intent was to show how easily one can transfer Bitcoin as a means of payment, then transfer the amount into a more preferred currency, which presumably, in a country with poor financial institutions/regulation, is easier than directly wiring USD

> I've read the early mailing list archives for Bitcoin to see if I could understand Saotoshi's intent in creating Bitcoin. Interestingly, he doesn't seem to discuss it much at all. It seems to be all about the tech.

http://p2pfoundation.ning.com/forum/topics/bitcoin-open-sour...

Yes, this is the majority of usage but some customers pay me in bitcoins and I pay a few development services with bitcoins too. I can lose or win with the fluctuations but I am more confident that the bitcoin is fluctuating less and eventually will move up, in the mean time I keep this bitcoins moving inside the ecosystem.

My rational side thinks that this ecosystem is just starting and there are killer use cases. For example minors offering their services (e.g: web design, software development) for bitcoins where in the real world they can't handle their own credit card or bank accounts without permission.

Another killer use case is loans, in developed countries you can pay more than 60% of annual interest, cryptocurrencies are a way to normalize these numbers worlwide.

> For example minors offering their services (e.g: web design, software development) for bitcoins where in the real world they can't handle their own credit card or bank accounts without permission.

Good old regulatory arbitrage. (Hey, it works for Uber.)

If memory serves right, the vast number of transactions on the blockchain are people playing Satoshi Dice, ie gambling.

What about silk road? Do you think people were using it as a currency there or still as a comodity?

So basically the only example you can come up with is illicit commerce? Guess we should also consider Tide detergent a currency. http://nymag.com/news/features/tide-detergent-drugs-2013-1/

Bitcoin was definitely used as a hobby internet currency before it started becoming popular around 2011-12. Now it's largely speculation and hoarding.

It is possible to buy and sell things with commodities, for instance gold bars.

>Or is the majority of the usage pattern that of a commodity, where people are mostly buying and selling it for fiat currency, and trying to do so at a profit?

This sentence would make sense if you had said "that of a security"!

I think you forget that the defining aspect of wheat is that eventually it ends up in people's mouths! (i.e. has some actual usage.) Futures contracts are an afterthought on top of what the definition of a commodity is, in my opinion.

https://en.wikipedia.org/wiki/Commodity

A large fraction of Bitcoin transactions is gambling. See how the number of transactions suddenly takes off in summer 2012? That's Satoshi Dice.

https://blockchain.info/charts/n-transactions?showDataPoints...

Furthermore, the largest use of Bitcoin volume-wise is indeed trading against other currencies. However, the same holds for the USD. US GDP is below 20 trillion per year, while global forex trading is 5 trillion per day, with the majority of trades involving USD.

And Silk Road

The function of Bitcoin goes beyond it's use. It's sending a very clear message to other forms of financial transaction to keep it simple and cheap.

I think it delineates a threshold where no other financial transaction can go. I think it's very beneficial even though comparatively few transactions go through Bitcoin.

We can answer this question, but first we must make it operational. Let's measure a "usage" of bitcoin as a bitcoin transaction. This is the most simple, general measure of bitcoin usage. Now we have a quantity. We can graph it. [1]

Now, we just need to get some data on whether these transactions occurred due to commerce in bitcoin, or due to trading for a profit. We can't see this on the blockchain directly; however payment processors like Bitpay and Coinbase have access to this information. Coinbase, in particular, operates both an exchange and payment processor. It knows what percentage of transactions (within its market segment) are due to buys and sells vs. ordinary commerce.

Luckily, Coinbase has gone on the record answering this specific question! [2] Brian Armstrong, the CEO, said specifically at Techcrunch that the majority of bitcoin uses are for buying and selling things -- actual payments. [2]

So the answer to your question surprises you -- the majority of usage is very currency-like!

[1] https://blockchain.info/charts/n-transactions?timespan=all&s...

[2] http://techcrunch.com/2014/10/21/coinbase-ceo-brian-armstron...

Funny coincidence that according to that chart we are right now at an all time high.

It's because people were flooding transactions and sabotaging bitcoin to prove it doesn't work well by it's current design. [1]

http://motherboard.vice.com/read/great-job-everyone-bitcoine...

During the transaction spam, Bitcoin was all but unusable with the standard wallet software. The price went up. Whatever the Bitcoin price depends on, it sure isn't whether it's usable.

This is an interesting development. Typically commodities futures and options contracts can only be traded on a DCM (designated contract market) like ICE or CME. After leaving once DCM, the Chicago Climate Exchange, I started an exchange as a service startup, Exchangery, and sought DCM status. It requires a 12-18 month approval process, typically > 500k in legal fees, and a guarantee fund that is based on the amount of money moved across the platform. The last requirement could easily be 10s of millions for something like Bitcoin. It used to only be imposed on clearing firms, but post Dodd-Frank it is applied to the exchange as well.

