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Comment by shiado | Hacker News Reader

An interesting thought experiment is if it is possible to create some sort of Bitcoin derivative from private keys and use it as a means to exchange Bitcoin and avoid any sort of rules used for taxation of cryptocurrencies.

Ownership of bitcoin is the ownership of a private key which is simply a 256 bit number that is used in ECDSA for signatures. What if I transform this number into some other form using steganography and embed it in an image, or maybe I just shift it left 100 bits and claim it isn't a valid Bitcoin key and hence I own no Bitcoin. Is ownership of the resulting medium considered to be ownership of Bitcoin? Can I trade it without it being considered cryptocurrency? Can I own it without it being considered to be owning Bitcoin and later convert it back and "acquiring" new bitcoin avoiding capital gains?

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In the US, when existing law doesn't determine what will happen in a particular case, a judge uses his or her judgment, and creates new law. Since most judges aren't idiots, they aren't going to be tricked by this sort of scheme.

Edit: I don't even think this would require new law. You presumably don't get to claim you don't possess the contents of a safe because you wrote the combination down in code or backwards or something.

Judges do not create new law. They interpret existing law and decide if a potentially new use case can be considered to be covered under existing law. If so, they make a ruling to that effect, and depending on jurisdiction and other factors, that ruling may become precedent that other courts can/will follow. If not, they dismiss the case, and it's up to the legislature to make a new law governing this use case, if they so choose.

Having said that, I agree that judges aren't idiots, and they can often spot when someone is trying to be creative in order to circumvent existing law. The IRS also has pretty broad latitude in determining what falls under existing tax law and exactly how, and the courts take a dim view of people who are trying to evade taxes.

Judges do also make new law even where existing statutes and precedents don't give an answer to follow. As one of many examples, California's courts invented our current idea about strict product liability for manufacturers. Statutes came second.

This is part of our longstanding common law tradition, going back far beyond the prominence of statutes.

Judges do not create new statutes, however in common law jurisdictions they do create new law.

Other systems might work the way you described, but in the US (and England, whose legal tradition the US inherited), judges certainly do make new law.

It is all too common for young, bright, technical people to think the law works like mathematics and to try to find logical or technical reasons why they should be found not guilty of crimes. Most of them get shipped off to prison. This is doubly true when you're up against the IRS. Don't be that guy.

I wouldn’t try to get cute with the IRS. It usually doesn’t turn out well.

The IRS has no definition of "Bitcoin". To them, cryptocurrencies are just generic "property", like houses or art collections or shares of stocks. If you sell an asset, and receive more for it than you paid for it, you have a capital gain that you need to pay taxes on. For details, see https://www.irs.gov/pub/irs-drop/n-14-21.pdf.

You can't fold stock certificates and claim you're trading paper airplanes.

Bitcoin or not, if you bought it with money and sold it for money you have a gain or a loss, in money. And if you bartered it for non-money tax laws about barter apply.

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