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BitCoin Under Fire

marginalrevolution.com

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Re: BitCoin Under Fire

#21

Post by orangecat »

Tichy wrote: post #19
orangecat wrote: post #6

Earlier quoted context omitted.

Aren't dollars just worthless pieces of paper? They are only worth something because people accept them as payment. Some of those people are the IRS, who will throw you in prison if you don't turn over a sufficient quantity of said paper. That guarantees a minimum level of demand for dollars.

I suppose they only charge you taxes if you actually earn dollars, so if you wouldn't earn anything, you wouldn't have to pay taxes? What I mean: you pay taxes with the dollars you earned, you don't have to buy dollars on some market to pay taxes.

IANATL, but my understanding is that you owe taxes whether your earnings are in dollars or euros or bitcoins.

Re: BitCoin Under Fire

#22

Post by jeromec »

Tichy wrote: post #18
jeromec wrote: post #5

Earlier quoted context omitted.

Aren't dollars just worthless pieces of paper? Apparently not. Try spending dollars in a store (both in the U.S. and many places besides) and see if it works. They are only worth something because people accept them as payment. Including the U.S. government as payment for debt. If the most powerful government in the world says dollars have value, it's not so easy to lose all of that value, even without it being a bac…

"Including the U.S. government as payment for debt." So what exactly can I get from the US government in exchange for dollars? (I am not a US citizen).

If you're not a US citizen dollars are not meant to be held as a store of value and trade (although some outside the US actually do use them this way).

However, to answer your question directly you can get interest from the US government in exchange for dollars by buying US Treasury bonds.

Re: BitCoin Under Fire

#23

Post by tgrass »

baberuth wrote: post #17
tgrass wrote: post #16

Earlier quoted context omitted.

http://en.wikipedia.org/wiki/Equation_of_exchange

sorry, I wasn't clear. I wasn't asking WHAT velocity of money is, I was asking someone to explain the author's velocity of money argument. i.e. transfering wealth out of btc accelerates the velocity. q, m, v, and p remain relatively constant in that transaction unless the liquidity event causes a persistent decrease in the price level (no evidence that the current BTC market could support it, but also c.f. above my c…

My reading of his argument is that bitcoins primary function will be as a medium of exchange, not as a store of value. Thus when any indiviudal has a significant amount of bitcoins, he will convert them to an asset class that does store value.

Re: BitCoin Under Fire

#24

Post by tgrass »

orangecat wrote: post #21
Tichy wrote: post #19

Earlier quoted context omitted.

I suppose they only charge you taxes if you actually earn dollars, so if you wouldn't earn anything, you wouldn't have to pay taxes? What I mean: you pay taxes with the dollars you earned, you don't have to buy dollars on some market to pay taxes.

IANATL, but my understanding is that you owe taxes whether your earnings are in dollars or euros or bitcoins.

From the Russ Roberts podcast (goo.gl/mNcQW), they discuss the tax issue. Apparently you're not taxed on bitcoins.

Re: BitCoin Under Fire

#25

Post by sgornick »

archgoon wrote: post #11

Okay, if I'm understanding how transactions work, all transactions are public, as they need to be validated by the P2P network. This seems to be a significant disadvantage, to say dollars, where no record of a transaction exists. Am I missing something (that's what I'm assuming)? Or is having a list of all transactions viewed as a strength?

Bitcoin wiki article on aonymity: http://en.bitcoin.it/wiki/Anonymity

Re: BitCoin Under Fire

#27

Post by nhaehnle »

tgrass wrote: post #24
orangecat wrote: post #21

Earlier quoted context omitted.

IANATL, but my understanding is that you owe taxes whether your earnings are in dollars or euros or bitcoins.

From the Russ Roberts podcast (goo.gl/mNcQW), they discuss the tax issue. Apparently you're not taxed on bitcoins.

Not right now, but that is simply because the volume isn't large enough to have attracted government attention yet.

There was a case some years ago in Germany where something similar happened. A local initiative introduced a local fiat currency, and initially people did not pay taxes on sales etc. in that currency. At some point, this got the government's attention, and soon after that, the tax advantage was gone. People had to pay their taxes in Euros.

Something similar will happen to BitCoin if it takes off. It may be somewhat harder to enforce for the government, but then again, paper cash transactions are anonymous, too. You still pay sales tax when you purchase something with paper money. There is no truly fundamental difference here to how BitCoin works.

Re: BitCoin Under Fire

#28

Post by nhaehnle »

baberuth wrote: post #13
hugh3 wrote: post #9

It's not the best-written criticism (incidentally, why was the title changed for submission?) but it has a point. Right now, Bitcoins ain't worth jack-shit as a currency in any denomination larger than "a few". If I have a hundred thousand dollars, I can buy a Porsche. If I have a hundred thousand bitcoins, I can't buy anything, because I doubt I'll find a buyer for a hundred thousand bitcoins. I'd be interested to k…

About 25k BTC trade daily on MtGox, and that is thought to represent roughly 1/3 of USD-BTC FX transactions daily. Keep in mind thats BTC-USD trades, not "notional value spent". Apparent largest transaction was 400k bitcoins: http://www.bitcoin.org/smf/index.php?topic=1346.0 It would be difficult to transact 100k BTC with one counterparty, but could be reasonably accomplished in a few days via electronic exchanges (m…

It would be interesting to know how much of this 25k/day trade is simply a kind of steady-state speculation, including attempts to exploit arbitrage. If somebody really wanted to change 100k BTC to $, it would likely have a disastrous impact on exchange rates.

The trade of US$ in the currency markets is on the order of several trillions per day. Now imagine what would happen if somebody truly wanted to exchange a few trillion US$ for Euros, and keep those Euros...

Re: BitCoin Under Fire

#29

Post by Tichy »

nhaehnle wrote: post #27
tgrass wrote: post #24

Earlier quoted context omitted.

From the Russ Roberts podcast (goo.gl/mNcQW), they discuss the tax issue. Apparently you're not taxed on bitcoins.

Not right now, but that is simply because the volume isn't large enough to have attracted government attention yet. There was a case some years ago in Germany where something similar happened. A local initiative introduced a local fiat currency, and initially people did not pay taxes on sales etc. in that currency. At some point, this got the government's attention, and soon after that, the tax advantage was gone. Pe…

I think the same happened to Linden Dollars (Second Life). However, I don't see a problem, as presumably they can only tax you on the corresponding dollar value of the currency. Like if you earn 1000 BTC and they are worth 1000$ at current rates, you are taxed for 1000$, if they are worth 0$, you are taxed for 0$.

Re: BitCoin Under Fire

#30

Post by aj700 »

As I understand it bitcoin has no seignorage. The issuers of bitcoin do not gain anything the way governments do.

Seignorage is the difference between the cost of production - for paper money it's very low - and the value that is bought with the money.

In the case of bitcoin, they are about the same and any difference doesn't go to the designers or to the issuing network. The network is "paid" in cpu cycles (electricity) and spits out roughly the same value in bitcoins. But giving more power to the network doesn't make them come out any faster. In short, unlike governments who use inflation of fiat money as a very regressive wealth tax of last resort, the runners of bitcoin aren't getting rich off this.

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