Coinbase Ordered to Turn Over Identities of 14,355 Crypto Traders to the IRS
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The HN population (I include myself in this) seems to think everything is new, there are no precedents for any of this, and that we're building some kind of new society here. We aren't. Times like this make me wish people like us were less dismissive of history, liberal arts, and people-not-in-tech generally.
Case 1: a commenter below said something about "a guy moved his assets into BTC to hide from bankruptcy". Bankruptcy courts deal with this stuff ALL DAY. It's their job. You can't just make huge transfers/sales when in bankruptcy and expect people to think that's normal behavior. This has gone on long before bitcoin, and will continue long after it's gone.
Case 2: taxes. BTC is an asset. If you buy at price X and sell at price Y, guess what, you owe taxes on Y-X. I don't understand how this is news to anyone.
Case 3: money laundering and other types of financial crimes. There are entire companies who build software to detect money laundering. It's a well-understood problem.
All I'm trying to say is, just because you have a CS degree and work in San Francisco, don't think you're the smartest person in the world. Moving money is one of the oldest human endeavors and unlike a lot of topics in software development, it's an old profession with a huge body of accumulated domain knowledge. We shouldn't be so quick to dismiss it.
First principal of TaxLaw: It is all income unless it isn't. It is always taxable unless you can find language in the code exempting it. I'd go a little further in saying that the taxable amount isn't "Y-X", ie the profit. The taxable amount is actually just Y, the sale price. Income is all money literally coming into you. You then need to find a deduction for X, the cost of purchasing the asset. Maybe you find one, or maybe you bought your bitcoins with cocaine and so owe on tax on the entire sale price. Or maybe you have already deducted that cost in a previous year and so cannot deduct it again now. Or maybe you traded your bitcoins for some other bitcoins last year, realized the gain then, and now have to start reviewing the like-kind exchange rules. (I'm in that 0,01% of people who actually enjoy tax law. It's actually very eloquent.)
Of course when you get busted for drugs, it’s pretty likely that your tax records will be gone through.
I saw a documentary where sex workers had accountants and such and declared all their illegal income. It was pretty interesting. But prostitution isn’t as severely prosecuted as drugs.
https://www.gov.uk/government/publications/revenue-and-custo...
Bitcoin may change things, possibly a lot, and maybe for the better, but you have to be realistic about how much change is actually feasible.
The current governments exercise a lot of power through the banking system because it's convenient. If Bitcoin (or some more private successor like Zcash) makes the whole finance sector "go dark", like "Tor for money", those governments will still be there doing their thing, just using slightly less convenient methods.
1. Gold and silver coins were created by governments. 2. Tor was created by the government.
When you convert USD to bitcoin, that USD doesn't disappear, it still exists in the private sector economy. Nor does bitcoin increase the money supply of USD. That supply is controlled by the government.
What happens when the IRS cannot tax the bitcoin transactions is that more USD remains in the private sector than normally would. This does not cause financial problems for the government (Since government makes USDs anyway).
More USD in the private sector means at worse rising prices, and at best an economic boost.
This is easy when you buy Bitcoin, hodl and then sell but what if you convert it to altcoins, trade altcoins for altcoins and ultimately sell some altcoin for USD? How do you even keep track of your profits?
Like buying EUR/USD then going into EUR/AUD
I think that, CoinBase and GDAX are not in the business of helping you file your tax returns. They may even incur liabilities if they helped you do it wrong.
If coin trading platforms at-large are not solving this problem, then CoinBase has no need to compete on that point. There aren't any markets that try to help you file your taxes better, they are all busy solving the problems of holding cryptocurrency securely and making sure that trades are executed and accounted for reliably and in a timely fashion.
This is not the only company that suggests API use for a customer. I was somewhat bewildered when I asked Pivotal if there was any more convenient interface to Story Tasks, and told Pivotal that I was writing a client for their API because it was too onerous to make sense of Project/Story/Task workflow through their application's interface, and they responded (in brief) "that's actually exactly what we'd recommend, good luck!"
If they help you get a spreadsheet, you're going to blame them when it's too confusing for you (or your accountant) to distill into the form of a tax return correctly. What do you do with cancelled trades? How do you make sure they are discarded? (They should probably reflect on the data sheet somehow, right?) And what do you do when you trade on more than one market, or when you bring cryptocurrency from another source that already has a cost basis? Your itemized gains and losses are now incorrect, unless you provide an interface to express that cost basis into the system. And now you aren't just a market, you're an accounting platform.
This sounds more and more like a problem for bitcoin.tax to solve, and not Coinbase.
An API is the way to provide an interface to the data that is stored in your service (for customers, or anyone else.)
The data that is not inside of your service, you don't need to take responsibility for as a service provider. As an API or service provider, there is an opportunity to answer these kinds of questions insofar as you feel responsible, in the interface documentation.
So if you're buying NEO with BTC, you log two trades: a SELL of BTC (to USD), and a BUY of NEO (with USD.)
It's also important to match each of your sale orders with prior buy orders (for calculating taxable profit/loss.)
I haven't used this product and I'm not vouching for it in any way, but it looks like a solid thing, and I intend to use it this year to figure out how much I owe for my trades.
It appears to have grown since I looked at it last, for $20 you get the ability to import as many transactions as you want from CoinBase, GDAX, and ~15 or so others, and you get your answer in a form that TurboTax can include in your returns.
Last time I looked, I think that it supported CoinBase but not GDAX. (So it appears to have grown since then.) I don't know how much I trust a tax service for $20, but I think I trust it further than I can throw a spreadsheet that I created and populated with trade information by hand...
Its the same as if you were to pay for a new car with some Google shares and your old car, where there is no conversion to money- it's barter trade. The CRA (Canadian IRS) treats BitCoin transactions as barter trade- and you have to declare the trade in equivalent dollar values.
The happy path does not allow for easy avoidance of capital gains. I am not sure what happens if you were to purchase outside the country though- although I think the limiting factor here is the exchange you're converting on. Connecting with banks subject them to regulation and reporting.
I wonder if I buy BitCoin in a Caymen Island exchange, sell on the exchange for profit into a Caymen Island bank account, then transfer the wealth into a Canadian account, if I could avoid capital gains. This is all in OP's comment though where the institutions responsible for taxation have a wealth of domain knowledge. The tax code is complicated because people with a ton of wealth on the line have found and exploited every loophole imaginable. Nothing I can think of hasn't already been considered.
That's interesting. How does it work with hard forks like Bitcoin Cash?
I think you'd treat it as found money (income, but at what value? it would be really hard to say what the value is on Day 1 of the hard fork, but you could go by what the markets said it was worth... or do you use the value of the BCH from when you first "claimed" it and moved it to a BCH address? or use the value it had when you first sold it? what if you were holding BTC at the time of the fork but never claimed your BCH, do you have any way to prove that? Do you need to?)
Then once you transact it just once, it should be easy, same question as any other crypto currency; you pay capital gains on the appreciated value (the gains) after you sell. But what is your "cost basis" in that calculation?
I don't want to overpay taxes, but I think the safest thing to do would be to treat that first sale as pure income and pay the regular marginal income tax rate on the full value, because truly you'd actually have no cost basis until you had actually bought some BCH.
At least, I would believe that's the spirit of the law.
nope
you really don't have to go in and out of USD with crypto currency .. you never have to touch USD again. sure they can try auditing your assets vs your salary and come up with some bullshit number you will then have to fight, but there will be many ways to come up with how much you owe
and what if you elect to get your salary in crypto currency? if that currency inflates what taxes are you paying?
hmm lots of down votes. didn't think my statements were that offensive or ridiculous :) nor am i a "Bitconian" really own 0.2 of BTC. Simply trying to understand what IRS is doing here..