This is drastically going to thin the players in the space, and probably force most bitcoin exchanges to stay strictly in the non-derivative trading world. It might also tempt players like CME and ICE in to trading futures on Bitcoin if they think the volumes are potentially large enough.

As far as SEFs go, they are limited to swap trading, which can be dressed up to act like an option but isn't really the same thing.

Fun times ahead.

Isn't there a startup that's already applied for CFTC approval?

Considering the CFTC didn't regulate Bitcoin until today I wouldn't think so. Their application would have been received with a polite "save yourself some time and money, we don't regulate that" I imagine.

Unless someone was working with the CFTC to have them move it under their jurisdiction for a competitive advantage or something, but even then CME or ICE could jump in so that would be a risky move.

I can't think of any other reason, but who knows.

> Isn't there a startup that's already applied for CFTC approval?

Well, there's TeraExchange which applied with the CFTC for trading dollar-denominated bitcoin swaps that are written, quoted and settled in US dollars.

Recently (days ago) the CFTC approved LedgerX for temporary registration as a Swap Execution Facility, which is one of the (multiple) registrations required pursuant towards LedgerX providing bitcoin options trading, as well as bitcoin clearing and settlement in actual bitcoin.

Disclaimer: guess what

So far we have gotten Bitcoin classified:

* CFTC: Commodity * IRS: Property * Judge: Currency * SEC: Security * TSA: Cash

One step closer to world domination.

In other words, every government entity happens to believe it is entitled to regulate it.

Not sure this is cause for celebration.

...or that's it's remarkable.

It's the default belief for a government entity.

Yep, regulators generally want to broaden their reach to cover anything and everything that could be interpreted as being under their regulation.

Narrow readings are not for the regulator. You have to go to court (or have the legitimate ability to threaten going to court) to hope for a narrower reading.

[citation needed] it's often more about what industry and politics vs regulators.

Ex: EPA often has a rather hands off policy and is frequently sued for failing to regulate industry. SEC is often described as asleep at the wheel. FDA carved out lots of things as outside their preview like 'natural' remedies even if it was created in Large part to deal with exactly that type of snake oil.

Perhaps though, you've confused breadth for depth.

This is the most important point. We apparently live in a country where regulators get to decide what falls under the umbrella of their regulation.

Courts and lawmakers are the ones who get to decide, but when the laws are vague the regulatory agencies have to choose some interpretation of the law to operate under until the lawmakers make a clearer law or until courts issue a ruling that clarifies the law.

Every government is entilted to regulate it, it's an asset like any other, being new doesn't make it outside of existing law.

Why?

Because governments rely on the ability to tax financial exchanges to finance themselves. Not saying it's right, but it's the crux of their power and income.

Well the "why are they are entitled to it" is because they have a monopoly on power. Why they regulate is to finance themselves.

> is because they have a monopoly on power.

Granted to them by us, voluntarily.

The most decorated soldier in american history is Smedley Butler. Two medals of honor. He wrote a book, "war is a racket" where he comes to the conclusion that his entire career was to further the interests of big money and elites.

We peons don't get to really choose who governs us, never mind to have government. But if belief in "the consent of the governed" comforts you, go ahead and down vote me.

War is a racket, and we consent to it. We peons as a whole are ignorant and easily misled, consent is easily manufactured. Consent of the governed is not matter of belief, it's simply a fact they operate with our consent for our consent is the source of their power. Smedely Butler is correct, but his statement does not support your argument in any way.

Quite simply because law doesn't work that way. Laws apply to future new things as well as existing things; being new doesn't make something exist outside of current law and law doesn't regulate things with technology, but with law. The ability to jail people is how and why law works and you can't tech your way around that. They don't need to technically be able to stop something because they have the means and ability to enforce these things socially.

No, mathematics makes it outside of existing law. There is nothing a government can do to stop or alter Bitcoin.

And murdering someone is just applied physics... Of course they can do things to regulate mathematics. Hell they can regulate Knowledge itself, just look up the "born secret doctrine". Through the sanctioned monopoly on violence, the government is given final rights over everything via their ability to leverage the threat of violence.

What could a government do to prevent or alter Bitcoin? Shut down the Internet?

They cannot destroy it but they can hinder it in major ways and drive it underground. For example if major governments announced that they're banning bitcoin it would drive off a lot of users and we would have to find ways around their legislation. Major exchanges will have to go underground, it would be a lot harder to buy bitcoin, maybe the value would drop.

Exchanges are peripheral noise.

