The value of bitcoin was always to evade taxes and launder money, both of which are criminal enterprises, the only thing that is changing is enforcement.
But to your point, even these laws are part of a new trend. Money laundering is a relatively new crime, and widespread taxation of private transactions only came into force in the early 20th century, with governments around the world instituting income taxation.
50 years ago, almost all transactions were in cash, and the income tax was widely evaded through the use of cash. The government knew very little about what people were buying and how much wealth they had. With the emergence of electronic payment systems, large Trusted Third Parties emerged that collated transactions, and settled them periodically through the respective central bank. These TTPs became gatekeepers and information gatherers, and enabled central authorities to monitor the most intimate interactions of the population - their financial interactions - in incredible detail. Cryptocurrency holds the promise of returning privacy and economic power back to the decentralized distribution that historically existed, but power, once attained, is jealously guarded, and those who have it will likely not want to give it up.
It is already known restaurants owners are getting in trouble for small deposits. Its not even $10,000 or $9,000 you deposit.. if you happen to make daily deposits of even few hundred dollars you are guilty of "structuring" aka smurfing.
Another thing is to make sure you can track back your physical hoard of cash. My friend's father is in deep explanations with FBI (and over $50,000 in attorney fees) because when his wife passed away he took all the money they hoard at home under floor and put it in the bank. Some $600,000 of it. IRS didn't like that and proving you had a job all your life and you paid taxes on Over $10,000,000 in income did not stop the case.
I mean, why put it back into the system?
It's pretty clear that his wife was right about the financial system.
What are the biggest ones? I don't see any point of physical cash personally but I'm in a country where no-one uses it.
The middlemen by setting costs that include a minimum charge per transaction also make transactions below a certain threshold non viable because the transaction fee would be higher than the actual charge.
Ask all those marijuana shops trying to get bank accounts if they don't have any costs passed on to the customer for dealing with cash.
Electronic cash in the form of cryptocurrency can make money transfer much cheaper than it otherwise would be. It also doesn't require you to jeopardize your privacy every time you form a financial relationship with a new company, as happens every time you use a credit card with a new company. In fact, your privacy is at risk every time you use an identity linked payment system, given the possibility of hacks/leaks.
I have no skin in the bitcoin game--I've never possessed any bitcoin and don't feel any burning desire to in the near future.
As monetary transactions have moved to the electronic sphere, there's been an important shift from how value is verified. With paper currency, the physical form of the coin or bill acts as verification of its value (thus the focus on counterfeiting, etc.). The trust in the value comes from the physical object possessing certain characteristics. Electronically, though, in the current system, everything is based on verification by trusted institutions. So there's no way of Alice paying Bob without it being verified by Ted, who then makes a lot of money and has lots of control over the financial system.
Bitcoin and other cryptocurrency tries to get back to the idea of peer-to-peer financial exchange without needing that third party, which I think is really valuable in society.
I agree with the concerns being raised in the article that there's a danger of criminalizing peer-to-peer financial transactions, because it basically starts granting new power to institutions that were previously held indirectly by the currency issuing bank.
Also, if everyone in my city wanted to start trading in tulips, why should the government criminalize the tulip trade (as opposed to criminalizing not reporting the value of the tulips you own)?
No, it doesn't. Because it relies on validation by a number of third-parties (whose identities and degrees of influence are opaque), who must (collectively, if not individually) be trusted and who (again, collectively, though this can end up fairly narrowly concentrated) control the financial system in the same way as “Ted” in your hypothetical.
One very good reason for this high level of regulation is that banks are a primary component of the money supply system. Having a functional monetary system is a great thing, for the society as a whole.
It has aspects of being a public good. (Some people argue that banking should be made a government supplied service, for this reason.)
Almost every aspect of modern life is subject to laws and regulations, by a sovereign entity of some sort.
Such an entity has very valid reasons for regulating the use of bitcoin.
Even people using bartering systems have gotten in trouble with the IRS.
What's the benefit? I suppose it becomes faster but seeing that Bitcoin transfers takes hours to verify currently I don't know if that's an argument.
