Published On: Tue, Jun 14th, 2016

Bitcoin, Taxes And Government Spending

I admit, I had a hard time wrapping my brain around Bitcoin. At first I just thought it was an underground mechanism to obfuscate the purchases of illegal substances. The more I delved into it, however, the more I understood what a powerful idea it is and how it will transform politics and economics.

My first hurdle was understanding how it had value. I hear a lot of concern that Bitcoin is not ‘backed’. People throw this concept around as if it is the definitive component of money. What they don’t realize is it is backed, but in an alternate way, and secondly, how the dollar and other central bank currencies are ‘backed’ is what makes them disasters. When we examine money closely it becomes clear that it is simply a form of agreement, a method of communicating value, so that goods and services can circulate through the economy. Our current money situation actually chokes that process, whereas Bitcoin invigorates it.

In the evolution of money, we’ve seen currencies as simple as broken sticks, beaver pelts, picture paper and most recently EMV card technology. None of them have particular value outside of the beaver pelts, but try to use a pelt to buy lunch today. However, when people agree that something has value, it does. The dollar is backed by the ‘full faith and credit’ of the United States. What does that mean? Not much anymore.

Bitcoin Image/CASASCIUS


The dollar is no longer tethered to anything of value to give it worth. What’s worse is that when the US needs money it has the legal power to print it but it doesn’t merely do that. The US Treasury prints more money, then borrows it from the Central Bank in the form of a bond. This bond charges interest. When this happens, all dollars become worth less than they were because there are more, plus the money has a built in debt which is inflationary. Therefore the money borrowed isn’t worth the amount owed immediately and everyone except bankers lose wealth.

People often say that we need to return to the gold standard because of the previously mentioned fiat currency. Well, that is no panacea. We often think of gold and other commodities as having intrinsic value. But with gold, outside of its use in technology, which is a relatively recent phenomenon, its value is just as subjective as anything else. If people want it, it has value. If they don’t it doesn’t. So backing a currency with a pretty rock is still a socially constructed form of value.

Meanwhile, the Bitcoin was created as a finite currency. You can’t just fiat more of it. There will only be 21 million Bitcoin in circulation once all are mined. And because they are ‘mined’ and not created by fiat through a central bank, Bitcoin is decentralized currency. This eliminates the ability of the government or a group of wealthy elites manipulating the currency through quantitative easing.

Additionally, Bitcoin is crypto-currency, so it has characteristics of cash. This protects our privacy in a world where everything we do is monitored and documented. With Bitcoin, the transaction ledgers are completely open source, but the identities of those who make  the transactions are protected using math algorithms instead of personal information to create your accounts and identities. This not only protects our identities in an ever intrusive economy and political environment, it shields against the rise of cybercrime, which cost us an estimated half a trillion dollars globally.

photo https://en.bitcoin.it/wiki/Main_Page

photo https://en.bitcoin.it/wiki/Main_Page

Many people dismiss this cyber protection and cryptography as the need to hide because your actions are illegal. This is overly simplistic. Beyond the argument that consenting adults should not be restricted in behaviors that don’t harm others, the fact is, in our current system a yard sale is technically illegal because it circumvents sales and revenue tax.

What Bitcoin does is create a global yard sale. You can buy a computer or pizza in various places with Bitcoin and there is no or tiny transaction costs because the transaction isn’t verified through a bank which wants its cut. Instead, transactions are verified through the network created by mining. This extends to cross-border transactions so money doesn’t have to be exchanged and value isn’t immediately gained and lost due to government manipulations.

This global yard sale would be relatively worthless if nobody could attend. That’s where mining the Bitcoin creates value. Like with email, it is only useful if other people have email addresses. If you are the only one with a computer, email has no value. With Bitcoin, the miners solve math problems with their computers that unlock Bitcoin and distribute it into the network via a lottery. By doing it this way, more people participate and therefore, the currency has more value and relevance. Despite this, the government hasn’t yet defined it as currency and therefore it isn’t subject to taxes.

The government is in a bit of pickle with this too. If they label it a currency, then they admit that money doesn’t have to come from the central bank and the treasuries. If they don’t, they have no tax authority although they recently declared that Bitcoin must be reported as property and subject to property taxes. Either way, because the encrypted nature of the currency it is impossible to determine who spent what where. That adds an additional challenge to taxation.

Northeastern University recently created a list of the pros and cons of crypto-currency but ultimately, we see that most of the disadvantages stem from its relative newness and therefore a lack of confidence in the currency. However, the advantages are many, significant and with time they will overcome the lack of confidence once people become more familiar with crypto-currency and experience it.

Guest Author: Jerry Mooney

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About the Author

- Writer and Co-Founder of The Global Dispatch, Brandon has been covering news, offering commentary for years, beginning professionally in 2003 on Crazed Fanboy before expanding into other blogs and sites. Appearing on several radio shows, Brandon has hosted Dispatch Radio, written his first novel (The Rise of the Templar) and completed the three years Global University program in Ministerial Studies to be a pastor. To Contact Brandon email [email protected] ATTN: BRANDON

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