What would 'banning bitcoin' even mean? All that is required is the computation of a number and its transmission to the blockchain. It's impossible to block such a message without blocking all other communications.

likely, "banning bitcoin" would take the form of barring companies from accepting it. It definitely changes the value proposition if Amazon, Target, Overstock, Subway, TigerDirect, Home Depot, etc. can no longer accept bitcoin as payment. There's no need to mess with the blockchain if you can simply eliminate mainstream use and force it onto black markets.

On what basis could a company be banned from accepting it? No physical items are exchanged. It's simply a record in a long chain of integers.

Engineers like to use lines like "long chain of numbers", but that doesn't really hold weight. Stolen credit card numbers, digitized child porn, and terrorist communications all also qualify as "just a bunch of numbers". So does the majority of NSA surveillance, which most HN'ers oppose.

The government is pretty good at figuring out justifications for banning things. I wouldn't rely on reasoning as flimsy as "it's just numbers" for why it couldn't happen. (I'm not saying I expect them to, just that if they did, it'd most likely take the form of a merchant ban, "just numbers" would not be an adequate justification, and all the big retailers would comply because none of them want to risk a big legal fight.)

>Stolen credit card numbers, digitized child porn, and terrorist communications all also qualify as "just a bunch of numbers".

Sorry, are you claiming that government has stopped those things?

A government can say whatever it likes. Actually causing that to be reality is a much different problem.

I'm claiming that those things are less ubiquitous than they'd be if they were legal. You can get them, but you have to do so underground, and there are risks associated with that trade.

You seem to be thinking in terms of whether the government has the absolute power to 100% stop something. The rest of us are thinking in terms of whether, if the government declared something to be illegal, it would have a significant impact on that market. I claim that it would. Part of the value of bitcoin is that you can exchange it for physical goods at major retailers like Home Depot, Target, Subway, and TigerDirect. If the government declares a ban, those retailers would almost definitely honor that ban, and then bitcoin would become less valuable overnight.

> On what basis could a company be banned from accepting it?

If by basis you mean authority, the Commerce Clause is most likely, though I suppose the Coinage Clause might be invoked as well.

If by basis you mean policy motivation, there's an infinite number of possibilities.

> No physical items are exchanged.

Government regulates acts that don't involve an exchange of "physical items", but just electronic data, all the time (pretty much all instance of wire fraud, CFAA violations, among many examples.)

I mean basis as, what technological basis would disallow the transmission of Bitcoin transactions, but still allow all other digital communications?

Most government prohibitions don't involve technological barriers. (E.g., the prohibition on murder doesn't involve the existence of technological means which obstruct homicidal acts but not other human interaction.)

They couldn't accept it as payment. And it is that simple.

> What would 'banning bitcoin' even mean? All that is required is the computation of a number and its transmission to the blockchain. It's impossible to block such a message without blocking all other communications.

Government prohibition of an act rarely involves blocking all instances of the act (in fact, if the government could effectively make an act impossible, it wouldn't need to prohibit it.)

So the question here just seems to miss the entire idea of legal prohibitions.

Make it illegal? Break down our door and take your computer and coins? Raid the service that holds your coins? Put you in jail if you refuse to give up passwords?

You miss the point, they don't regulate Bitcoin, they regulate citizens. Just because you can't stop something completely, doesn't mean you can't outlaw it. Bitcoin, like all commodities now and in the future is taxable under current law because the law taxes all income of any form except things we say you can deduct. That means it covers new forms of assets as well as existing ones. Not paying your taxes is illegal and is more than enough threat—as it always has been—to make citizens obey the law.

You miss the point. Bitcoin is not necessarily income. It's simply a chain of integers bound through certain mathematical operations.

"the government is given final rights"

Well not according to the US' citizenship test which states that the constitution is the top law whilst defining the rule of law as no entity, including the government, being above the law.

That's the theory anyways. In reality, might makes right now more than ever (there's a very interesting article from MIT about if technology fosters democracy. They conclude no)

The constitution is what grants them that power. The executive branch is charged with enforcing the laws of the legislative branch according the main body of the constitution and the 16th amendment says they can tax your income. Taxing bitcoin is something the constitution says they can do.

This comment has nothing to do with the topic at hand.

Law is social, nothing is outside of existing law and being math can't change that because law is based on what is or isn't mathematically preventable.

Not sure this is cause for regulation.

it's probably more indicative that all of them are wrong since they can't be collectively right.

Careful, increasingly the governments expect you to agree they have a right to whatever they claim.

This isn't new IRS also sees stocks and bonds as (investment) property http://www.irs.gov/publications/p550/ch04.html.

Each agency can regulate the same thing under different scenarios there isn't really a conflict there.

The NY Judge defined it as a currency so they could adequately prosecute someone using bitcoin in a ponzi scheme.

If the law redefined ponzi scheme to use something other than a currency, it might be defined differently.