If, for example, they decide your transactions are a deemed disposition an an asset, you owe capital gains tax on it. It really is that simple.
but what if you earn money in that currency and never exchange it for any other currency just use it for life. the government would literately have to audit your savings account and proclaim that you owe X because your savings went up in value (and im not talking about interest paid by bank, i'm talking about just buying power of underlying currency).
that is no different than owning a gold necklace and government taxing you on it because gold went up in price. I don't think this is happening right now
Holding bitcoin while it goes up in value isn't realizing a gain or loss.
You're taxed on the realized gain (or loss) when you sell the asset.
The same as you are when you convert a currency back into USD.
I don't know what you mean by "use it for life"- yes, you can hold onto Bitcoin (or gold or whatever) and not get taxed, but as long as its sitting under your mattress it doesn't do you any good regardless. There's no way to use the value to get anything else without getting taxed.
That's not how it works, with Bitcoin or any other asset.
i am not saying you don't get taxed with bitcoin. you still pay income tax, sales tax when you use them etc. but when your dollars gain in value due to deflation, do you pay tax on that ? seems that is what we're talking about here. btc gaining value.
Edit: if you bought it, but haven't sold it you haven't realized a profit and don't have to pay taxes on the gains yet, but you definitely have to pay taxes on the income as Bitcoin. If you are buying everything with Bitcoin you have just created an accounting/auditing nightmare for yourself, because you owe additional taxes on asset appreciation every time you "use" it.
You seem to be trying to make the analogy of bitcoin being a currency, so a better comparison would be to look at tax law for foreign currencies. Luckily, the IRS puts out documents about that very thing: https://www.irs.gov/pub/int_practice_units/fcu_cu_c_18_2_1_0...
Now, whether bitcoin is a currency or an asset is not fully settled, although the IRS treats it as an asset, not a currency: https://www.irs.gov/newsroom/irs-virtual-currency-guidance
Just because the gain isn't in actual dollars, doesn't mean there wasn't a gain. If the gain is somehow denominable in, or reducible to, a number of dollars, then for tax purposes it is a gain.
You realize those gains at the time of the sale or trade. That's when they're taxable.
Is this different than BTC?
No.
If you get paid in crypto then you owe income tax for its value at the time of salary payment.
If your salary is specified in BTC you should be prepared to pay lots of tax when you are paid. If it is specified in USD but paid in BTC then accounting will be easier.
I hope you have a good accountant and a good lawyer, especially if you are one of those the IRS is investigating.
> I really don't think its that simple. Do you get taxed when dollars deflate ? do you claim a loss when dollars inflate?
Are you trying to argue that Bitcoin is on the same footing as USD, because it is not. Bitcoin is treated like gold or any other asset. It has a value when you acquire it and it has a value when you sell it. This value is in USD as far as the IRS is concerned.
> you really don't have to go in and out of USD with crypto currency .. you never have to touch USD again. sure they can try auditing your assets vs your salary and come up with some bullshit number you will then have to fight, but there will be many ways to come up with how much you owe
Your Bitcoins are worth a specific value at any moment in time. Again, when you buy it, it is worth X amount of value and when you sell it, it is worth Y amount of value. That value is in USD. Do the math like you bought or sold gold or silver.
> and what if you elect to get your salary in crypto currency? if that currency inflates what taxes are you paying?
Simple. You are paid X amount in USD and that is given to you in Bitcoin. Your employer is writing in their ledger that they paid you X amount of USD. If you get your paycheck in gold or silver or Bitcoin is irrelevant. Your value is in USD as far as the IRS is concerned and you and your employer will pay taxes on that.
No, because there was no taxable event. For income to be taxed, it has to be realized. Realization can be a tricky concept, but it basically means when the income is earned or when a non-cash asset is exchanged for cash. By law and under IRS regulations, the US dollar is the functional currency for US taxpayers, which means it is the final currency by which all taxable income must be measured. You don't recognize any gains or losses on its fluctuations because it is itself the measuring stick for gains and losses.
Another way to look at it is this: as soon as you receive a dollar, you have realized income and you cannot be forced to realize income on the same asset again if there has been no change in ownership and there has been no change in its dollar value (which there can never be for a dollar unless the Fed or Congress do something really whacky). And this makes sense. Your tax burden is measured in dollars, so it scales and declines in tandem with the value of the dollar. If the dollar deflates, your tax burden increases relatively, but your income in dollars was worth more anyway. And, in the regular course of events, there shouldn't be that much currency fluctuation in the single year over which you incur and pay taxes anyway.
>and what if you elect to get your salary in crypto currency? if that currency inflates what taxes are you paying?
This is actually extremely common with stock options. People accept equity in lieu of cash payment. The tax code taxes "income from whatever source derived," which is basically a roundabout way of saying literally anything can be income if it has value, including stock options or crypto currency. Unlike stock options though, the income on crypto would need to be recognized immediately because the value is realized immediately (you get taxed on stock options when you exercise them).
Similarly though, if you were paid in crypto and then the crypto declined in value, you could recognize a loss on that once you sold the crypto. And just to clarify since you don't seem very familiar with tax law, losses are good for tax purposes because you can net them against gains to offset taxable income. So it's not all bad.
Unlike stock options though, the income on crypto would need to be recognized immediately because the value is realized immediately (you get taxed on stock options when you exercise them)...Similarly though, if you were paid in crypto and then the crypto declined in value, you could recognize a loss on that once you sold the crypto.
so the part that's not covered here is when you hold crypto, it gains in value, but you don't sell it to USD. That was my only point with this crazy thread.. At what point do you get hit with capital gains? Is it when you buy a boat with bitcoin? They will charge you sales tax, and then figure out your capital gains based on the boat value vs your purchase price of btc?
That would be taxed as a barter exchange. It's basically the same as selling the crypto and then paying with USD. You are taxed on the fair market value of the boat that exceeds the amount that you paid for the crypto or it's fair market value when you received it for your services if it was income (that's your basis in the asset). In addition, depending on the state, there may be sales tax implications for one or both parties.
This is why people don't pay their rent with stock. It would be an absurd loophole if you could avoid paying income tax simply because you never touched cash.
But to answer your question more generally, income is taxed when a taxable event occurs, as I stated in my previous post. It varies depending on whether the taxpayer is an accrual method or cash method taxpayer, but as an individual you are on the cash method, which means income is taxable when received.
The tricky part is defining income. In Commissioner v. Glenshaw Glass Co., the Supreme Court held that income means, "[1] undeniable accessions to wealth, [2] clearly realized, and [3] over which the taxpayers have complete dominion." It later held in Helvering v. Bruun that "the realization of gain need not be in cash derived from the sale of an asset."
So anything that meets those three tests qualifies as income, regardless of whether it was converted to cash at any point in the transaction. If someone gives you a bunch of bitcoin in exchange for your services, you have clearly gained something of value, which you have received into your possession, and over which you have complete and undisputed control. Thus, it is immediately taxable at its fair market value when received, and likely as ordinary income and not as capital gains (otherwise everyone would pay all of their employees in some liquid asset so that they don't have to pay payroll taxes and can pay the lower capital gains rate). Bad luck for you if the value immediately crashes to zero and never recovers because you still owe tax on the full amount at the time it was received.
