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>Bitcoins have no intrinsic value. Part of the value is in their utility as an anonymous currency: try taxing the guy that's paid in Bitcoins. Another part is

>Bitcoins have no intrinsic value. Part of the value is in their utility as an anonymous currency: try taxing the guy that's paid in Bitcoins. Another part is the integrity of the currency: the currency is backed by math, rather than men, and not subject to hyperinflation resulting from corruption (i.e. the US Fed can create money out of thin air, but there is no authority that can create Bitcoins out of thin air: they must be mined).

achompas 15y ago
I didn't downvote you, (I don't think I'm allowed to!) but the "US Fed" (the Federal Reserve) does not simply add $X million to the money supply--it actually purchases Treasury bills on the open market. The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money. Meanwhile, I've already discussed Bitcoin's potential as an alternative currency (or lack thereof) in other comments. If people demand Bitcoins as a "tax haven" from the government, then Bitcoins aren't long for this world.
- mcantelon 15y ago
  >The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money. Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply. >If people demand Bitcoins as a "tax haven" from the government, then Bitcoins aren't long for this world. It'll be interesting to see how the state tackles this. It'll be easy to drive it underground, but preventing its use will be another matter. Bitcoin transactions through a VPN seem hard to prevent.
  - achompas 15y ago
    Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply. As they should be, given that populations increase. Anyway, even if Bitcoins go underground, they'd have to be priced such that they'd be cheaper than other money laundering channels. Due to their finite supply, though, money laundering through Bitcoins will get very expensive. So their utility re: taxes will be squashed by either the government or the black market.
    - nkassis 15y ago
      I think this is a very important thing that people don't understand. Static money supply in a world where as you point it out population increases means deflation. And increasing popluation is only one example of the need for inflation. We create wealth all the time, people in other countries are buying their first car etc... the more goods are purchases and sold the more money you need. At least that's what I understand from my couple Economics classes.
      - mobileman 15y ago
        Bitcoins are divisible, so everyone's share gets smaller
    - sigil 15y ago
      > As they should be, given that populations increase. Is the U.S. Population increasing like this? [1] That's what the U.S. monetary supply looks like. More correctly, fiat money supply should ideally match total economic output, not population. But the GDP graph also doesn't look anything like that monetary supply graph. Given this, the BitCoin phenomenon is understandable: savers are looking for a currency that's not subject to manipulation and is most of all predictable in terms of supply. Whether or not it succeeds, I'm glad there's the pressure of a competing, not-centrally-manipulated currency. [1] http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D=AMBNS http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D...
      - acslater00 15y ago
        Actually money supply should ideally match total demand for money. Real economic output is not super relevant.
        sigil 15y ago
        Milton Friedman disagrees and measures inflation relative to output in his book on monetary phenomena [1]. Since you're an economist (right?) I'd be interested in why you think he's got the wrong measure. [1] http://books.google.com/books?id=ZNAhXe2pz1cC&lpg=PA196&ots=s51lXrnrkZ&dq=milton%20friedman%20money%20mischief%20match&pg=PA193#v=onepage&q&f=false http://books.google.com/books?id=ZNAhXe2pz1cC&lpg=PA196&...
- beagle3 15y ago
  > The net transaction is $0 (an exchange of currency for T-bills of equal value) That is only true if T-bills are generated slower than the rise of other money instruments. In the last few years, that has not been the case (and evidence for that is seen in the tanking dollar value compared to any other currency, including gold).
anamax 15y ago
> Part of the value is in their utility as an anonymous currency: try taxing the guy that's paid in Bitcoins. Easy - I collect taxes at the point where physical goods are exchanged for bitcoins or are used to deliver products. If you can't use bitcoins for food, housing, netaccess, or energy....
- cube13 15y ago
  >Easy - I collect taxes at the point where physical goods are exchanged for bitcoins or are used to deliver products. Or just collect the taxes at the point where it's converted from BTC to a real, government-backed currency. It's simpler, because there needs to be a paper trail there.
- mcantelon 15y ago
  >Easy - I collect taxes at the point where physical goods are exchanged for bitcoins or are used to deliver products. The state does this, but people already get around this by conducting cash transactions. Bitcoin creates another option for this.
  - anamax 15y ago
    > The state does this, but people already get around this by conducting cash transactions. Bitcoin creates another option for this. Govts tolerate a certain amount of black market because it costs too much to reduce the black market to 0. However, that toleration goes away when govts are seriously hurting for revenue.
rmc 15y ago
Easy. Lock the guy in prison till be pays you what you think you are owed.
rprasad 15y ago
The taxation of non-cash income has been a settled issue for decades (in the US). They would tax Bitcoin receipts the same way they tax service-for-service or service-for-property exchanges. The government will calculate the fair market value of the services/property received at $X dollars (based on facts and circumstances such as the amount exchanged in similar cash-based transactions), deem the taxpayer to have received $X in income, and impose a tax of $Y on that deemed income.
- _arturh 15y ago
  You forgot the part where the gov doesn't know how much Bitcoin you received.
  - mobileman 15y ago
    Until you convert to a currency that enables you to drink alcohol..
georgemcbay 15y ago
"try taxing the guy that's paid in Bitcoins" ...try hiring the guy who is willing to be paid in Bitcoins.

