The IRS Is Coming for Crypto Investors Who Haven’t Paid Their Taxes
wsj.com
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Form websites and tutorials are all well and good, and will probably work out for more people than they don't, but you super don't want to screw up your taxes. When the bill comes due, it'll be years down the line, and for an unrecognizable sum.
Your state bar can put you in touch with one. Avoid folks marketing themselves as something like "tHe CrYpTo LaWyER."
The crypto lawyer folks are, by and large, claiming to be experts in a practice that is so new and so without firm guidance as to be practically the tax wild west. Right now we are in the metaphor stage, we're defining everything involved with cryptocurrency (from a tax perspective) with metaphors to other things: currency, stock, digital goods, etc. The cases that will be cited forever to define crypto for tax purposes are going to be litigated in the next few years, don't be one of them.
TLDR: Look for a tax attorney that knows the tech behind cryptocurrency well enough and doesn't make any promises or guarantees.
Edit: One additional point, merely competent attorneys won't be published in their field. If you're looking for an expert find someone who is contributing to the discussion in their area.
Find a lawyer that is advertising competency in this field, is willing to look at the nature of transactions instead of just assuming everything is capital gains or losses.
I’ve handheld many financial professionals on crypto topics over the last 5 years. It is a godsend that so many have moved to fill in a niche now.
As for the "licensed professional" dig, they're the only people who are going to represent you in front of the IRS when bad advice gets you in trouble. Do with that information what you will.
So FWIW, look out for ^ these guys too. Talk to your state or the federal bar taxation section.
Yeah, I’m not really responding to you at this point, everyone else that makes it this far in The thread, the point is clear: find someone inspired enough and willing enough to look at the nature of a transaction and its associated tax compliance even if they are unfamiliar with the assets used in the transaction but ideally are familiar with crypto assets being used instead of cash or securities. On this point, both of us are saying the same thing, except that the other person thinks that someone advertising domain expertise will give bad guidance. There is no way of gauging that from that assumption alone.
you are obsessed with being right to attract business to your dinosaur accounting/legal firm thats losing business in a high growth sector, under the guise of better compliance and denigrating firms that you have no idea what they file
Cryptocurrency taxes are insanely awful, even if you're not talking big money. Just trying to be accurate is near impossible if you've moved your money around exchanges a few times & spent some on goods. Unless you have lots of money in Crypto it seems like trying to do honest taxes on it costs more than any money you would have made over the past few years.
Now, if one is blatantly practicing quasi-legal "tax avoidance" then you're on your own. But my experience, as a person who did the best they could and still screwed it up, is that the IRS is not nearly the scary monster it is made out to be.
Also, if it's not too much to ask, how should one handle crypto that they mined 6+ years ago, never declared (it was worth <$100 at the time of mining), and now want to cash out? My understanding is I was supposed to declare it as income way back then and now I would just pay capital gains (long term in my case) taxes on it. I'm happy to file some kind of an addendum but is it needed for <$100?
Marking acquisition price on trades to $0 is consistent with how I've seen the IRS behave in the past when I failed to report stock trades accurately($1mm volume = $1mm taxable when this occurs), and since the prices have increased 1000% in most instances(I buy and hold for years, and while I traded in 2017-2019, I did not trade at all in 2020) the initial cost is easy for me to write off.
I plan to use Cointracker's reports going forward.
Just as a heads up for other folks reading this, having a basis of $0 isn't the same as paying tax on the mined value at ordinary income rates (cap gains rate differs from ordinary income rates). Mined coins and bought coins are treated differently owing to how they're acquired.
Generally speaking, risk of audit and high fines and fees go up as the amounts you're dealing with go up. I don't know what kinds of values we're dealing with with 40-100 trades, so I'll just give you broad strokes. Having an accountant or a tax attorney review your numbers will, in almost all cases, cost you less than $1,000. If you're talking about $2,000 in income/gains, then obviously that's a non-starter and I'd just go the route you're considering (SaaS), having done good due diligence on the service as you seem to have. If, however, you're looking at $100k in OI or capital gains, I'd say a 1% investment to not owe all of your back taxes + potentially 100% or more in fines in 5-7 years when, potentially, you don't even have that money anymore.