Coinflip founder here. I'm not sure what this means for Bitcoin, but the CFTC taking a clear stance is a plus for Bitcoin derivatives. The chance of a serious player like CME listing Bitcoin derivatives just went from zero to non-zero.

This makes sense. The CFTC regulates futures and derivatives in things other than stocks. Futures and derivatives imply that at a future time, someone will have to pay up. Without regulation, that tends to turn into a "take the money and run" business. If there's some intermediary who holds customer deposits, there's a huge temptation to speculate with customer funds. It takes regulation, audits, and guarantees of financial strength to back up such an intermediary.

This isn't unique to Bitcoin. It's a general property of futures markets. Bitcoin, though, has had far too many intermediaries go under for the short length of time it's been in business.

Anyone else think it's weird that regulators of X can decide what is defined as X?

I don't follow. Isn't that the point?

No, because they have a clear incentive to categorize everything as X so they can collect their taxes and fees and feel important and powerful.

If not them, then who?

Congress? The courts? Some third party at least.

But...Legislatures and courts designate regulatory agencies, through enabling acts[1] that allows said agency to exist and which lists its jurisdiction and areas of responsibility. That's how regulatory bodies exist, it's what they're for. A court established regulatory body defining what it regulates is 100% within the scope of that body under the law.

So in a way, this already happens. I'm not exactly seeing the issue here. Regulatory bodies don't just appear out of nowhere, they have to be established by a legislature or a court. You're asking for a feature that already exists.

[1] https://en.wikipedia.org/wiki/Enabling_act#United_States

It seldom happens that government agencies enact new regulations to "feel important and powerful".

Far more often, they enact new regulations because new circumstances are similar enough to the old ones. It's usually the case that, to anyone with some knowledge of history, that the regulations are a good idea to put in place before people really start getting scammed/hurt/etc.

To say that government agencies take action to "feel important and powerful" certainly casts the agencies in a trivial or pointless light, but I don't think it is accurate.

> because new circumstances are similar enough to the old ones

If all you have is a hammer then everything looks like a nail.

>The lust for power never dies- men cannot have enough. No one will lift a hand to send it from his door, to give it warning, 'Power, never come again!”

-Aeschylus

Do you want there to be an act of congress every time someone invents a new product?

There are checks and balances. The executive has oversight over these regulators. The judiciary can and does overrule them when they go too far.

Why does the US think it can regulate an international currency? They wouldn't try the same sort of "define and regulate" tactics with other currencies. The only reason they do so here is because it enables them to grab power over an unclaimed, unregulated resource.

Digital imperialism has become a very real practice (and in more areas than digital coinage).

The US is not regulating the currency, it's regulating how US citizens and companies use it. Coinflip is based in California.

(By the way, I'm not disagreeing that the US has plenty of imperialistic tendencies. But this is not one such case.)

What would be the effect of the US dictating how it's citizens can use the Euro? The US would be sued in international court and would lose. The only difference is that the international court chooses not to recognize the currency.

No legal recognition is the legal excuse used by imperialists a century and a half ago and is the same excuse used in this case.

Not recognizing legitimacy is no excuse (especially when the primary intention is greed and control).

The Commodity Futures Trading Commission, which we're talking about, doesn't exactly dictate how its citizen can use Bitcoin, but Bitcoin derivatives and futures. And these are also regulated for Euro in the US, and so are derivatives of USD in European countries.

So Bitcoin isn't really being more regulated than the Euro; just treated as a different class of regulable things.

There are a couple notes about this regulation. The first is that bitcoin is not subject to many problems that other currencies have (eg. inflationary devaluation or being tied closely to a country or group of countries). The second is the nature of the ITC and other agencies treat foreign currencies differently (as bitcoin is without representation).

The third and most disturbing is that normal regulations would not work (because it doesn't suffer from being tied to some country or countries). For this reason, the government decided that the only way to exert control was reclassification. Even if we decide that this is somehow justifiable (no good reason has been given and I believe there is no such reason), then the proper process is to pass a bill through congress rather than the executive branch once again deciding that it can do whatever it pleases.

According to the US code, "The term 'commodity' means wheat, cotton, rice, (...) and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in."

As soon as Bitcoin derivatives and futures started to be traded, the definition was met. I don't see the abuse by the Commission here.

> Why does the US think it can regulate an international currency?

(1) Its not regulating an international currency, its regulating trade in a good in the US.

(2) Even if it were regulating an international currency, its ability to do so, subject to any restrictions it has voluntarily accepted, e.g., by specific treaty, is inherent in the nature of sovereignty.

Your logic is based on the idea that the US has the merit to judge what is currency therefore it can judge what is currency. This circular and unfalsifiable assertion is not logical. Just because the US government claims a power does not mean that it has or should have that power. Further, what gives the US government the power to reclassify a currency as a traded commodity and simultaneously classify it as a currency along with a half-dozen other things?