If you purchase bitcoin, that is not an accession to wealth which has been realized, because the value can just as easily decline and it is only worth whatever you paid for it at that time. This is also true for subsequent increases in the value of bitcoin you receive in exchange for services. So you are not taxed on BTC price fluctuations, even when the bitcoin increases in value. When you exchange appreciated bitcoin to someone else for something of value, whether USD or GPB or barter, you have realized the increase in value of the bitcoin and then will owe taxes on that increase. In that case, the excess of the FMV of the sale over the basis will be taxed at capital gains, regardless of whether you initially received the BTC as payment for services or purchased it.
For those who think about anonymizing their bitcoin sources by running them trough mixer or using anonymous cryptocurrency, think it over twice and find out more about the cash seizure, detention and forfeiture laws.
Money laundering laws are not a joke. They use reverse burden of proof. Your money can be seized and you must explain its origin or you lose it.
Definitely something I'd like to see challenged in the court system.
I would say that, like many fields, the existing domain knowledge in the relevant professions (accounting, finance) is incredible. But CS and the sort of expertise common in the Bay Area does have a lot to contribute to the tools used in those professions. I'm a lawyer and a developer working at a large public account firm, and my experience has been that the profession has a lot of experience recognizing the myriad ways to identify, measure, and disguise value via financial transactions, but very little expertise in using computers to do so.
Yeah, you're not gonna fool us by withdrawing $100k from your account and hiding it under your mattress or in a crypto wallet. Everyone in the field knows to look at the economic substance of a transaction over its nominal form. But most of us can't figure out how to open a CSV file that's too big for Excel, so there's plenty of room to help us with managing lots of data and extracting useful information from it.
>Case 3: money laundering and other types of financial crimes. There are entire companies who build software to detect money laundering. It's a well-understood problem.
I would disagree with you here. Money laundering is an extremely challenging problem, not least of all because money launderers are extraordinarily inventive and constantly shifting tactics. It's a lot like infosec. No matter how advanced your defenses are, a ton of hackers are always looking for a way through and any sufficiently complex system is impossible to secure 100%.
This is not a family law judge subpoenaing coinbase for records. I've actual been an expert witness on such a court case and where Coinbase complied and gave the transaction history, for the record.
This is not the FBI or some regulator's enforcement arm investigating money laundering and having a court order requesting details of specific accounts. I'm sure they comply there too.
Nor is the IRS requesting information on specific people they think failed to report their taxes. That too would be understandable.
This is a fishing expedition. The IRS is requesting coinbase to turn over all personal information of all accounts and the entire transaction histories, with no specific basis given.
This is the financial privacy equivalent of court-order wiretapping vs dragnet surveillance. It is entirely reasonable to be angry about this.
Case in point: I bought and sold bitcoin on Coinbase at that time, as part of my non-registered sole proprietorship consulting business--I was paid by my clients in bitcoin, and purchased some on behalf of my father. As per the advice received by my accountant at that time, prior to publication of any IRS rules regarding bitcoin, I merely reported aggregate values of my own sales, not individual trades, on my Schedule C business income part of my personal 1040. Even in light of later advice published by the IRS, it's not clear that this was the incorrect way to file since it business income is handled differently. So I paid my taxes, legitimately, but there's no mention of bitcoin, or the individual trades that were made to cash out that bitcoin on Coinbase.
But, it now seems that the IRS is going to get a data dump that has my name and a bunch of bitcoin trades from years ago, and have no way of knowing that I already paid taxes on them. And, bad on me, I'm not sure I have sufficient record to prove my story, or if I do it will take a lot of unpaid work to put together. So I'm either going to get hit with an excessively large tax bill, or deal with a lot of pain and suffering and personal cost fighting this in tax court, losing a ton of my time for having done nothing wrong.
Fuck that. That's why we have due process and don't allow law enforcement fishing expeditions. False positives have a cost.
Cypto-exchanges might be able to skirt those laws for now, because they're slightly different, new, and small, but if cryptocurrencies become mainstream the laws will be updated to include them.
In this way, it is the government who commits a crime, crusading into new territory and plundering those who object.
My 1099s from several Schwab accounts are the basis for much of my tax return each year and I am quite grateful for the way Schwab abstracts so much complicated accounting into a single statement that both I and the IRS can trust without question.
Is there a BTC exchange that DOES provide 1099-type statements?
If I use my bank to transfer you money, the bank isn't responsible for filing a 1099 to report that income to you; I am. Using coinbase to transfer funds to you should be handled the same, and Coinbase is a wallet and merchant service as much as it is an exchange.
Now selling coins is always a taxable event. But when properly using an exchange, the coins should not be kept "on account." So ideally, every bitcoin sold was transferred into Coinbase/GDAX prior to the sale. How does Coinbase know the cost basis to report? It doesn't. Not unless that information is freely provided by the user, in which case it is fully unverifiable and the user would be free to put whatever the heck they want. Should Coinbase be required to file 100% self-reported tax information from its users without any way to verify the authenticity of that reported cost basis and time held?
Why is this any different at all?
If you already paid taxes on them, you can demonstrate that pretty easily.
And since your bitcoin trades attached to your name can be linked to your tax returns I think they would absolutely know that you've already paid taxes on yours, and they will ask for your help in tracking down people for whom you did transactions so that they might connect their transactions to taxes that they have paid on them.
That said, you still did business in an unsanctioned proxy-currency. There's bound to be a cost to that.
Honestly, you should be upset with the broker (coinbase) for not providing you with suitable reporting documentation in the first place.
That's right, because everybody knows _I'M_ the smartest person in the world!
Nobutseriously. I've never been able to articulate why I was skeptical about Bitcoin as a "currency" per se, but I think you've done it. The money problems Bitcoin claims to uniquely solve, it either doesn't really solve, or it's a solution you can easily get some other way, or it was a security-through-obscurity type of thing where agencies of oversight were ignoring it/ignorant of it -- which meant if it ever went mainstream they would catch up... and now they have. Sadly I don't think there's any escape from authoritah.
That's not to say the blockchain idea isn't useful... just not as money.
Taxes are good, but I think that the "centralized" solution for taxing, (having a separate process, that is all defined and enforced by government) is a terrible solution that has proven ineffective, unfair, and inaccurate. Public commons like taxes need to have an equivalent smart contract and once you have mass acceptance of these tokens, people will have no choice but to pay taxes with any and every transaction, and all of the pain the current centralized IRS feels crypto has, will be irrelevant.
This is a very different security model than that provided by the underlining base layer of many cryto currencies.
If the Panama papers have taught us anything it's that there are better places to hide money and legally avoid paying taxes on it than bitcoin.
Bitcoin itself is a technology of resistance. Private crypt-currencies more so. (Cash too) But as long as you have to go through central portals (like Coinbase) to access the rest of the economy, the government will lean on those central parties to regulate you indirectly.
Central parties are technologies of control.
[1] https://blog.elidourado.com/technologies-of-control-and-resi...
Of course, one of the goals of cryptocurrencies is to not have to go through central organizations at all. Not converting your cryptocurrencies back to fiat, and not storing them on an exchange will be the best way to dodge taxes. Pretty sure that if you hide your keys well enough, the IRS and co cannot prove that you have any assets in cryptocurrencies as long as how you acquired them can't be traced.
Sure, you can tax evade all you want at a small scale, but once you hit remotely interesting figures they are going to wreck you.
Although you still have to be careful, as one trader found out [1]. His was a little more than a "small side business," though.
[1] https://www.coindesk.com/localbitcoins-trader-pleads-guilty-...
