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New Post at Forbes: First of all, an investment in a bitcoin entity will be a gut-wrenching, difficult investment to make if a particular VC has an inherent fundamental belief in any of the following: (1) the cashless society as promoted by the anti-cashists; (2) capital controls enforced at national borders; (3) the appropriateness of any government monetary policy; and (4) the taxation of income.
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It seems my comment didn't go through on Forbes, which is unfortunate. I'll post it again here.

I think it's misleading to claim Bitcoin is incompatible with income tax.

Most people or businesses receive income via a salary, or via sales of some kind respectively. Salaries are hardly impacted by Bitcoin because companies typically tell the taxman how much they pay you anyway, and the tax is paid before it even hits your account (at least they do in some countries). These records can be audited the same as they are today - the currency used is neither here nor there.

For businesses, it's possible to incentivize tax collection by cutting purchasers in on the collection, so they report the transactions to the tax authorities - eg the business charges a sales tax of 20% and the tax authority rewards you with 5% for reporting, so the effective sales tax you pay is 15%. Whilst you could try and cut a deal with your customers to avoid the reporting, nothing stops a customer saying "sure, I'll stay quiet" and then reporting the transaction anyway - you couldn't know for sure. By definition, if somebody enters into such a deal they are somewhat untrustworthy.

So I'd appreciate it if you don't try and link Bitcoin with tax evasion in future. It's not helpful, Bitcoins public image is already bad enough, and it could cause people to evade tax and then get caught.
+Mike Hearn I understand what you're saying, but don't hide from the truth of bitcoin: it enables a method for transferring value that is completely outside of a developed nations infrastructure of banking, and can realistically be untraceable, and it does this in a way that would have been much harder before.

Obviously evading regulation is not a goal or a property of bitcoin itself, but the ability to do this if you wanted to do so is a very attractive feature and must be addressed if it's going to continue to gain traction.

Not addressing this issue will make it easy for any government to outlaw bitcoin as soon as it reaches any significant volume.
+Mike Hearn  (Also, blimey, that's a coincidence, you're an/the author of bitcoinj, right? I just started using it for a project a couple of weeks ago, thanks for your work on it!)
No problem, glad you find it useful. There's a ton of new code coming up! Hope you're following the +bitcoinj page :) 

Yes, Bitcoin offers great privacy, as a financial system should (and a decentralized system must!). That doesn't make it untaxable by any means, though other kinds of regulation may be difficult to enforce (I'm thinking sanctions here).
+Mike Hearn Of course, bitcoin is not incompatible with income tax anymore than paper cash is incompatible with income tax. As long as companies report their bitcoin and cash payments to the government, this may be true. But again, this is the honor system basis for employers and employees.

My thesis is that if a greater percentage of transactions were conducted in bitcoin (just as with cash) then governments would be more likely to shift to a consumption-based levy because their methods of tracking income would be diminished. You allude to this in your comment above regarding sales tax, but that is not an income-based levy. Governments will always find a way to tax and it might even be a per-head tax or an existence tax or a breathing tax. In no way, does my article link bitcoin to tax evasion.
+Mike Hearn Not sure why your comment didn't go through on Forbes. Please let me know if you want me to post it for you.
I didn't think that Jon's article linked Bitcoin to tax evasion either, but this is an interesting subject on many levels.

First of all, Bitcoin is not money. If you receive it in exchange for goods and services, it is more like an intangible barter instrument rather than money. Since it is intangible, you can argue successfully that you have received nothing in exchange for your work. It is therefore not possible to be taxed on income when you have taken Bitcoin (nothing) in exchange for your work, any more than you can be taxed for receiving the telling of a story or a concert of music, or a soft whisper in your ear in exchange for your labor.

This is obviously different to receiving physical precious metals issued by the State in exchange for your work, and yet, we can look to a recent case that went to court on this very act for insights in to how Bitcoin might be treated if people were to be paid in it.

In the Kahre tax case, a company paid its workers in US Government issued gold and silver coins. Since the face value of these coins is one thousand times less than the Federal Reserve Note value (in the case of gold), all the wages of the workers at that company fell beneath the reporting and taxation thresholds. They were taken to court by the State on multiple counts of tax evasion and other 'financial crimes', and won:

In the light of this, it would be hard to argue that wages paid in Bitcoin were /more/ taxable than silver and gold dollars issued by the United States Mint, when the State does not even recognise Bitcoin as money in the first place.

While we are at it, it might be possible to bring a case for tax evasion on gold and silver coins paid as wages by valuing them at the spot price on the day the wages were paid, but this is not how Federal money works; the face value of the money paid in wages is the value for reporting. That is why they won.

Do you see what they did there?