Finally, what reason does the US government provide other than unlawful assertion of power for the sake of power? (note: If there is some legitimate reason, then the correct procedure is to pass a law rather than the executive branch claiming authority that it does not have)

Are you saying the United states lacks the authority to regulate commerce within her own borders?

Your question completely avoids the points I mentioned. If bitcoin is a currency, then it is a currency. If it is something else, then it is that thing. Every part of the executive branch wants a piece of the action, so they all claim that it is something different even though these definitions clash. The power to say what and how to regulate rests solely with congress.

The passing of such a law requires justification and consensus. Nobody can agree on what bitcoin is and it is even more difficult to justify the regulation of bitcoin with anything other than "because we can".

(sidebar) If you are interested in the authority to regulate commerce, then I suggest you google something to the effect of "commerce clause abuse" and realize that the federal government uses a broad interpretation of "commerce" and "regulate" to reach the conclusion that almost everything may be regulated by them instead of individual states.

Your idea that bitcoin is either legally currency or legally some other thing ignores reality: different laws can have different definitions of the same terms, and categories in the same law can be overlapping rather than exclusive.

The idea that, for all legal purposes, bitcoin must either be "currency" and nothing else, out some other single thing and not "currency" is simply wrong as a matter of law.

Particularly, as regards the CFTC action, note that currencies in general are commodities as that term related to CFTC authority, and that forex trading is already regulated by the CFTC.

If you want to argue that some of the actions of executive bodies are inconsistent with the definitions in the statutes which give them regulatory authority, feel free to cite the statutes and do so.

Hmm. When I think of commodity, I think of something that can be traded or consumed. Wheat? You can trade it or consume it. Metals, water rights, carbon credits? You can trade or consume them. Bitcoin doesn't have a consumption model. It's purely an exchange mechanism.

Do you consume gold and silver?

Every day from the ring on your finger to the circuits in your electronics that you're using to access this webpage (in addition to many other uses).

You can also eat it, I've seen it on truffle pies. Silver can also be used as an antibiotic as well.

Governments appear to be classifying bitcoin as a commodity so that they can tax and regulate it more heavily. I say this because I cannot find any definition of 'money' which would not include bitcoin, and these are the effects of the classification. If I am wrong, could someone please explain how and why?

P.S. I have never mined, bought, sold, or possessed bitcoin.

In your view, are gold and other precious metals commodities or money? If your answer is commodities, why not money?

The most popular definition of "money" that I have seen is 'a medium of exchange'. I think that gold has been used as a money in the past, as have a number of other precious metals. The question you are asking is a good one, because it asks whether the use as a medium of exchange must be its primary use, and how popular it must be to be considered a money. It seems gold is an edge case, which could (currently) reasonably be judged to be either one.

I disagree. You can't use gold nuggets to pay for your groceries. As a medium of exchange it is sorely lacking. Gold has been mostly a commodity for a very long time. Its main purpose with respect to money nowadays is that it is a store of value useful to backers of currency.

I'd say both and mostly used as an asset class, just like bitcoin, both money and an asset class and mostly used as the latter today. Why must they be mutually exclusive? It's no different from the dollar which is both money and traded as an asset class everyday.

You still have to pay taxes on currency transactions that generate a profit, so I don't understand why this would be a tax boon. If I buy a million dollars worth of yen and sell it for two million, the taxman will be around.

I'm guessing he is referring to sales tax or VAT, which currencies are exempt from.

According to this[1] Reddit post by a supposed tax attorney:

Note: There is a code section that might provide some relief here, but only if bitcoins are categorized as a foreign currency. Under this code section, the use of bitcoin to buy goods and services would be tax free as long as the transaction was personal (i.e. not for business or investment) and did not generate more than $200 of gain. Unfortunately, the IRS ruled in Notice 2014-21 that bitcoin is not a currency for tax purposes. So, this code section is inapplicable unless the IRS changes its position sometime in the future.

[1] https://www.reddit.com/r/Bitcoin/comments/1uccfz/i_am_a_tax_...

In the same way that a language is a dialect with an army and navy, so is money any commodity that's officially recognized as currency.

Gold is a commodity and bitcoin fits closer to that then a currency. Bitcoin isn't issued by the US government and create by a process not by the government's will. Given how Bitcoin works, I cannot think of how it fits the definition of money as opposed to a commodity that is bartered.

Why does the issuer have anything to do with the question of whether something is a money?

indeed the two terms are orthogonal:

https://en.wikipedia.org/wiki/Commodity_money https://en.wikipedia.org/wiki/Fiat_money

Both are moneys

Interestingly, Bitcoin does not fit neatly into either of Wikipedia's categories of money, as it is not supported by a government, and it is not based on a material.