"Our enemy has realized that they are fighting guys from the future. Now, ahem, it is as brilliant as it is infuriating. If you live like it's the past, and you behave like it's the past then guys from the future find it very hard to see you. If you throw away your cell phone, shut down your e-mail pass all your instructions face-to-face, hand-to-hand turn your back on technology and just disappear into the crowd"
But yes: please walk into a forest and "life as if you don't exist". I suppose that includes not posting conspiracy fanfic online, right?
Let's think this through. How well has government prohibition of what private citizens do in their own homes worked in practice for anything else it's been tried on? Then consider that we're talking about data rather than physical objects, which are even slipperier.
All such an action would do is drive it underground. Anyone who wants to use bitcoin still will.
By oppressive technology I am referring to the kind of tech that obviously oppressive governments would have built decades ago if it had been possible, and that the US will gradually arrive at soon enough without explicitly seeking to do so.
Except we've been fighting tax evasion for as long as there have been taxes.
As soon as you buy a sports car, or a yacht and pay in cash (which is probably at least as difficult as doing it in Bitcoin) the IRS will take notice. You're going to have to explain why you suddenly drive an expensive car without any trace of payments for it, or you're going to lose it.
Unless your money really come from illicit sources, in which case you have no choice, I doubt it is worth it.
Take your average stock exchange. There's an enormous amount of regulation governing its operation, with the goal being to protect market participants from mischief.
Enforcing this protection requires control.
Forgoing this control also means forgoing this protection.
The shit-show that was Mt. Gox (and a few other exchanges) -- and I don't mean just its demise, but all the market manipulation going on when it was still active, etc. -- would have been all but impossible if these operations would have been governed like modern exchanges.
edit: regarding the Mt. Gox situation. You present it as something that should have never happened in civilized society, but I think it's growing pains on the way to something better.
Not at all! However, within the context of cryptocurrencies, I can't help but note that there seems to be a certain tendency to blindly idealize decentralization, and especially to blindly demonize regulation, without giving any thought as to why things are what they are right now.
> regarding the Mt. Gox situation. You present it as something that should have never happened in civilized society, but I think it's growing pains on the way to something better.
Here, I disagree. Growing pains are no excuse for being as reckless as they were. If your clients entrusted you with hundreds of millions of their USD (either directly, or through Bitcoin), then I don't see "but startup" as a valid excuse; you owe them a certain amount of diligence in your conduct.
Note that this isn't investors losing hundreds of millions on some innovation gamble (à la Uber), but on an operation where there are literally hundreds of years of precedent to learn from, namely: exchanges.
I'm just saying, before we leap to regulations that will take decades to roll back when we actually understand what this crypto space is all about, maybe we can improve on what we have and take a different route. Which is what bitcoin, ethereum, and now the third generation crypto projects are trying to do. Incremental improvements are the only way to explore this new frontier, not regulating the shit out of it from the very beginning.
That depends on a case by case basis. If the actions of this group of people negatively and significantly affects others who are not part of the it then regulation becomes necessary. As an example if a group uses cryptocurrencies for money laundering, smuggling, or other similar activities then they can't claim they must be left alone because they don't want central control by choice. On the other hand if all people want to do is avoid mega banks, the PayPals etc. then all power to them.
That said, it is equally important for people to make sure that the central authority is a representative of society, at large, of their own choosing and not some dictatorial regime, corporation, party, or what have you.
Unfortunately, there is. Until pyramid schemes and Ponzi schemes came under strict regulation, enormous social harm was caused when people lost their life savings to such schemes.
You might think, as a technically sophisticated HN reader, that you don't need the nanny state to protect you in this way. But well-educated people tend to be one of the biggest victims of these schemes, because 1) they have newly-acquired wealth; 2) they are too arrogant to realize that their expertise in their own field does not translate to expertise in investing; 3) they probably know people in their social circle who have gotten rich (temporarily) on one of these "investments", and then let greed and envy override common sense.
Even Isaac Newton is reputed to have lost a large fortune in the South Sea Bubble (though sources are unclear) [1]
So no, you are not allowed to waive the safety net.
[1] http://www.businessinsider.com/isaac-newton-lost-a-fortune-o...
Thanks for your compliments, but I think of myself more as a fairly well-informed American who graduated college in 2010, the same year I found myself in a lecture hall for a career planning class and 5 out of 300 students raised their hands when asked "Who here has a job lined up after graduation?"
So no, I don't accept that we must submit to a nanny state controlled by centralized banks, and I will continue fighting for these projects to exist and thrive. And not just for a quick buck like you seem to think this is. You can see it as "investments" and miracle money or whatever, but it's more than that. It's a way for people like me to finally say "fuck you" to the banks that have ruined so many lives (and for what, exactly?) and finally in a way that makes them listen.
However, I think the real hope for this (and yes, a community-driven approach rather than government-controlled) is what's already changed the world in my lifetime through open source communities.
The most successful distributed ledgers have so far been open source. This is another sentiment, but I started using Linux in 1996 because I hit too many brick walls in Windows as a kid. Just simply learning how it works always resulted in at least one headache (I recall trying to learn C++ in windows at that time, and then seeing a friend's Debian environment, and that was that)
Since then I've seen those philosophies (more social than technical I think) creep into so many previously off-limits proprietary areas. It blows my mind what we've achieved, not just creating a system where we have more control but forcing the "evil" companies many of us hated at the time, like Apple and Microsoft, to adapt. I never thought Microsoft would open source anything, yet here we are with dotnet core and more. I don't see any reason why we can't carry that over into banking and fintech, and this does feel a lot like the clunky early days of Linux. But a well-organized decentralized movement can topple major centralized institutions, and while a complete takeover by the people probably won't happen, already every major bank is adapting to this new world. And they have much less control in this one, too.
But they're growing pains that don't need to happen. They've literally already happened in the past. There is nothing new about BTC that makes those lessons irrelevant.
You're pretty much stuck trading ETH and ERC20 tokens with those. Another technology coming is atomic swaps for transfers between chains.
For actual fiat the only decentralized option is stuff like localbitcoins. That's ok for small occasional trades but it's physically risky for large trades and legally risky for frequent trades.
1) create an unsigned Bitcoin transaction that pays 1 BTC from Alice to Bob
2) create an Ethereum address (smart contract) that can be redeemed either a) by Alice using a signature for a pubkey specified by Alice in advance, plus an secp256k1 (Bitcoin) signature over the hash of the Bitcoin transaction or b) by Bob after a timeout (e.g. 7 days)
Bob sends the number of ethers he wants to pay for 1 BTC to this Ethereum address/contract, and if Alice takes the offer she will redeem this amount, thus revealing the signature for the Bitcoin transaction, which Bob can then publish and get his 1 BTC.
Ethereum uses the same signature algorithm; you can sign arbitrary data from Ethereum's javascript library and check it from a contract.
https://ethereum.stackexchange.com/questions/2256/ethereum-e...
https://ethereum.stackexchange.com/questions/710/how-can-i-v...
This is on the same topic, from similar angle, also very good one, by Nick Szabo:
"Trusted Third Parties Are Security Holes"
This is the main danger of a centralized messaging application.
If meeting in person is not convenient enough- well, this is really just the tradeoff you make choosing between Coinbase and Craigslist. Convenience vs security/anonimity.
While true for some, let's be real, the real decision will be between convenience vs. tax evasion.