As for your second question, I would just say there is no statute of limitations on undeclared income. The logic there is that you aren't incentivized to hide your income for 3 (or 7) years and then get off the hook, and it is difficult for the IRS or state taxing authorities to discover undeclared (as against under-declared) income -- i.e. how would they know about it? Thus, there is no amount of time that can pass such that you are truly free and clear.
You can file amended returns for ordinary income you failed to declare with Form 1040X: https://www.irs.gov/pub/irs-pdf/f1040x.pdf
As of now I’ve made zero trades but I want to pull out the max you can for long term capital gains without getting taxed by that ($40K) and I figured it’d probably spread out the cash-outs to even out the risk. I asked the person that manages my retirement fund about help with Crypto taxes and got the equivalent of a blank stare so I’ll probably need to look online for someone to hire since I don’t know how many people around me specialize in something like that.
Thank you again for your feedback.
EDIT: As shown in the replies below I misunderstood how long term capital gains were taxed. I though the brackets were based on how much you made off the trade, not based on your income. The $40K number I mention above doesn't have any significance for me in reality. If you make between $40K-$500K you pay 15% on long-term gains.
Will this be your only income? If not, you'll still owe taxes. Capital gains aren't separate from the rest of your income; they're just taxed at different rates.
If this will be your only income, don't forget about the standard deduction. That gives you another $12.4K toward the 0% long-term capital gains rate, so $52.4K total.
EDIT: Thank you for calling that out, it will have saved me from an unpleasant surprise next April.
Support at a few other places didn't even know what I was talking about, and didn't see the difference between uploading cost basis and simply reimporting old trades...
Well, it was clear from the 5th minute they don't have "Deribit support", and I had many email exchanges with them spelling out in detail how their engine misunderstands my transactions (cost basis etc.). I gave them every opportunity to improve, and instead they eventually just ghosted me.
I understand it may be unrealistic to expect they will build this capability in three weeks. It's a shame they weren't able to level with me, and talk about the complexity of this. I ended up writing a taxable gains calculator for Deribit myself and would be happy to share it with them.
This issue of lots and being taxed as property:
>For example, say that someone sold bitcoins at $22,000 each in December 2020 and had coins bought 2016 for $600 and 2017 for $16,000. Selling the 2016 coins would mean a taxable gain of $21,400 each, while selling the 2017 coins would mean a gain of $6,000 each—a big difference.
This is not like a currency, where if I had a stack of Euros from an old holiday and then exchanged them for USD or even bought something with them, there is no concept of "lot" price in a currency. This US law definition appears to in effect destroy the fungibility property of cryptocurrencies by pinning the non-fungible identity of the coin to its spot price at the time of transaction. If US law doesn't treat it as currency, it's basically not currency.
I sat on the sidelines on cryptocurrency from the beginning because of specific scenarios like this because of these very inevitable problems. What they really are is an exotic asset for getting portfolio exposure to the trillions of dollars in black and grey market economic activity and associated volatility properties, but with only arms length participation. Basically a way to particpate in a distributed bank that launders money while turning a blind eye just like the real banks.
However, remote tech has changed work so much that if I were a betting man, I would be looking at real estate in non-extradition countries as thousands of new crypto millionaires weigh their options and just leave.
But are they taxed? ie. if you sold your euros now, you'd probably realize a modest profit since USD went down recently. Are those gains tax-free?
It also opens up an interesting loophole for companies with cash streams in other currencies, if those currencies are falling in value relative to the dollar. They can cover their local costs in local currency but then convert profits to USD and declare a loss for a tax writeoff.
Specifically: a tax write-off that is not also an actual economic loss.
But NFTs...these become a kind of volatility cold storage.
I'm not trying to mentally hack tax law, I'm suggesting that the law as described in an example by a journalist would show cryptocurrencies are not currencies, and now that the US is making enforcement a priority, they are collapsing the uncertainty bubble in which the whole market has operated.
The invention of cryptocurrencies was a tax revolt to begin with, and it probably makes more sense to look at policy through this lens than any other.
It's called a cost basis.
Unless you are suggesting purchases made with Bitcoin (that aren't converted to fiat currency first) are taxed, which I'm not sure is the case.