Bitcoin is most definitely based on a material, but with the advantage that the material used in its construction is more varied. The material for construction is whatever material required to create and power computers to perform the calculations that mint currency and transaction blocks.

Government is "by the people for the people". If a set of people come together and agree to a currency, then you may firmly state that they have formed the minimal government needed to meet this requirement (even though I believe this requirement to be superfluous and arbitrary).

If we use your tortuous redefinition of widely understood terms, then the post Bretton-Woods US dollar remains commodity money (some energy and material was used to make it, even though it can't be converted back into that energy and material at a fixed rate) and a bunch of kids trading Magic: The Gathering cards is a government (they might not have any power over anything, but hey... they're people and they've agreed to trade)

> Interestingly, Bitcoin does not fit neatly into either of Wikipedia's categories of money,

Those two categories that were discussed upthreads are not exhaustive. Non-commodity, non-representative, non-government money existed long before bitcoin -- probably the best known fairly modern example is in Local Exchange Trading Systems and variations on those, which use units of accounts that (while they are often denominated in fiat currencies -- largely to simplify use and tax compliance for users) are neither the fiat currency they are denominated in (if they are denominated in one) nor backed by that currency in the sense that representational money is (in that no issuing entity promises to exchange them for the currency, even if the members of the system agree to treat them as equivalent to the fiat currency in exchange) -- and some variations intentionally divorce their units from the fiat currency entirely.

Bitcoin is not legal tender (i.e., required to be accepted in payment for any debt). Government-issued money is. If someone owes you money you're required to accept payments in U.S. dollars (in the U.S., of course, and the same in other countries with their official government currencies). You're not required to accept Bitcoin.

Legal Tender == Government Issued Money in Jurisdiction

Legal Tender != Money

"Legal Tender == Government Issued Money in Jurisdiction"

No. Legal Tender == "Anything that the government requires to be accepted in payment of debts"

There's a lot of overlap between that and money issued by that specific government, but they are not the same thing. For instance, Spanish milled dollars ("pieces of eight") were legal tender in the United States until 1857.

Your definition of "money" appears to be "anything of value" but that makes the term "money" meaningless.

Money is stuff that accepted by everyone (or almost everyone) as payment for goods, services, and debts. Bitcoin is far from that.

>"There's a lot of overlap between that and money issued by that specific government, but they are not the same thing. For instance, Spanish milled dollars ("pieces of eight") were legal tender in the United States until 1857."

You might notice that I am addressing current phenomena. gold and silver were once legal tender, as were clay tablets in various jurisdictions. For all practical purposes, governments currently only use money they control and issue as legal tender (though there are exceptions suchas Zimbabwe).

>"Your definition of "money" appears to be "anything of value" but that makes the term "money" meaningless."

This is not true. You can see the comments above and below where I specifically stated the criteria for a thing being money are that it is a "medium of exchange". I would not describe steel as a medium of exchange, but bitcoin definitely seems to be.

>"Money is stuff that accepted by everyone (or almost everyone) as payment for goods, services, and debts."

If this is your requirement, then why are currencies used in foreign countries by very small populations considered currency in the USA? There are probably more people using bitcoin in the USA (or the world for that matter) than there are people using Cuban, Chilean, Kazakhstan, or Israeli-issued currency.

For the purpose of a government ruling, the definition of money and legal tender are the same.

Well, no, because foreign currency is considered money but not legal tender (eg. EUR in the US).

Legal tender is what you're allowed to use to pay a debt. If you offer legal tender and they decline it you can consider the debt paid. In the United States all coins and notes of federal reserve banks are legal tender. In the UK some coins are only legal tender for small amounts.

http://www.treasury.gov/resource-center/faqs/Currency/Pages/...

http://www.royalmint.com/help/help/legal-tender-amounts

http://www.royalmint.com/aboutus/policies-and-guidelines/leg...

Scottish bank notes are currency but are not legal tender anywhere in the UK, even in Scotland.

Because that's how money is defined. At least, the first few hits on Google for "money definition" are:

1) <Google> "a current medium of exchange in the form of coins and banknotes; coins and banknotes collectively."

2) <Merriam-Webster> "something generally accepted as a medium of exchange, a measure of value, or a means of payment: as a : officially coined or stamped metal currency b : money of account c : paper money"

3) <Investopedia> "An officially-issued legal tender generally consisting of currency and coin. [...]"

Bitcoin fits neatly into definitions 2 and 3, as well as most other definitions of money. With respect to definition 1, bitcoin is a current medium of exchange, and bitcoins can be printed out. Is the money in your online chequing/savings account any less of money because you do not possess a physical embodiment?