While I'd like to see much lower Federal taxes and no more expensive wars of aggression, I don't think there is a principled reason to oppose the IRS doing this very basic audit of tax compliance. After all, the ease of doing an audit is a major feature of a public block chain, and KYC requirements were not introduced by accident.
Early adopters of BTC who still use it (or aspire to use it) in an economy that still relies heavily on fiat currencies need to expect this sort of thing to happen. Yes, it's heavy handed but so is everything about the IRS and our massive Federal war/propaganda machine.
I suspect Satoshi would have randomized BTC transactions to make the audit impossible but for his anticipation of this transitional phase when fiat regulators have the power to compel firms to disclose non-cryptographically-secured information and link it with KYC data.
What can we do? Let's hope that enough of the useful organizational structures found in fiat currencies come to exist for crypto-currencies.
Things like insurance markets, dispute resolution, consumer credit, etc. To date most of the benefits of BTC have been related to the ease of sending and receiving funds securely, but there are many more benefits to come as new institutions and mechanisms for cooperation come to exist via blockchain technology that require less trust and authority and less overhead.
I suppose Liz II could take you back and put Prince Hal in charge :-)
And while I personally view the doctrine of American Exceptionalism as a sort of evil religion that causes much worldwide suffering, I could tolerate it if there was a corresponding definition of national interest that could be used to assess the claims of our political leaders.
Its not a choice between the modern massive federal\military bureaucracy and serfdom.
At least in the case of Russia, this was the objective from day one. The US is strategically weaker today (in terms of alliances, power projection, public support for wars and ability to handle multiple fronts) than it has been at any time since achieving superpower status.
We've seen a massive slide toward authoritarianism over the past few decades as well, with an emphasis on "us vs them" beliefs and other childish mental habits that have become mainstream.
this. Centralization of power arguably removes risks and is "safer" - at least so long as the power holder acts benevolently. At least that's the common assumption.
However, If we are going to argue against the freedom of Bitcoin technologies and for more safety, centralization and control, we should look at the full context of human flourishing when thinking about what "safety" means. Some people will use BTC tech to do some bad things, they will avoid paying taxes, they will buy drugs, they will hire hitmen. Our societies will have to find better ways to detect and prevent this behaviour.
On the flipside though, the USA had a tax revenue of roughly 3.5e9 in 2017 and a military spending of 0.8e9 [1,2]. That's roughly a quarter of all tax revenues. If you think a large portion of that is not leading to the deaths of thousands of innocent people yearly you're dillusional. [3] We need to ask ourselves, and historically we can look at the evidence for/against, whether or not we should trust our Governments to act benevolently.
I think the benefits of more checks and balances on the abuse of power, far outweigh the negatives, which we will have to find other solutions for whether we have a Bitcoin technologies or not.
1. https://www.thebalance.com/current-u-s-federal-government-ta...
2. https://www.thebalance.com/u-s-military-budget-components-ch...
3. https://www.globalresearch.ca/us-has-killed-more-than-20-mil...
History fills in the rest.
So, you can see modern governments as a power to defeat or as a way of trying to control power.
Summary of all current events
Launder your coins? You bet they can track that.
Buy off localbitocins? Still trackable, given enough interest.
Never done anything with the coin, just a wallet.dat file? The money's no good if you can't use it, and they'll want what's owned the minute it moves.
The IRS will get what it is owed, whether you like it or not. The only real way to avoid them is to be worth so little it's not worth their time.
Disclaimer: I am not a lawyer. This is not legal advice. Pay your taxes.
Coinbase was a godsend when it came along. No more explaining to my wife why I was going to the sketchy part of town because that CVS has a red phone... finally a legit company that I can buy from! But, even with coinbase and gemini and any other legit exchanges, you may still want to buy bitcoin from someone in person if you've hit your weekly maximum on the exchange.
I know some local computer repair people who buy lots of bitcoin to pay off their client's cryptolocker incidents. They easily hit their weekly limits for business purposes.
I'm not saying using these services per se is necessarily enough to warrant arrest. But if you're (a) not reporting taxable holdings or income, (b) using these services after alternatives are available and (c) running your mouth on forums about cashing in your Bitcoins while on vacation in Europe, you're in the easy pile.
Disclaimer: I am not a lawyer. This is not legal nor tax advice. Pay your taxes.
Your advice has been useful to read so far, but are you seriously concerned a username on here will hold you to account if the advice goes awry? It has a nervous/pedantic air (no offense intended, just the impression as a reader when seeing repeated footers).
No offense taken :). Most prominently, I do it as a courtesy. A lawyer's comments on these matters should carry more weight than my own. Second to that, one might characterize me as nervous and pedantic about such things.
So please stop including that disclaimer in your comments. Edit: Since the HN armchair lawyer brigade is apparently misinterpreting my comments: continue to say that you are not a lawyer, but stop saying that you are not providing legal advice because you are, so claiming that you are not offering legal advice has no legal effect.
I am a lawyer. I am not your lawyer.
Please keep including that disclaimer in your arguments. Especially when discussing what you would do in a legal or tax setting.
Also, if you are not a doctor, but are giving your personal medical recommendations, please specify that too.
It is as much to inform the recipient of the advice quality as it is to cover the giver of the advice.
The same is likely true for violations of OFAC, BSA, and AML laws.
Even minimum security prisons aren’t a lot of fun, and good luck re-starting anything resembling a career or life when you’re released.
http://i.imgur.com/4CofAk7.jpg
You aren't even willing to discuss the subject in a pro-"abide by the law" way without a CYA.
Chiling effects indeed...
The bulk of IRS enforcement is against low income people who cheat on child tax credits and earned income credit.
The nature of all predators is to attack the weak.
https://www.irs.gov/statistics/soi-tax-stats-examination-cov...
https://www.irs.gov/statistics/soi-tax-stats-civil-penalties...
The vast majority of audits are of those making > 1,000,000 in income, and the average enforcement is more than $10,000.
Even with a few mega-enforcements to skew the numbers, the "bulk" of enforcement can't be against low income people, they don't owe enough to make the math work out.
Since there are only 3.7 million households making over 250,000 per year (https://en.wikipedia.org/wiki/Household_income_in_the_United...) even if 100% of wealthy individuals had enforcement actions, they would only account for ~10% of enforcement actions. So that is one data point.
If you go back to link 1 "Examination Coverage" you will see that the highest percentage of examinations amongst low/middle income people is for people with 0-25K income, which would coincide with precisely with the Earned Income Credit.
These examination percentages are also highly misleading because for simple low income tax fraud, like I am talking about, it is mostly detected by computers and they only "examine" it after they already know there is an irregularity.
However, the bulk of enforcement penalties is against the wealthy, because they are the most likely to engage in large-scale tax evasion. Though within this category, it's actually the mid-tier wealthy, generally small business owners, who are most penalized, as they are the most aggressive in claiming deductions and credits to which they are not actually entitled. The ultra-wealthy will claim whatever deductions/credits their tax advisors say they can, but it's not worth it to them to be aggressive since the savings is usually insignificant compared to the potential penalties, or the cost of litigating a tax action.
Maybe by number, just because low income people are the majority of Americans. But in terms of actual dollar quantities? Probably not.
According to this (conservative) source, the bottom 50th percentile of Americans by income (under $38,173 in 2014) owed on average ~3.45% of their income in tax[0]. There's simple less room for evasion (when the maximum benefit is 3.45%) and the reclaimed dollars per enforcement is low compared to higher income Americans.
[0]: https://taxfoundation.org/summary-latest-federal-income-tax-...
They don't have to track it.