I'm not sure whether the IRS would buy that argument. If you won $1M (in chips) at a poker tournament I doubt the IRS would let you report your winnings across 10 separate years to reduce your marginal rate. The tax is on income, which is earned when you won the tournament, not when you cash out the chips.
Taxes are there to support the infrastructure that powers a country. If someone opts to not pay their share of taxes and leave, they are also not using the infrastructure paid for by taxes. Effectively, if you want to drive on nice roads, have consistent access to clean water and power you can pay taxes.
If you don't like ALL the things taxes are used for you are welcome to leave and go elsewhere.
Yes because customs and immigration will just welcome you with open arms.... /s
Country X isn't willingly keeping people because countries Y and Z won't welcome a person in. If you want to live in a country you have to abide by that country's rules. This includes paying taxes as defined by that country's tax laws.
Beyond that, I see no value in the points you're making here.
Even if I leave, if I stop using any of its infrastructure for the rest of my life, I'm expected to pay U.S. income taxes on my income. (Some, but not all, can be excluded.)
I genuinely can't get away from it.
And even if I could, you say that like there's some other place to go that doesn't impose its own taxes.
Just because every government has agreed they should ALL have the rights to take money from people who happened to be born there, it doesn't make it somehow not force.
Even if there is not a single thing I think government is uniquely qualified to do that could not be done better by private industry, government is still going to take money from me to do it its way rather than letting me come up with other ways to meet my needs, again, all based on the accident of where I was born.
It seems disingenuous to me to look at that reality and call it anything other than force.
And if you were doing large volumes of cash exchanges as a business you’d be in trouble if you didn’t account for the cost basis.
But I tried one of those bitcoin tax websites this year, and was pleasantly surprised how seamless they made it. After paying and importing my data I had the full tax forms in minutes.
Thankfully I didn't owe anything for it last year because it was a temporary panic sell during the big dip from the pandemic happened last March or April, so I basically broke even for taxes, but thankfully I came to my senses a week later and bought back in again, so I still got to fully benefit from the bull run this past year.
But yeah, it's not worth taking the risk of getting audited, imo. I still wish it weren't a taxable event just for switching which crypto you're in though, especially if it's on the same exchange, and only got taxed when you buy goods or services take it out to USD, but oh well.
You're describing section 1031 "like-kind" exchanges. Not available for crypto, and not available for stocks either, so it's not like crypto's getting unfair treatment here (compared to stocks). You have to do the same detailed reporting you describe for stocks.
Also if I have to report every single 401k purchase I ever made when I'm in my 70s when I finally cash some of it out, that's going to be a pain in the butt (I assume 401k is an exception to the rules). I basically treat my crypto purchases as another form of 401k right now (without the penalties).
The 401k works differently, as you noted. The money goes in pre-tax and then you pay income tax when you take it out. It's basically a way to defer your income, let it grow in the stock market, and pay taxes later. Roth IRA is a little similar--you pay income taxes before you put the money in, you let it grow, but you can take the money out tax-free (subject to conditions).
https://www.investopedia.com/articles/forex/09/forex-taxatio...
There are exceptions for small amounts of money used for personal reasons, I think it's $200. So if you travel to France, buy Euros, and then return to the US, and buy dollars with your leftover Euros, it won't be enough dollars to get taxed.
but today there's little reason to have too much cash for the average traveler, I'd think. I have a few Romanian lei in my wallet, but not enough to be taxable :)
I'm not an expert at this, so I'm fairly curious to some similar edge cases like, what if you open an EU bank account, convert 100k USD to Euros. The Euro/USD gains a few basis points and then you buy a car. Are you taxed on the delta between when you bought the Euros and when you "sold" them? Is that any different than the (former) situation where you could buy 100k worth of bitcoin, then use the bitcoin to buy Tesla? Both are assets that appreciated vs USD. Stocks seem pretty simple, because you always have to convert back to USD, but what if you don't have to convert?
Duh - forex - yeah - had folks in our Coworking space that were doing forex a few years back, and... I never connected that with what I was thinking. I was more thinking just... if I travel - if I buy some euros, then sell then when I get back and there's a profit (or loss) is that a taxable event? But... professional trading, yeah, seems obvious.