No, it does not. Definition 2 says generally acceptable. Bitcoin is not even close to that.

If you believe otherwise, we could try an experiment. We both head off to the mall with identical shopping lists, me with a stack of $20 bills, you with a machine containing a Bitcoin wallet.

Guess which of us will come back with more of the stuff on the list?

It fails 3 because, as was already pointed out, Bitcoin is not recognized as legal tender by any government.

What if you were using a stack of Haitian gourde? Or a stack of Manx pound notes? I believe you would describe both as currencies.

Guess which of us will come back with more of the stuff on the list?

In fact, take a look at Wikipedia's list of currencies, and tell me which you would and wouldn't prefer over bitcoin at the mall.[1]

edit: #3 does not specify who must "officially issue" it. As far as I can see, I could "officially issue" a money.

[1] https://en.wikipedia.org/wiki/List_of_circulating_currencies

"What if you were using a stack of Haitian gourde? Or a stack of Manx pound notes?"

I wouldn't come back with any of the stuff, because those things are not "money" in the United States. They are convertible to legal tender money at a bank, but they are not money, any more than a used car is money just because you can sell it for cash.

If you cannot use it to obtain the general necessities of daily life in an easy fashion, it is not "money", by any useful definition of that term.

Bitcoin is not legal tender. The money in my checking account is.

Bartering goods/commodities IS pretty much what money is. Only it makes more sense to barter something that's fungible, which is why most currencies in history have been some kind of commodity, like some form of metal, and scarce, like some form of precious metal. Only recently have we been able to create scarcity out of other materials like paper by putting unique identifier marks on them, so that only a small percentage of the paper supply can be money and only the government has (or tries to, anyway) the technology to mark paper with those identifiers (i.e. printing money). Bitcoin is merely the digital variant of that, it's not a physical commodity, it's a scarce and relatively fungible digital entry in a database which can represent money or anything else of value we want to. I don't see how you can say it doesn't fit the definition of money.

Whether it's used popularly mainly as money or mainly as an asset class for investment is a different question, and the answer seems overwhelmingly the latter (although it's getting less lopsided every year). But even here, the two aren't mutually exclusive. An Apple I in a museum is both a museum piece as well as a computer, even if it's exclusively used as the former and rarely as the latter, and these two conditions aren't mutually exclusive.

Paper money is really only an incremental improvement on minted coinage, which isn't really so recent.

A bitcoin represents a portion of the blockchain, the dominant distributed-consensus protocol. Since the ability to do blockchain-stuff that takes a huge amount of processing power to revert is valuable economic activity, bitcoin is basically a cryptographic commodity.

What you are saying is that bitcoin is a claim on the use of the blockchain, and that the blockchain is a resource. This is not incompatible with the bitcoin itself being money. A US Dollar can buy you a computer which has a huge amount of processing power, but the dollar is no commodity, though the processor may be.

Just off the top of my head, I'm not sure that the blockchain itself could be seen as a resource. However, the mining pool that makes transactions happen (and expensive to cheat) could certainly be seen as a resource. In fact, one might be able to make an argument that the overall mining hashrate sets an upper bound on the value of BTC. It would be related to the cost of the CPU resources necessary to cheat.

Yeah, `/s/blockchain/mining pool` on my original statement. The mining hashrate also helps set the value of BTC in my model as well - it means that other valuable activities can piggyback on the hard-to-forge nature of the blockchain.

"A portion of the blockchain"? How so? The blockchain stores transactions, not Bitcoins.

As a bitcoin 'owner' you have the right to mark the transfer of unspent transaction outputs from one or more addresses to one or more other addresses in the blockchain.

Aside: I've always found it peculiar that there are separate agencies in the US to regular commodities and derivatives markets (CFTS) vs. the SEC, which seems to regulate only equity/stock markets and options on stock. (But not options on futures or options on stock market indexes?)

Of course, it's nothing compared to Canada - which lacks a federal securities regulator and had separate agencies for each province. (Though they are associated with one another, it seems they still have significant independence)

So, should cash also be declared commodity now?

Money is already treated as a commodity

The real issue with the video in the article is that the main two guys answering questions don't seem to really understand Bitcoin. Making the statement that as the number of transactions grow, that the price of bitcoin will drop is just completely wrong. The number of transactions will only grow if adoption grows and that will change the supply/demand curve in a way that increases the value. And what's with the first guy being so obsessed with PhDs and saying XT hasn't been peer-reviewed. The review process for Bitcoin is seeing adoption by those running full nodes, if people approve of XT, they will adopt it, if not, the fork will fail.

Any lawyers able to comment on what happens when untested federal government agency policies conflict with each other? How can you blame any company operating in this space? The agencies haven't figured their shit how. How could a company?