Money laundering laws usually have reverse burden of proof. They seize your money. Then you have to explain it's origin or you lose it for good.
But has it been proven true?
It seems like for all this big talk about how the government is all powerful, a whole lot of people have been able to get away with a lot of stuff.
This also isn't just about the US. This is about other countries as well. Venezuelans have been using Bitcoin very effectively to get around government oppression and capital controls, for example.
Don't hate the other players, hate the game that coerce you into paying taxes (i.e punish you) because you have partaken in a peaceful and voluntary exchange with another person.
There are ample examples of robust, thriving, civilizations that had alternative monetary systems before the Private Finance Oligarchy ate the world.
To give you some prep, the next question I'm going to ask is what the quality of life was like for the average individual in those civilizations, including the usual metrics: healthcare, access to food, access to running water, etc.
One step further, if you provide answers for these questions, I'm going to happily show you why it's extremely difficult to extract the incentives for developing these quality of life improvements from capitalism without designing an economic system that looks like it.
Then I suppose you and I will debate whether or not capitalism is perfect, which will be a red herring, because that was never really the point.
Deal?
I think you are making a reasonable assumption that theoretical systems that allow for concentration of capital result in greater technological advancement than theoretical systems that tend to diffuse capital. But the real world is complex and messy. Living people sometimes behave in ways that are surprising to the economist.
It is very difficult to "design an economic system". You either have to devise an incremental path to it from the old system, or march people to it under the threat of death. If you're really going to ask someone to compare historic civilizations with the modern global civilization we have now, you're probably going to need to make some adjustments in order for that to be a fair comparison, instead of one implicitly biased to your own point of view.
I'm not certain it is even possible to do that for a comparison between a pre-industrial civilization and a post-industrial civilization. What we can say for sure is that it hasn't always been this way and therefore it doesn't always need to be as it is now.
If you want to go make a million dollars, more power to you, but you also need to pay your fair share like everyone else.
However if you want to use the Internet, which was subsidized by and developed using research by U.S. and E.U. governments then my counter argument would be that you need to pay the toll of the IRS or whatever other government you reside within.
If you want to start your own nation somewhere and build your own inter-continental communication network then by all means feel free to fund that effort by whatever you deem necessary to achieve that end.
Taxes are needed, however begrudgingly, to fund a government which maintains a civilized and peaceful exchange of commerce. There are no examples I'm aware of where a lawless no-mans-land has resulted in anything more than a region dominated by warlords.
There are lots of public goods that are much more heavily subsidized; gas, electric, water, law enforcement, fire, military...
If you want to take your labor off the farm, so to speak, then go ahead. But you're going to have a very difficult time enjoying as much fruit from your labor your only currency is your own time, with no common economic structure.
> However if you want to use the Internet, which was subsidized by and developed using research by U.S. and E.U. governments then my counter argument would be that you need to pay the toll of the IRS or whatever other government you reside within.
For this matter, how will you travel to meet the other person? Will you take a taxpayer-funded road? Will you take a plane monitored by taxpayer-funded air traffic controllers?
And how do you know the other person won't just shoot you and take your currency? Maybe it's because they're worried that the taxpayer-funded police and public prosecutors will go after them if they do that.
Miners would pay income tax, not capital gains...
Edit: I understand that FX trade is not tax free. What I am saying is that we should tax crypto like we tax (or don't tax, depending on where you live) other currencies because that is what they are.
Second, forex traders (and gold owners) have to pay capital gains taxes on any gains.
So, what is your point?
https://spectrum.ieee.org/biomedical/devices/smart-contact-l...
You also can't get around this by simply bartering your assets. Once the asset leaves your hand or control -- be it bitcoins or Yu-Gi-Oh cards -- you owe tax on the difference in the price you paid (valued in USD) and the price it was worth at barter time. It is your responsibility to fairly make this valuation.
This is not rocket science... the IRS website and the published tax codes explain this in great depth.
Now all of a sudden I have to pay tax on something I already own? Seems like the government is double dipping. After all I already paid tax on the hardware, the internet connection, the electricity, and countless other market products that allowed me to mine said coin.
I have a couple of choices now.
I can either sign up for Coinbase and sell it and kiss 15% of it good bye or I can go on Newegg and buy stuff directly with Bitcoin.... or go to a bitcoin meetup and sell with cash in-person..... or go on vacation in Europe and get Euro and again keep it off the books.
Which do you think I'm gonna end up doing?
PS: My address has never been tied to an IRL transaction.
PPS: God damn it's easy to troll HN. More salt than the dead sea.
If you mined gold, planted corn, or raised chickens and then subsequently sold any of them you'd pay taxes on the proceeds as well.
> PS: My address has never been tied to an IRL transaction.
Short of using a tumbler to anonymize your source bitcoins and fraudulently declaring a different or fake person as the recipient of the purchase, I don't see how this is possible if you're buying something online.
That's why it's called a capital gains tax -- it's collected at the time of sale (when/if you realize a profit), not at the time of purchase.
You can of course disagree with the concept of income tax, but Bitcoin is no special goose in that regard.
You can find an accountant who can give you advice on how to account for the cost of mining the bitcoin to reflect your effective cost basis (or wing it; the IRS has reasonably good instructions for this sort of thing).
If you go to Newegg and buy stuff, you are obligated under US tax law to pay the capital gains taxes based on the fair market value of the products purchased. If you go to a bitcoin meetup and sell with cash, you are still obligated to pay taxes.
Your legal obligations are clear; whether you can commit the perfect crime or not and get away with it is another matter.
I recently bought a GTX 1080 TI with USD
Amazon wanted to charge me 7%. Newegg charged me no state tax.
Which do you think I went with?
Like our president said.
> "I'm smart for not paying taxes." - The president Source: https://www.cnn.com/2016/09/26/politics/donald-trump-federal...
This is also why people shop in Delaware. I wonder how many of those people reported their purchases to Pennsylvania.
You're legally obligated to remit that sales tax to your state Newegg didn't collect, and if you don't you're breaking the law.
Avoiding taxes is legal, evading them is illegal.
Edit: Announcing you’re evading taxes in a public forum that will eventually be archived just seems like a bad idea.
(like you can pay an income based amount to cover small purchases up to some total rather than calculating the exact tax due)
None of this, whether it's collected or not, eliminates your requirement to pay the sales or excise tax of your home State. In fact, if you go out of your way to order something or perform a transaction in a way that explicitly evades sales tax then you could be in legal trouble with your State's tax agency.
They might not care about a $200 graphics card but they do go after large offenders. Here's an example: http://www.nj.com/mercer/index.ssf/2017/05/broker_from_princ...
> > "I'm smart for not paying taxes." - The president Source: https://www.cnn.com/2016/09/26/politics/donald-trump-federal....
> This is also why people shop in Delaware. I wonder how many of those people reported their purchases to Pennsylvania.
Avoiding paying taxes through legal means is smart. Evading paying taxes is illegal.
They also had to pay taxes on the equipment that they used to mine the gold, and probably taxes on the people they had to pay to manage the operation.
So it could be seen as 'unfair' for someone who mines information to get a pass and only have to pay some of the taxes that a precious metal mining operation pays.
Just to be clear, you're unironically proposing to meet to participate in commercial exchange with someone you can trust not to kill or rob you on account of publicly-funded security, get to the airport on publicly-funded roads or trains, burn energy financed or outright subsidized by public infrastructure, fly out of an airport paid for with public funds and transit safely across the Atlantic using air traffic control and radar services provided by your fellow citizens to get to Europe to enjoy a vacation many Americans can't afford. All to avoid paying taxes on speculative gains.