I don't have enough to stake for the rewards to be worth the time hassle of dealing with this.
Seems like illiquid airdrops are a good way to screw someone over in the eyes of the IRS, lol
In comparison, paying taxes on stock gains is pretty easy because the brokerage generates a 1099 with all the calcs done for you.
Nowadays, I see a lot of people just borrowing against their holdings to avoid triggering taxes, especially for long term holders who might be up 1000+%, there's really no point in cashing out, since a significant chunk will just go to the gov (especially if you're in California or New York).
If I had put 100k in, my coins would be worth 1M. Even if my taxes were 30%, I'd be walking away with 730k. That's an astronomical gain.
A tax is a fine for doing well.
If you fail to pay the subscription fee for your gym, but break in to use the equipment anyway, it might.
You're pushing the analogy too far. You're not an autarky, there's plenty of stuff you have to pay for that isn't optional (e.g. food, shelter, etc.).
Salary taxation usually means you are earning your dollars by being part of a functioning society.
There are billions of people who would happily become "subscribers" to a US job market, even if the offer required that 50% of their income was ritually burned for no benefit to the “subscriber”.
Now capital gains are perhaps a different argument…
You may have a tautology to clean up there, bud.
Please rethink signal-boosting off-topic comments in the future.
Not quite...now you still owe capital gains tax on the forced liquidation price (minus cost basis)! So perhaps a large part of your $82M draw goes into taxes.
That seems excessively risky. Let's say you borrowed some USD using bitcoin as collateral, and bitcoin drops. Then what? Presumably you've already spent the money so now you're in debt and can't pay it off because your bitcoin holdings have dropped.
This strategy, but applied to developing nation currencies and the dollar has ruined many an economy (ruble crisis, euro crisis, Asian currency crisis, etc). When your obligations are in a different currency than your assets, it's danger zone. People become blind to risk in a bull market - crypto can certainly drop 90+% and wipe out anything you have borrowed against it.
Doesn't this trigger a taxable event? If not it seems like it's pretty easy to bypass taxes by borrowing against your bitcoin and then liquidating it if it drops 1%. In addition to that, since it's a loan, you're theoretically stuck paying interest on it forever. Assuming 5% APR, you'd reach break-even in about 5 years.
It eliminates your exposure at the cost of ~25-35% (depending on where you live and potentially up to ~45% if Biden's plan passes), so it only makes sense if you're certain that the market will drop by more than that.
No it doesn't. Eliminating the exposure would mean your net worth would stay the same regardless of whether it goes up or down. That's the case if you sold your bitcoins, but not if you took out a loan.
The point of a tax is to redistribute the money a government thinks should be redistributed to account for externalities in the market (and support social / infrastructure programs).
> The point of a tax is to redistribute the money a government thinks should be redistributed to account for externalities in the market
That is not the point of a tax. The point of a tax is to raise revenue for government programs. That includes bombing children on the other side of the world, financing explorations to space, bailing out boeing and goldman sachs, etc. Nowhere in tax law does it say "redistribute to account for externalities in the market". Just because you dream something ought to be so, does not make it so, now or ever.
If you had X, you would pay 0.3X in taxes - if you got liquidated at 0.7X, you pay (0.7X * ~0.28 = 0.2X in taxes). So in this case your net goes from 0.7X to 0.5X, not stays the same.
What you can do is get a hedge (short via futures or options) on your long position to flatten yourself against the market (or part of your position) - basically creating synthetic dollars, and then take out a loan against that. The only problem is margin maintenance on the futures position or rolling the option for however long you need the loan for (Likely you would do this option if you want to spread out liquidating your crypto over multiple years for more favorable tax treatment).
Perverse incentives setting us up for disaster. I don't really care about crypto until it becomes heavily leveraged, after which it's basically 2008 again.
No credible bank is going to leverage to speculate on crypto. They might create products to let their customers do it, but they’ll make sure their books have little exposure.
They are selling shovels; not panning for gold.
That'd be a fun principle applied to stocks. Pay less in capital gains as more leverage is employed. That's a wacky feedback loop to throw into any market.
I've used Coinbase so far to learn about crypto, and I fully intend on paying all taxes owed, but Bisq seems like the next best on-ramp if it can help avoid the headache of treating crypto transactions like stocks rather than currencies.