achompas 15y ago

I didn't downvote you, (I don't think I'm allowed to!) but the "US Fed" (the Federal Reserve) does not simply add $X million to the money supply--it actually purchases Treasury bills on the open market. The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money. Meanwhile, I've already discussed Bitcoin's potential as an alternative currency (or lack thereof) in other comments. If people demand Bitcoins as a "tax haven" from the government, then Bitcoins aren't long for this world.

mcantelon 15y ago
>The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money. Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply. >If people demand Bitcoins as a "tax haven" from the government, then Bitcoins aren't long for this world. It'll be interesting to see how the state tackles this. It'll be easy to drive it underground, but preventing its use will be another matter. Bitcoin transactions through a VPN seem hard to prevent.
- achompas 15y ago
  Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply. As they should be, given that populations increase. Anyway, even if Bitcoins go underground, they'd have to be priced such that they'd be cheaper than other money laundering channels. Due to their finite supply, though, money laundering through Bitcoins will get very expensive. So their utility re: taxes will be squashed by either the government or the black market.
  - nkassis 15y ago
    I think this is a very important thing that people don't understand. Static money supply in a world where as you point it out population increases means deflation. And increasing popluation is only one example of the need for inflation. We create wealth all the time, people in other countries are buying their first car etc... the more goods are purchases and sold the more money you need. At least that's what I understand from my couple Economics classes.
    - mobileman 15y ago
      Bitcoins are divisible, so everyone's share gets smaller
  - sigil 15y ago
    > As they should be, given that populations increase. Is the U.S. Population increasing like this? [1] That's what the U.S. monetary supply looks like. More correctly, fiat money supply should ideally match total economic output, not population. But the GDP graph also doesn't look anything like that monetary supply graph. Given this, the BitCoin phenomenon is understandable: savers are looking for a currency that's not subject to manipulation and is most of all predictable in terms of supply. Whether or not it succeeds, I'm glad there's the pressure of a competing, not-centrally-manipulated currency. [1] http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D=AMBNS http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D...
    - acslater00 15y ago
      Actually money supply should ideally match total demand for money. Real economic output is not super relevant.
      - sigil 15y ago
        Milton Friedman disagrees and measures inflation relative to output in his book on monetary phenomena [1]. Since you're an economist (right?) I'd be interested in why you think he's got the wrong measure. [1] http://books.google.com/books?id=ZNAhXe2pz1cC&lpg=PA196&ots=s51lXrnrkZ&dq=milton%20friedman%20money%20mischief%20match&pg=PA193#v=onepage&q&f=false http://books.google.com/books?id=ZNAhXe2pz1cC&lpg=PA196&...
beagle3 15y ago
> The net transaction is $0 (an exchange of currency for T-bills of equal value) That is only true if T-bills are generated slower than the rise of other money instruments. In the last few years, that has not been the case (and evidence for that is seen in the tanking dollar value compared to any other currency, including gold).

anamax 15y ago

> Part of the value is in their utility as an anonymous currency: try taxing the guy that's paid in Bitcoins. Easy - I collect taxes at the point where physical goods are exchanged for bitcoins or are used to deliver products. If you can't use bitcoins for food, housing, netaccess, or energy....

cube13 15y ago
>Easy - I collect taxes at the point where physical goods are exchanged for bitcoins or are used to deliver products. Or just collect the taxes at the point where it's converted from BTC to a real, government-backed currency. It's simpler, because there needs to be a paper trail there.
mcantelon 15y ago
>Easy - I collect taxes at the point where physical goods are exchanged for bitcoins or are used to deliver products. The state does this, but people already get around this by conducting cash transactions. Bitcoin creates another option for this.
- anamax 15y ago
  > The state does this, but people already get around this by conducting cash transactions. Bitcoin creates another option for this. Govts tolerate a certain amount of black market because it costs too much to reduce the black market to 0. However, that toleration goes away when govts are seriously hurting for revenue.

rmc 15y ago

Easy. Lock the guy in prison till be pays you what you think you are owed.

rprasad 15y ago

The taxation of non-cash income has been a settled issue for decades (in the US). They would tax Bitcoin receipts the same way they tax service-for-service or service-for-property exchanges. The government will calculate the fair market value of the services/property received at $X dollars (based on facts and circumstances such as the amount exchanged in similar cash-based transactions), deem the taxpayer to have received $X in income, and impose a tax of $Y on that deemed income.

_arturh 15y ago
You forgot the part where the gov doesn't know how much Bitcoin you received.
- mobileman 15y ago
  Until you convert to a currency that enables you to drink alcohol..

georgemcbay 15y ago

"try taxing the guy that's paid in Bitcoins" ...try hiring the guy who is willing to be paid in Bitcoins.