Now all of a sudden I have to pay tax on something I already own?
If you're subject to this ruling, aka you've by happy accident suddenly realized $20k in profit- consider that whether or not you like how things are working, you've still got nothing to complain about.
I mean the IRS is treating it the same way that they treat other securities, isn't that what the majority of the bitcoin community wants? Just some clarification as to exactly what bitcoins tax situation is and now we are getting it.
I mean at this point if you traded bitcoin and didn't pay taxes on your capital gains, that is 100% on you, you can't claim ignorance at this point.
This, more than CME and CBOE futures, though those are important, and more than a sane way to store them without having to worry about lost keys or being hacked, is what institutional investors really want before they get into bitcoin.
In the long run this is a very positive event for bitcoin adoption by the masses, and more importantly for speculators, large inflows of institutional money.
No. A quote from the article:
"asking for detailed transaction information on so many people, simply for using digital currency, is a violation of [customers'] privacy, and is not the best way for us to accomplish our mutual objective.”
The point of the article isn't about regulation or enforcement; it's about the methodology of enforcement. If A business magically has more money than they should given their transactions in a year, issuing a subpoena on their information is completely legitimate if they are under an active investigation. Similarly, if a specific person is under investigation, and they are suspected to be evading taxes, an investigation into them is grounds to get their info from coinbase. It's not grounds to get my info from coinbase. People also try and evade taxes in the stock market, that doesn't mean the IRS is entitled to investigate me just because I also happen to use schwab and made a trade on nasdaq.
At the end of the day, this ISN'T good for crypto currencies because it demonstrates that enforcement obeys different rules than other assets.
Like stock exchanges and banks? Right, because they certainly don't report your gains/losses to the IRS voluntarily. /s
Seems bitcoin IS being treated exactly like other assets. Parent said this is a good thing. I agree (and I am a crypto trader). Maybe it's because my disdain for taxes-are-theft libertarians is much stronger than my reluctance to pay what I owe for my gains.
Also, it's one thing to not want to pay taxes if you're working a plow in a field all day. However if you're sitting at a computer pushing a few buttons and earning money from it, then yeah, no excuses to not pay.
Much like any other form of anonymity on the internet - it often only takes one tie between your physical and digital identity for the whole thing to fall apart.
The current spin that passes my twitter timeline is that it is state independent. Technically it is, but the sense it conveys is 'out of the reach of governments'. (c.f. "Prince Ibn so-and-so should have put his money is bitcoins. haha".)
It is always helpful to take the old history books out of the dusty shelves and read up on e.g. The Opium Wars to have a 'better' understanding on the er 'softer' aspects of "money".
This is wrong. Anyone with access to the equipment to use it, can obtain it anonymously by mining it. The fact that people choose convenience over security is not an inherent problem of cryptocurrencies.
Both mining and transacting are impossible (or at least very difficult) for many people/in many areas. Mining requires too much gear/power. Transacting for most goods with real value without de-anonymizing the currency (converting it to fiat and associating it with your name) is also extremely difficult without money laundering or access to a no-identification-required, crypto-to-physical-cash ATM-style conversion point.
This is just not correct. You can mine with the same equipment you use to transact (something with a CPU and memory and internet access). Is it expensive to do so? Yes. But it is possible. Your argument could be "anonymity is expensive".
>Transacting for most goods with real value without de-anonymizing the currency [...] is also extremely difficult [...]
That is a "how I give you what you bought" problem and not "how I pay you for what I have bought" problem, i.e. it is not solvable by changing payment technologies. If I pay you a dollar over paypal, paypal automatically knows who gave what to whom. If I pay you bitcoin, I would have to give out this information voluntarily (it does not come with the money).
That depends on the definition of "possible".
Most people wouldn't be able to mine a block within a million years, which i'd argue means it isn't possible
That's a fair point. Perhaps I should have said "impractical" or "cost-preventative" instead.
> paypal automatically knows who gave what to whom.
Correct, but my point was that the number of opportunities to directly pay someone bitcoin for a physical good are so limited as to make using it for what most people need a "currency" for impossible.
Someone transfers their bitcoins to a paper wallet then meets someone in person for a cash exchange. When the IRS comes by, other than say, the Lambo in the driveway, how are they to know whether or not to believe the man claiming that the coins were stolen?
Speaking in terms of cryptographic assurance, Bitcoin is not anonymous. When we're talking about blockchain technology, we're talking about byzantine fault tolerance and consensus algorithms. It's not productive or meaningful to talk about anonymity outside of the context of cryptographic assurance, because you're introducing reliance on non-determinism in human behavior. That's no longer a quality of the protocol, it's a quality of the individual's caution and identity hygiene.
Stated another way, in order for Bitcoin to be anonymous, it must be anonymous by default, or have such a meaningful feature that can be "turned on", so to speak. Cryptographic anonymity is fully possible, and we have it with Zcash. But you don't get there just by divorcing your offline activities from an online public/private key.
If they don't bother to do due diligence, they will be shutdown by the police soon enough.
How will the police shut down Monero miners in Russia and China?
How will the police shut down ALL of the Monero botnet miners?
If you are already running a botnet, you aren't worried about the 'extra' illegality of the currency. If police could shut them all down then they would have already done so.
Also, people are working on decentralized exchanges run through smart contract atomic swaps.
It isn't really possible to shut down an exchange that nobody is running in the first place....
Unless you are arguing that the government is going to shut down all cyptocurrencies now and for forever?
Monero has zero value. The money is in the hands of the exchange who swap coins for real money. These ones have people running them and can be tracked and shutdown.
The "promise" (future vision?) of cryptocurrency is that you won't have to sell it, ever. Do your business, buy your groceries, pay your mortgage and taxes in it.
Whether that's realistic or not I haven't the energy to debate on HN. But it is certainly incorrect to say that bitcoin/USD exchanges have any sort of place in the cypherpunk utopic vision of a cryptocurrency future.
Interestingly enough, people are working on decentralized exchanges through smart contracts. Good luck shutting down a smart contract or stopping atomic swaps between cryto currencies.
If your tax residency resides outside of the USA, and you made a taxable capital gain, I strongly advise to report it to your tax authority.
It would probably attract a ton of economic activity. Does it exist?
edit: rephrase
Other countries have different rules that apply to their citizens and also to residents.
Generally speaking I think it's far better too focus on making the money more than mitigating the tax.
So while I believe there is no moral obligation to pay more tax than legally required, you would have benefited from the tax of previous generations so why should you have a free ride?
Is there another choice?
Would they ask everyone to please be nice?
Unless the libertarian utopia/dystopia referenced above were to nationalize the economy of it's residents (not likely) I don't see a way for that government to nurture productive commerce and protect that commerce at the same time.
Probably the biggest way of avoiding tax and regulation these days is to be multinational. Then no one country can really control you for better or worse.
It fails to account for lots of things, among them:
- The idea of unspecified "regulations" inflicting grave damage on the economy for no useful purpose is simply wrong. Yes, there may be regulations some people consider too broad, or intrusive. But it's a question of degree, and I assure you, you wouldn't want to life in a place without any of them. The best case scenario is that instead of a law that forbids the use of lead as colouring agents for potato chips, you'll get a less-effective, more expensive private certification scheme with the same rule.
- Corporations only pay taxes on profits. As such, these taxes have no effect on the corporation's investments, research, or other spending.