Of course I understand the sentiment that people should pay their taxes to society, but I wonder if this is not just going to result in an escalating arms race. This was prevented with dollars since most dollars earned by the populace can be traced back to a paystub, but once you've earned crypto in an anonymous transaction, it seems like a losing battle to try and tax any aspect of that.
I can't help but feel the IRS would be better served by taxing at the off-ramp like a sales tax at a POS rather than trying to fold this into an existing income tax structure. A government can kind of control a brick and mortar retailer or Amazon more so than an individual person who say sold a book direct to consuers for Monero or sold their car for ZCash.
Is the federal government prevented from creating a national sales tax for some reason?
There is some international pressure for other countries to tax crypto trades instead of just fiat gains. Indonesia and Korea are considering it. France has clarified that they will not. Switzerland doesn’t tax capital gains at all. The differences between countries will unfortunately have consequences for which economies and citizens lead or get left behind - unless it’s all bollocks and national fiat with dollar reserve is the future.
So who's laughing now, IRS? Come a get me.
P.s. needless to say - sarcasm
The more recent crop of folks that have made money in crypto don't tend to be among those ready to fight the IRS hard, they are softer targets. They are targeting the little guy on purpose.
Of course the DA's are gonna pick the easy wins with good optics and avoid hard targets and/or rocking the boat. That's just rational decision making.
You can either increase resources and create a police state or decrease the amount of prosecutable criminal behavior and have people complain that "there ought to be a law" about <pet issue goes here>.
1. Maximize collections. This is what they're doing: spending their resources on cases with the best expected ROI. If you have $1T in net tax misses, chase the easiest 75% and expect a 90% collection rate.
2. Deter high absolute tax avoidance. This is what you're suggesting: spend their resources to make a statement, even if the ROI isn't there. If you have $1T in net tax misses, chase the hardest 25% and expect a 5% collection rate.
I don't think you're wrong, as there's value in deterrence (i.e., sue the hell out of rich tax evaders, and even if you lose, maybe the next one will be less likely to push it).
Edit: really just wondering out loud, I don't have the answers here - our current system needs work
The problem with both of those is it isn't fair for some, specifically folks in the lower income brackets.
Flat tax is also funny. Because it doesn't mean getting rid of loopholes and deductions, it means taxing every dollar the same. Effectively raising the taxes on those making less. Right now we have a progressive tax rate. Where the first X dollars are taxed at A%, the next Y dollars at A+5%, and so on.
Deductions would still exist because at some point someone is going to make a good point that that money was just taxed. Or that the money went to the same goal as the tax would have. Deductions are there to find out what your taxable income is. It affects how much you owe because 10% of 900 is not the same as 10% of 1000.
Realistically you need to have an enforcement agency with some teeth because the wealthiest people can afford to move their own money around and skirt the rules, while poor people will be transacting with third parties that have an interest in collecting and remitting taxes. The grocery store would rather be in compliance with tax law, whether it's sales tax or income tax, but your private investment office doesn't have the same incentives.
For example, Bezos's $500M yacht might look expensive in absolute terms, but his net worth went up $74B last year. I'm sure that given the choice, he'd rather pay sales taxes than capital gains taxes.
I ignored deductions, including standard deduction. The point is the 0% capital gains rate isn't a magic loophole to channel billions through, it only has a small amount of room.
15% and/or 20% plus 3.8% is still less than the 22% to 32% range that a lot of people will fall into. And that 22-32% is on 100% of taxable income, there is no break on part of it.
The government is clearly incentivising long term capital gains here. The nice thing is it's easier than ever to get into a brokerage account and buy sensible funds without paying a lot of fees. Robinhood may have started it, but fidelity and maybe others will let you buy fractional shares in etfs as long as you're putting in at least $1. Mutual funds have let you do fractional shares for a long time too, but minimums are higher and $1,000 to get into a vanguard target date fund might be too much for some people.
Assuming 15% sales tax, no income tax collection.
Someone who makes 100k per year and spends nearly all pays ~15k via this sales tax or 15%.
Someone who makes 500k per year and spends 100k pays ~15k via this sales tax or 3%.