One can post their wallet address and make jokes on social media and receive bitcoin just because people like the content and are happy to support it. (yes that works)
You can receive bitcoin without giving anyone your name,address,etc,same with sending it to someone and do so for legal purposes.
Try to do any of those 3 above with dollar bills and its just not even in the same realm. I see great value in that.
Bitcoin is very complicated to use, doubly so to use securely. I've lost count of the number of stories I've read of someone losing everything, and then being chided by the community because "you deserved it, you weren't doing it the ~right way~", and of course there are a thousand mutually incompatible explanations as to what the right way is. This happens so often there's an entire subreddit for it.
(EDIT: For example, 12 hours ago an Ethereum startup burned $13 million because of a typo: https://www.reddit.com/r/ethereum/comments/6ettq5/statement_.... The top comment, of course, is "you deserved it, validate your inputs". I'm not kidding when I say this happens every day)
> I can set up a wallet in less than a minute and someone from across the world can send me bitcoin in the time it takes for it to clear the block.
Which is anywhere from half an hour to days and days, depending on how much you're willing to pay in fees.
> One can post their wallet address and make jokes on social media and receive bitcoin just because people like the content and are happy to support it. (yes that works) You can receive bitcoin without giving anyone your name,address,etc,same with sending it to someone and do so for legal purposes.
I can do all of this with a PayPal account, both more quickly and with lower fees than Bitcoin. I need a real name to cash out, but you need that with Bitcoin too unless you're using a service that's breaking the law and not doing KYC.
> Try to do any of those 3 above with dollar bills and its just not even in the same realm.
Yes, digital transactions are certainly faster and more convenient than physical ones, because that's an apples-to-oranges comparison. On all these metrics though Bitcoin loses to PayPal, and when you're losing to a company that is the embodiment of pure evil, that's not a good look.
1) Bitcoin isn't new, it has been around for years now, and millions in venture capital has been poured into it. It's still a pain in the ass to use at all and basically impossible to use securely. I'm starting to think that if it could be fixed, it would be by now.
2) Not all those problems are UX faults. A lot of us happen to consider transaction irreversibility to be a bug and not a feature, for example.
I think it's improved quite a bit in that time. Especially so if you consider some of the newer cryptos. Is it there yet? No. But these things take time. Computer interfaces took a long time to get where they are today. It takes a while to find the right abstractions, and people are constantly iterating on these things in the crypto space.
> 2) Not all those problems are UX faults. A lot of us happen to consider transaction irreversibility to be a bug and not a feature, for example.
Well, I respectfully disagree. You may want to build reversibility as a layer on top of Bitcoin. Perhaps something mediated by trusted third parties. But that should be opt in. You want the underlying financial infrastructure to have immutable, irreversible transactions. On top of that base, you can and likely should build support for reversibility in certain contexts.
How is that supposed to work? Once the money has been sent to someone's private key, you rely on their cooperation to get it reversed.
To effectively force them to give it up, a trusted third party would have to hold an even larger amount in escrow. But then what if that third party refuses to cooperate? You would need a larger escrow service to hold the escrow service accountable ... or they would have to make their identity public and be personally liable for any losses, putting government regulation back in the loop.
And this is assuming the transaction was made voluntarily in the first place. If someone steals your money they are not going to make the transaction reversible if they can avoid it. Unless you have the clout to convince a majority of miners to do a hard fork, good luck getting your money back.
The important point is that the actual parties to the transaction may choose how they want to mediate this, whether they want reversibility, what conditions they want it to have, and have it all enforced by code and cryptography.
Of course, this burden would only really take place on high value transactions. For most transactions, there'd be a standard configuration people and merchants would use.
Thanks for pointing out that the fees of Bitcoin are actually currently higher than those of Paypal, for donations up to around $60. I'll add the details here in case someone else was skeptical about this.
Fees for donations via Paypal are $0.30 + 2.9% per transaction https://www.paypal.com/us/webapps/mpp/fundraising.
Fees for Bitcoin transfers use an auction system based on the transaction size, but according to the current statistics and median donation size for https://bitcoinfees.21.co/ one arrives at a fee of 81,360 satoshis, i.e., $2.02.