- Governments tend to be more effective in spending than private companies. Medicare % medicaid, for example, have something like 1% or 2% of administrative overhead, compared to roughly 20% of overhead and profits for private insurance. As further evidence of the stinginess of governments, compare the average desktop PC in government offices to those at your favourite company.
- Such a country could reduce spending almost exclusively by picking and choosing the people to admit, leaving other countries to care for poor, old, or sick people.
For instance, if the initial population of such a country all sat down together and agreed on what level of social support they would want if they happened to be born with below-average IQ, having some severe physical disability, being suddenly unable to work, having a special needs child whose care cost more than their own annual wages, etc., then the rules of the game could be set up in a sustainable way so that generation after generation there would not be the same sort of market for social entrepreneurship intended merely to achieve after-the-fact wealth redistribution, since a fair system would have been baked in from the start.
I don't think this is so much a classic market failure as it is a failure of human brains to perform counter-factual reasoning.
Also, values change over time. What is viewed as a fair system now might be viewed very differently in a 50 or 100 years, all else being equal.
If your tax residency resides outside of the USA, and you made a taxable capital gain, I strongly advise to report it to your tax authority.
"easily" is not the word I'd use for that. by my calculations your annual taxable (aka net) income would need to exceed 300,000 (USD/EUR) before you see a break even point.
plus there is the risk (did your accountants and lawyers set it up correctly? will the laws or regulations change next year? etc etc)
The USA have FATCA, so the IRS receives this information from all other countries.
Most other countries will be sharing information with each other through CRS (which was modeled after FATCA), but they won't receive anything from the USA.
Why would the USA share? The have nothing to gain as they already receive all the info they need (through FATCA), and only to lose through sharing.
I've said it before, I'll say it again: the USA are the last big tax haven.
It's a long-reported problem [1][2]. You can set up a trust or LLC in many states e.g. Delaware without providing any identification. That is not possible in most countries, in large part due to American lobbying.
[1] https://www.economist.com/news/finance-and-economics/2167764...
[2] https://www.economist.com/news/international/21693219-having...
Contrast that to Europe, where the Fourth Anti-Money Laundering Directive will soon force all states to hold information on beneficial owners of legal entities in a central register, where it may be queried from by any lawyer, bank or other party with a legitimate interest...
Hopefully laws can put in place for proper taxation.
Hopefully actions like the above continue and those two people go to prison.
That.. wouldn't accomplish anything. Not by itself. The other side will ask for discovery of financial records, ask for and receive discovery of exchange record (or, if it's cash withdraws for localbitcoins, demand plausible receipts for what it was used for, which will then be investigated). Outside a total fabrication of a false history of losses, involving probably multiple accounts of self-perjury and external help and a lot of luck, I don't see that actually working, and the risk of ending up in jail for a looong period of time is massive.
Source: I've worked an actual divorce case involving bitcoin.
> Hopefully laws can put in place for proper taxation.
There's no need for new laws here. It's entirely covered by existing laws regarding the appreciation of value to capital gains property, with published IRS rules. There's actually not a lot of uncertainty here.
Your own account needs to have had $20k worth of bitcoin, not simply interacting with someone else who does.
"and, where counterparties transact through their own Coinbase accounts/wallets/vaults, all available information identifying the users of such accounts and their contact information"
Barter Income Barter dollars or trade dollars are identical to real dollars for tax reporting. If you conduct any direct barter - barter for another’s products or services - you will have to report the fair market value of the products or services you received on your tax return.
This is a recordkeeping and tax form nightmare, especially if there is a lot of trading. It may be possible to report the net gains over the year for frequent trading similar to security trading, but the details are somewhat foggy at the moment. The theory is not though, and the IRS has had the position for some time that gains in bitcoin imply taxable capital gains.
This might or might not generate an informational return to the IRS. Most transactions in the economy don’t. They’re still taxed. The tax system functions on a combination of informational returns and auto matching, human-intensive audits on a small selection of returns each year, and the honor system.
“They can’t tax us if we don’t write stuff down!” is believed by many people, including Bitcoiners, and they are often surprised to find that the IRS has thought of this clever strategy before. For example: “I see you own a boat. What year did you buy it in?” “Oh I dunno.” “2015. Let’s try again: how much did you buy it for?” “I dunno.” “List price, great answer. OK, you understated your income from 2015 by $65k. Here’s your bill for $150k.” “You can’t do that!” “I get that a lot.”
I have a feeling that they'll leave the users holding that bag. Move fast, break things, crowdsource all compliance costs to your users.
I, for one, wouldn't know the first thing about filing to the IRS that I spent $250 to buy BTC in Feb 2016, and then spent $27.43 of BTC to buy a widget in May 2017, and then cashed out the other $1,530 into my bank account in November 2017.
How many of Coinbase's users do?
Crypto currencies used to be anonymous too, wont be long before everyone is watching your wallet as well.
[1] https://en.wikipedia.org/wiki/Monero_(cryptocurrency)#Privac...
[2] https://en.wikipedia.org/wiki/Dash_(cryptocurrency)#PrivateS...
Disclaimer: I have no monero or dash, but I do have various other cryptocurrencies.
Was meant to cover those particular cases, which were created specifically to deal with the lack of anonymity within Bitcoin and its derivatives, as far as I know.
And to be fair, both of those cryptocurrencies have been around for ~3 years now, which is practically ancient history in this field.
The original bitcoin whitepaper doesn't mention anonymity or privacy anywhere. What it does show is a partition between identities and transactions. Transactions can take place without ever naming an identity. But we've learned in the meantime that this partition is not sufficient, in practice. All it takes is one transaction where some part of your identity or personal information is disclosed (shipping address, e.g.). From there, the transaction history could be followed to determine where you got the money from (strip club, silk road, etc). Having multiple independent addresses mitigates some of the impact but it's not enough to describe it as "anonymous".
Case in point: "Stealing bitcoins with badges: How Silk Road’s dirty cops got caught" [2]. TL;DR Chainalysis followed the transactions on the ledger.
[1] https://www.documentcloud.org/documents/2714846-A-Fistful-of...
[2] https://arstechnica.com/tech-policy/2016/08/stealing-bitcoin...
Just like other types of security, anonymity through obscurity is a bad idea and only works while your obscurity holds out.
Cryptocurrencies are going through the same transition. Initially they seemed anonymous because nobody with power cared about them. Now that's changing.
If you care about being anonymous, take steps to ensure that it works even if The Man starts looking.
The money for the internet (Or the much better name: "Intergalactic Computer Network") came out of the budget for a ballistic missile defence program.
https://en.wikipedia.org/w/index.php?title=History_of_the_In...
Is buying stuff on Overstock using bitcoin a taxable event?
1. Selling the bitcoin for USD (this is taxable)
2. Using the USD to buy whatever it is you want.
> Case 2: taxes. BTC is an asset. If you buy at price X and sell at price Y, guess what, you owe taxes on Y-X. I don't understand how this is news to anyone.
Pay your taxes on your gains. If the IRS can turn this into a revenue stream, it will solidify and legitimize it.
Crypto has been extremely risky because there is no sure-fire exit strategy. Now that reliable exchanges like coinbase are popping up, and playing by the rules, that risk is going down drastically.
A reliable exchange means much less risk, and one of the ways it does that is accurate reporting. That means accurate reports to you AND the IRS. If you want a reliable market, that market has to play by the rules.
- A chilling effect/scared-lemming effect from the news will rattle some people, with or without reason.
- A reliable market is usually (not always) a less volatile market. A lot of crypto traders who were capitalizing on the volatility of these markets will now exit.