There are no more conflicted policies for Bitcoin than there are for other "financial doodads". Different agencies treat, bonds, stocks, currencies, and commodities in different manner. This is fine because the interaction between the agencies and those assets do not overlap. If you sell bonds/stock the IRS will treat that sale according to their own guidelines for taxing investment property, the SEC might regulate the sale, but each agency cares about different things.

The SEC cares that trades are kosher, the IRS just wants to make sure you pay your due taxes, heck even illegal income is taxable under IRS regulations so if you sell drugs or decide to rob a bank well pay your taxes. Just like the IRS doesn't care that state and federal laws make selling drugs illegal, they still see that as property and income, they really don't care about what the SEC or the CFTC think about bitcoin. And as far as i can tell the CFTC and SEC regulations don't conflict with each other either since they go into effect under different circumstances, and as far as i can tell both the CFTC and the FEC regulate exchange-traded commodities at different points and under different guidelines.

Would the IRS rat you out when you pay taxes on your illegal income?

Check out the case Garner v. United States - the Supreme Court essentially ruled that your obligation to disclose your sources of income when paying taxes cannot trump your 5th amendment right to not be compelled to self-incriminate. If disclosing the source of income would incriminate you in a crime, you can declare the income and decline to note the source on your taxes.

Thanks!

I wonder whether that protection is always available? Ie can I always decline to note the source?

If you couldn't, not declaring would be self-incriminating!

(Don't take this as legal advice; the law is often nonsensical)

Yes, that's what I was wondering.

To a point, saying "not telling" is better than saying "my drug cartel". The IRS might investigate but if they do not find any violations (of US tax law) they wont and cant pursue this matter any further, at least on paper.

I know very little about regulations on commodities trading.

Is there a chance that the CFTC will decide to regulate not only trading in bitcoin derivatives but also trading in bitcoin itself ?

Is Bitcoin used for money laundering? It seems simpler than London property for disappearing large chunks of cash

Disappearing? You better think twice, everything is recorded publicly.

The head of Fincen ((Financial Crimes Enforcement Network)The US agency that goes after money laundering) has said that it is still easier to launder US dollars. [1]

1. https://www.reddit.com/r/Bitcoin/comments/1qx7ik/head_of_fin...

Is this a good thing? Or bad?

Sure, we want it to replace money but that doesn't seem feasible when all debts in your given country must be paid with your given country's currency. This now puts it in the running with things like silver and gold -- perhaps it will spur more trading?

> Sure, we want it to replace money

We do...? -.-;

> all debts in your given country must be paid with your given country's currency

That's not true. If I owe you $100 and you're willing to accept Bitcoin that's a perfectly legal way to settle the debt.

Taxes are the only debts that must be paid in the national currency, at least as far as the US goes.

Some EM companies issue bonds in international markets not using their national currency

Isn't bitcoin explicitly a currency? I don't see any ambiguity around that. Or do you only get to be a currency if you're backed by a government entity that can be manipulated?

Although I don't think many regulators in the US govt. are really concerned with the explicit purpose Bitcoin was created with, you are touching on something I think is interesting.

My perspective is that the real promise of Bitcoin is to be "successful" regardless of government regulations and categorizations. I know it sounds idealistic but I think if the Bitcoin community needs the US govt. to cooperate in order to be successful then it's probably not going to happen.

I guess "success" could be defined as widespread use. Somewhat stable (non-zero) value for Bitcoin would also probably be part of "success." :)

Just because someone says that Bitcoin is a currency doesn't make it one. Keep in mind that the Japanese Yen is a currency in Japan, but under US regulations, it is not. Likewise, the US Dollar is probably not a currency in Japan, but an asset/commodity.

Keep in mind that the Japanese Yen is a currency in Japan, but under US regulations, it is not.

For many purposes, yes, it is, especially in tax law, which is why people also wanted Bitcoins to be recognized as such.

Under Subtitle A of the Internal Revenue Code, foreign currency like the Yen has special rules vis-a-vis commodities. In particular, when you buy something with Yen (up to $200 in value), it is not considered a realization of capital gains and so it is not taxable, unlike if you used a commodity to pay.

https://www.law.cornell.edu/uscode/text/26/988

What is a commodity? Dictionary says it's similar to goods or merchandise.

Prediction: BitCoin will be the cause of the great world depression, watch the news.

Good thing mine are in a non-US based wallet :-)

How are wallets "non-US based" or "US-based"? A wallet is just a collection of private keys...

Depends on where the owner is. If you're in the US, you are supposed to declare them as an asset, and pay taxes on the sale of them.

I think US citizens are supposed to pay taxes on all income, no matter where it was obtained (and even if they already paid local taxes, unless there are specific agreements). Of course, I am not a lawyer and definitely not an US one :)

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