Then there is the matter of who owns Bitcoin as a system and the perception of it. The developers of services that run on Bitcoin do not own the Bitcoin system and are not responsible for what other people say about it or do with it. There is no pecking order that puts developers and their opinions above the opinions of the users of Bitcoin.

Some people believe in tight integration with the state, through licensing, registration, 'compliance' and other forms of disgusting, degrading destructive, irrational and anti-human regulation. Others believe that Bitcoin users and service owners would be better served by the ecosystem growing as the internet did; organically and exponentially, without regulation or interference from the computer illiterate luddites of the State poking their noses into other people's private business.

To say that linking Bitcoin with tax evasion is, "not helpful", implies that there is a central aim to Bitcoin that everyone must be on board with. Helpful to whom exactly? If someone's aim in developing Bitcoin and promoting it is to defund the State, then promoting Bitcoin as a way to prevent having your money stolen by the State is an /extremely helpful thing/. Everyone should promote Bitcoin to their constituencies and not concern themselves with what other people are thinking or are doing. Of course, the flaw in this logic is abundantly clear when you consider that the State will not let people who do not conform to its ideas live in peace. But that is another story.

Jon's pieces in Forbes, are the best pieces of writing on Bitcoin to date. They are compact, crystal clear, factual and informative, without being bombastic or overtly skewed to a political philosophy. Reading between the lines, I sense a pure Rothbardian hatred of the State, but that is probably just me projecting my own philosophy on his words.

Bitcoin changes everything. All of your assumptions about money, how it is moved, what it is and is not are blown to pieces by it. Rather than trying to squeeze Bitcoin into a Procrustean Bed, it is better to embrace it on its own terms and build services that work on those terms, and not on the assumptions and qualities of physical money or the demands of the State. Its analogous to designing a surf board to surf waves, or an aircraft to fly. What you would prefer these things to look like is of secondary importance to aero and hydrodynamics. The aim of a surfboard is to allow you to shoot the tube at Teahupoo and live. The aim of Concorde is to get you to London from New York in three hours instead of six. Bitcoin is designed to destroy the State. It is designed to destroy Western Union. It is designed to wipe out the banks. This mission is implicit in its architecture and design.

Accepting Bitcoin for what it is, on its terms, will enable you to build better, revolutionary and disruptive services that better serve people. You wil be able to identify these services by how close they bring you to the core of the service. The most innovative services will balance and blur the distance to the 'raw network' and the user experience. This is the sort of Bitcoin entrepreneurialism that we are going to eventually see, and it will not come from people who are trying to build a new kind of Bank.
+Irdial Discs Great summary and I agree! I think Mike Hearn was referring to the fact that large employers (like his employer, Google) would have an incentive to state/declare a 'value equivalent' paid for services so that the company would be able to legally deduct those wages on the expense side.

Bitcoin does not do much to alter a compliant company's reporting requirements to the government unless the company maintains an independent (and possibly covert) bitcoin reserve similar to Yamashita's gold during the Cold War.
Umm, Kahre lost. The fact that he wasn't fully prosecuted to the maximum extent possible can be considered a win, but at the end of the day the government decided that the government can make up its own rules, and you cannot use the face value of the coins to avoid taxes.
+Ron Helwig I think that the fact that the State can make up its own rules is part of the reason why Bitcoin was developed in the first place. Money should not come from the State, and its form should not be regulated by the State. Money is a commodity like any other. Its up to the people who use it to decide what shape it takes and what they will or will not accept as money.

Money is not a magic talisman that obeys secret laws known only to a cabal of economists or a coven of sorcerers. At least, not from the Austrian point of view. In any case all of this is moot. The State and its fraudulent money are on the way out. Which falls first doesn't matter, because the collapse of one will instantly be followed by the collapse of the other.
Exactly! That's why I created +Shire Silver and am getting into bitcoins as much as I can. The more we get away from government money the better off we all will be.
I'd love that. BTW, as of this last week I've been getting more orders for Shire Silver in bitcoins than dollars. Still no orders from Africa or Antarctica, but we've had orders from all the other continents.
I see a Star Trek like future where the entire world is united under one currency, a future where there is peace and no more wars. I hope bitcoin can make that a reality.
I'd add that there are a lot of other fringe "currencies" that are not clearly defined in the tax rules, and may vary from state to state.  

Simple examples include your frequent flier miles, gift cards, and virtual currency in online games that can be exchanged for a virtual good that has a monetary face value or equivalent.  

Although these are more traceable or written down by an entity (Airlines, merchants, gaming companies) - they sometimes have their own markets and exchanges.  If we can't define things that are now commonplace, how do we even address Bitcoin?
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