Someone who makes 10mm per year and spends 1mm pays $150k via this sales tax or 1.5%.
The lower income person pays a much higher rate, because they have to.
Secondly, they can accumulate more wealth much faster than they can spend. Plus they can play with things on a longer time horizon and move internationally. Like, say once the sales tax drops.
It's highly progressive: the average person owns zero of these things, and so would pay zero tax. It causes virtually no deadweight loss or economic distortion: the supply of these goods is heavily inelastic, in many cases totally inelastic, and so a tax will not disincentivize firms from producing more. And there's even a moral argument for it: these goods exist out there, in the natural realm, and so when somebody "owns" them it doesn't mean they created them through their own labor, it means that the government has granted them a monopoly to develop and use them, and the government should be compensated for enforcing that right.
Vast ressources will not necessarily prevent you from being convicted of tax evasion cf. Charles Kushner who evaded low 5 figures in taxes while being a centimillionaire.
I imagine they have some kind of algorithm or MI to assist in finding discrepancies based on historical wins/loses.
I doubt it's as simple as I made 10 million, therefore I am going to get audited eventually.
The automated flagging they use is tuned to find the common mundane violations, which tend to be by normal people with normal resources.
The tax strategies of the extremely wealthy are a good deal more sophisticated and don't lend themselves well to automated checks like these.
https://taxfoundation.org/irs-audited-12-million-households-...
Nope, they, unjustly, are not:
https://www.propublica.org/article/irs-now-audits-poor-ameri...
https://taxfoundation.org/irs-audited-12-million-households-...
It's less worth pursuing the ultra wealthy because they implemented the actual tax algorithm and paid every penny the law actually requires -- often zero -- when the algorithm is executed flawlessly.
For the disciplined tax planners to pay more, the code has to be debugged and simplified to eliminate these unintended but fully accurate results.
Culturally, I’m sure that the IRS wants to catch every tax cheat; it’s just that they lack the resources to try.
The amount you're threatening to tax them is literally the resources they have to mitigate that tax. If you want to tax them say 7 million, it's worth spending 6.5 million if it got that bill down to anything lower than 500K and if you ever had a way to hold them at gunpoint to get them to pay, they'd just move themselves and their HQ another country.
Taxes are only for the working class and the middle class.
Does this mean crypto will never be able to compete with USD as a currency? Since it has this added tax on transfers?
Scroll down to personal purchases.
"Currently, tax code allows taxpayers to exclude up to $200 per transaction for foreign currency exchange rate gain, if the gain was derived from a personal purchase, like a cup of coffee. This is known as a de minimis election. But there is no “de minimis” clause that exempts small transactions, which can create a very tangled tax problem if one is constantly trading crypto and also using it to buy goods and services."
Of course keep reading & note the part where you can't deduct a loss either if you buy BTC at $60,000 & then it goes down to $50,000 because Elon Musk tweeted while you were buying a coffee or pair of jeans with your BTC.
I think the best option is types of indirect taxes. I just don't have a great idea for this.
In my opinion, crypto is something very new in human history and most people still haven't really wrapped their minds around what it actually is. Most people are still calling it "crypto-currency" and I think that's a very bad label.
Crypto was invented as a digital currency and that's how most people conceptualize it, and the system taxes it as a security, but IMO it's better thought of as a technology platform. The biggest value of crypto isn't so much as a medium of exchange (though that's still very important) but as a distributed technology platform that enables things like smart contracts to run and the natural consequences of that like oracles.
I don't expect the current generation of politicians to understand what this means. Even a lot of very smart nerds are really just starting to understand what smart contracts can be used for and why that might be so important and the societal implications of oracles and other things like that.
To me, taxing every single crypto movement is as foolish and destructive as taxing every HTTP request would be during the formation of the Internet.
Bitcoin's goal is to offer an alternative to government controlled currencies that's dependent on the whims of a few central bankers/politicians. It's not even remotely close.
As assets go down, the more people scream crash.
I've found these to be great signals of who to avoid getting investment advice from.
The psychology of the people so dead-set against crypto is very fascinating to me, especially on a forward-thinking technology forum. You'd think that people here would be the first to recognize the potential good that comes from things like smart contracts or other unique applications of crypto.