The existing money/payment ecosystem is pull. Vendors, merchants, and banks pull money from your account. Bitcoin and other cryptos are push. You push money to others. Push is obviously the right underlying architecture for a financial system. Pull architectures are singularly responsible for basically all credit card fraud, for instance.
I am no bitcoin evangelist by any means, but I do try to see both the positive and negatives. With taxes I have a feeling in due time because of the "recorded" nature it will be even easier to track than cash. How is the government supposed to collect taxes if I sell someone a baseball card for $1000 cash? I personally would pay taxes on cash or crypto just to avoid any hassle.
As for transferring money, Transferwise is leagues ahead in usability when you consider that the sender has some sort of currency and the receiver wants currency (and bitcoin is not a currency, no matter how hard these Ayn Rand types insist, not without a nation state backing it). All you need is a name and an account number and the UI is super friendly and the transfer is cheap.
Which, by the way, are already much cheaper than transferwise at 1.4%.
With bitcoin, hell, I dunno. https://www.quadrigacx.com/account-funding-withdrawal this wants me to do a bank wire to avoid fees which I can't do online, it's one of my major complaints how the simple transfers in Europe are missing in Canada but I digress. If I use interac online, ding, 1.5%. Then I get bitcoins which I need to store securely, send them and it seems https://cex.io/fee-schedule#/tab/trade there are fee schedules expressed in a language I sure never heard of and then my brother also needs to find an exchange to get EUR out of. Seems hell of a bother to me to save a little money. I am not sending 10K, good for you if you do, I am sending 1000 EUR a time or so, we are talking of saving a few EUR. No way.
Regular banks offer better privacy.
But peaceful political activism is criminal to many governments. Bitcoin serves an important purpose of helping to circumvent local product/service bans.
Yes, that is likely illegal. But it's certainly not categorically wrong.
* transactions where the private key associated with a public key holding value authorizes an outgoing transfer of value.
In short, miners build up a log of all exchanges of currency. While you have to "sign" any payments you make so no-one can steal your money, miners can choose to ignore your payments, and not add them to the blockchain.
Now, if the mining power was spread among many people, someone would put your payments on the chain. However, we are currently in a situation where a very small number of groups (between 4 and 6, depending on when you check), control over 50% of all mining. If they went rogue they could, in principle, lock the account of anyone they like, stopping them spending any of their bitcoins.
The 4 top pools are chinese and amount to almost 40% of the latest blocks mined.
Seriously, some simple grocery shopping I did had a 'currency exchange' tax of about 10% - 15%.
Someone will reply and say it's not actually cheaper, but what is available for the average joe it is definitely cheaper. It's also faster and more convenient if both sides have bitcoin exchange accounts.
For transfers of money in the same currency... it's just greed, in my opinion.
As much as I consider myself a 'small l' libertarian, is a society in which taxes could be evaded so freely on such a large scale really desirable? We already struggle with this problem enough with 'traditional' financial tools. It's certainly worth thinking about.
On a side note, I don't really understand how bitcoin is somehow this new anonymous wealth hiding scheme. I can lookup any given wallet that's participated in a transaction (everything is public), so what stops me from de-anonymizing people? Lets say in the future everyone pays with bitcoin online and I'm working for the feds screening packages for UPS. I just saw a few amazon shipments come through for somebody's home address, one with a specific computer, one with a box of pens, and one with a pair of shoes. Go back, look up the item prices and then cross reference with transactions that took place in that time period. Yea, you can use multiple wallets and addresses but at some point, there'll be enough public domain information to track you down, especially with current advances in ML.
Tax evasion has been and always will be an issue of popular morals. All you need for evasion is a medium of exchange (or barter) and for both sides not to report the transaction.
Collecting taxes is trivial when either (or both) of the parties to a transaction report it and impossible if they don't. So the only way taxes can work is for most people to be convinced that the taxes are reasonable and what they pay for is justified. If most people are not convinced then they'll lie for each other and the government is screwed; see Italy. Central banks can't save you from that, only your own citizens can.
And the laws against money laundering have nothing to do with tax evasion by the common man and everything to do with the war on drugs. Putting a stop to that train wreck would only help everybody.
But whenever I see people upset government uses force, I think: of course it does. It's like birds using wings or Emacs users using the control key.