We can't read minds of course, so this is just speculation from my own biased human perspective, but I think that people who are so virulently dead-set against crypto are IMO usually seething no-coiners who are mistakenly of the belief that they totally missed the boat on potential wealth and they're so butt-hurt about it that they want to prevent others from succeeding. Crab in a bucket mentality, so to speak.
In my opinion, what those folks would do well to understand is that we're still very early.
PS: Nothing personal against anybody is intended with the comments here, just want to comment on my opinion of peoples' general thought-processes, which is fascinating.
Even baseball cards have an inherent value, ie, the cost of the paper that the card was created from. You can eat the card or you can burn it as tinder in the worst case. With a tulip bulb at least you can grow them and look at them You can also eat tulip bulbs.
With Bitcoin you literally have nothing because it’s completely virtual. So people are speculating over the value of something that is just a mathematical calculation.
Anything like that can change in a heartbeat. People can collectively decide that it has no worth and then you’re stuck with nothing. That’s what happened with tulip bulbs overnight. One week, people were buying houses with tulip bulbs and the next week they were worthless.
And yes, I know the argument behind USD and it being a fiat currency. But I don’t subscribe to it because it has critical mass.
We have seen the same thing over and over again in history with stuff like Bitcoin. Dotcom bust, housing bust, etc. I don’t believe Bitcoin will be anything different.
When Bitcoin is actively being used as a currency and not speculation then that’s when I will change my mind. Until then it’s a fad that will eventually go to zero. I believe the US government and other governments around the world will ban its use and use terrorism and money laundering as the key reason. It will go to zero soon afterwards in my opinion.
I don't see this as a good argument because all value is subjective. Value is not a property of nature that can be measured by an objective measure: it's a subjective assessment. There's no inherent value to anything, whether fiat, crypto, or even precious metals: it's all subjective. If you're defining inherent value as functionality, crypto has significant utility through its mostly unique attributes, such as being permissionless, trustless, and borderless, among others. Without anybody's permission, I can send crypto anywhere in minutes (or even seconds, depending on the tech chosen). As useful as fiat and gold can be, try doing that with anything other than crypto.
> People can collectively decide that it has no worth and then you’re stuck with nothing.
Of course nobody knows the future and literally anything can happen. Who would have thought that in CURRENT_YEAR there'd be a series of events taking place that would make you a criminal to enter a bank WITHOUT wearing a mask. Maybe Elon Musk can figure out how to mine asteroids and gold/silver might drop in value to near zero. Or maybe the dollar might inflate its way to oblivion (IMO heading that way) like many fiat currencies have done before. Of course, crypto might significantly drop in popularity too...who knows....but I think there's enough people out there that want a medium of exchange that cannot be inflated. If you're not yet angry about your savings being reduced to print ~infinite money, you will be soon. Bitcoin, as one example, is an asset that cannot be inflated: until the end of time, there can only ever be 21 million of them.
> We have seen the same thing over and over again in history with stuff like Bitcoin. Dotcom bust, housing bust, etc. I don’t believe Bitcoin will be anything different.
You can believe this, but IMO this is a bad argument and a fundamental misunderstanding of what the business cycle is caused by...this is a property of fiat, not crypto. When the government's national bank inflates the money supply by increasing the supply of currency, it reduces the rate of interest and can increase the price of some assets. This malinvestment is the boom and bust cycle we've seen in many other assets. Unless you're talking about some specific crypto that doesn't have a maximum number of units of account, this is impossible through crypto.
> When Bitcoin is actively being used as a currency and not speculation then that’s when I will change my mind.
I'm literally scratching my head because Bitcoin has been used to exchange goods and services for years now.
> It will go to zero soon afterwards in my opinion.
Cool beans. This is not financial advice, but if you want to make money on your hypothesis, you can short Bitcoin and make an absolute killing if you really believe that.
Do you expect it to be worth that much on day 1? No! It will grow to that level. And what happens between the 0$ value and trillions? It acts as a store of value with a great upside. Once it gets closer to it's real value, it starts to act as a means of exchange and currency.
Just because something is virtual doesn't mean it doesn't have any value. There's lots of virtual things that people value highly.
They can ban it all they want, they can't stop it, that's the whole point of the exercise.
That certainly is one reason and probably the main one, but I guess there is also the activist types where they feel so strongly against something that they spew vitriol against the great demon that is destroying humanity in some way. They just happened to latch on to crypto.
But they're prettier to look at (or at least the tulips you grow from them are). Especially the mania ones, which had some kind of disease that made them brilliantly multicolored.
[1] https://www.irs.gov/individuals/international-taxpayers/freq...
Perhaps exchange #1 could hold a database with bitcoin addresses and PGP-encrypted information about the bank accounts/mailing addresses of cryptocurrency holders.
Exchange #2 could hold the private keys of those bank/home details while receiving withdrawal requests and reimbursement for distributing bitcoin
The bitcoin holder can then request exchange #1 give a withdrawal request to exchange #2 in such a way that no exchange has enough information to connect a person to a bitcoin wallet.
Maybe I'm overthinking this; is there already a way that tech-savvy people can use Bitcoin in a way that's impossible to be tracked when converting to cash?
Explain to whom?
"Illegal activities: Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Schedule 1 (Form 1040), line 8, or on Schedule C (Form 1040) if from your self-employment activity"
They thought of everything!
They added this clause and then ended up catching Capone for tax evasion.
https://www.forbes.com/sites/kellyphillipserb/2020/10/17/al-...
You are probably thinking it's like where contact tracers or census workers or whatever aren't supposed to report illegal immigrants because it's more important that they get accurate info than report people to ICE. I don't think that's the case with the IRS, they're probably more than happy to let other agencies know about your illegal activity.
"If you tell the IRS you made $1 million from stealing money or dealing drugs, does the agency tip off the cops? Legally, it can't, unless a law-enforcement agency gets a court order granting it access to a specific taxpayer's return. The IRS isn't supposed to proactively alert other agencies about misdeeds unless terrorism is involved. In that case, it still needs a court order to disclose anything, but the IRS can initiate the legal process on its own."
I have no idea if it is still valid or not.
I did this for multiple years, and some of the volunteers had been doing tax prep for over a decade. The same clients came in year after year. If we couldn't guarantee that their tax information was safe from ICE, they would definitely have stopped coming.
Definitely. What you’re describing would certainly be a conspiracy to violate all sorts of American laws and is punishable by a lot of time in jail. Add one more layer to your process and you qualify to be prosecuted via RICO laws!
Why do this on behalf of a bunch of random folks you’ve never met?
But there is a positive externality associated with Bitcoin, in that it serves as a check and a balance against authoritarian governments, present and future.
Hence why it's important to ask these questions.
Yes it is, Bitcoin miners are overwhelmingly located in China and powered by highly carbon-intensive coal plants. The costs of those emissions are not borne by the transacting parties, because they are global and intergenerational. Regardless of whether Bitcoin miners pay for their coal-powered electricity, their revenue is effectively subsidised by externalities. The higher the demand for Bitcoin, the greater those externalities.
Personally, I am not aware of any currency that does not have externalities, most currencies have a sizable body count from the wars required to preserve their value. Presumably, once Bitcoin is fully mined it may end up having the least externalities of any currency, past or present.
The "mining" is of "new" Bitcoin is utterly and completely irrelevant to the the power consumption. The power consumption is the goal, in order to verify that enough power has been sacrificed so that one is allowed to update the ledger. The "new" Bitcoin is an addition to the ledger without a corresponding subtraction, a creation of something from nothing, done as an incentive for transaction validators to spend such tremendous amounts of electricity. As that incentive goes away, transaction fees will increase in order to cover the cost of electricity.
At all times, cryptocurrency resource consumption must be proportional to the total value represented by that cryptocurrency. Anything less than proportional, and the network would be vulnerable to attack. This is independent of the particular mechanism used to incentivize the waste of resources.
Either double theoretical, paper wealth or lose actual time to a jail. One of those is realer than the other.
Avoiding taxes is critical, but breaking the law is foolish.
The more "illegal"/gray crypto becomes the less it is worth, the worth (at least at todays scale) is due to the ease of use/popularity. It's super easy to buy 1 BTC right now, go back 5 years you basically needed to know someone who knew someone or be part of a forum and hope the other person didn't scam you.