Bitcoin Forum

I was held by my high school friend to talk about Bitcoin.

His background about bitcoin is that Bitcoin being like a stock in a stock exchange, except that it is decentralized such that nothing governs over it to control the price or supply.

I was stunned by his question that he asked me,

"Does Bitcoin create a hole in the cycle of money on the economy?"

"What do you mean?" I asked,

"Generally, when you buy something for example a car using a fiat currency, a part of your payment returns to the government as tax."

"Carry on." I said,

"Well imagine this, let's say for example I bought a pen using bitcoin and not any fiat currency. Now how does the money return to the government through tax?"

Me being not economically literate (I do not research further through this stuff, I just know the law of supply and demand lol) could not answer his question, but I proposed that

"Well, maybe you've got to pay additionally using fiat currency to cover the tax that you've bought."

He agreed to that as he thought that might be possible, and then he continued

"That might be possible, but do you imagine that if everyone in the planet uses cryptocurrency the power of the government will weaken?"

"In what terms?" I followed,

"If everyone in the planet uses cryptocurrency to transact, then eventually no one / lesser people will get interested to fiat currency at all, until such time that almost everybody converts their fiat money into cryptocurrency, then nothing would return to the government as a form of tax. Now the government wouldn't have that much money to create infrastructures, etc."

This is what I need to know in order to answer him, because I need help from experts from around the field because I do not know much about economics. But I am interested for the answer for added knowledge to how Bitcoin and Economics work.

It all depends on how your government defined Crypto currencies. Usually when a government define Bitcoin as a currency,

they also implement some sort of VAT payment on all Crypto payments, so that would cover the tax part of the transaction.

Some governments define it as a commodity and levy a additional tax in the form of Capital Gains on the trade profits you

derive from Crypto trading. All transactions should still generate some VAT income.  ;)

Edit : Direct person to person payments will obviously be difficult to track, but in the end you still have to declare the income

on your year end tax return, so you will then pay tax on that.  ;)

Shops never see cryptocurrencies. They (crypto) are instantly converted to fiat so shops can make daily, monthly, yearly reports in local currency.

That brings me to this... I see a growning need for usdt alternative in eur.

It's also difficult to track the direct person to person payments if it's done in cash. In that case it's up to you if you declare it in your tax report or not...
Maybe cryptos (bitcoin) can be more easy to track if you compare it to the cash payments, so it can be better to the government if they can make people change the cash to cryptos (they won't prefer bitcoin, of course, but every crypto is more or less trackable, except Monero and a few other privacy coins, and of course governments won't promote the privacy coins...)

Well eventually money and bitcoin is almost the same and the difference is the state or realm that they are in. Money is on physical realm and bitcoin is on the digital realm but both of them are currency. Also both of them is taxable. If you buy a car using money and a part of the cars price is being sent to the treasury in form of taxes. Bitcoin also is like that if you buy a car using bitcoin then a part of what you pay is also taxable and will go into the treasury. If you dont believe that bitcoin is taxable you may read what is happening on the United States right now.

Bitcoin creation has a maximum limit in times of cycle of economy, and bitcoin saved in difference purpose that can be used or served as real money at the end of every investment made, secondly bitcoin is a crypto currency that is work in a digital currency online transaction basically on smart contract, peer to peer movement of circulation

Ok, what about no VAT countries? Yes there are countries that don't add vat to the value of the goods and services that you are buying. How would their influence get limited by cryptocurrencies? That's the first question.
The second one is the VAT rates. We have countries that function with a very low VAT. Japan has 8% for instance, while other countries have a huge VAT (Lithuania 21%). Would you say that Lithuanian government has more money to spend on roads and other stuff than Japan? Would you say that It's visible that Lithuania is rapidly growing thanks to its high tax rates?

Digest these two pints and you'll see that cryptocurrencies aren't limiting the government's abilities to do good, but they are limiting its negative influence and control. It will be harder for them to put pressure on the society once the money is no longer printed by them.

Its true that Bitcoin is free of government control and hence cannot be taxed, but BTC is not the only sector of economy and not all people will will turn fiat into crypto. there will always be those who will stick to fiat, and for everyone to change fiat into BTC then it means the government will have been  legalized. I don't think if its that much of a threat.

Just to add. Recieving payment in btc makes sense for small busniesses, who can afford btcs price fluctuation. And even this is only for those who offer services, not goods. And it gets worse, the bigger the company the less risk it can afford (price fluctuation).
Ofc recieving btc as payment will be possible for all businesses only when btc price will stabilize at 500000$/btc :)   

It completely depends on the shop. Even though they're a huge majority, I'm pretty sure not 100% of shops use systems that automatically convert crypto to fiat. Also, if ever cryptocurrencies get widely used in the future, I'm pretty sure some will prefer to hold crypto instead of fiat.

Also, USDT is definitely not the way to go. https://www.coindesk.com/big-fail-tether-might-still-cryptos-ticking-time-bomb/

Governments are already trying to find a way to tax out your hard-earned crypto gains and they're just trying to translate it perfectly so that no one will find loopholes and flaws in the system. The point that your friend raised is valid, however bitcoin and cryptocurrencies are still in its infancy, and most people around the world don't seem to find any practical uses for it yet seeing that it does the same as fiat and credit cards though without any intermediaries/owners etc. We are far from being a cashless society; tax dollars would still be collected by the government normally without any hitch. Assuming that we went full digital and crypto in the coming years, I'm sure by then, the governments have also developed a crypto of their own for the people to use.

Here in my country it is very funny because no matter how big the taxes are there were NO important infrustractures created unless it almost election time. Where a good road will be destroyed to build a new one and a damaged road left unattended for years unless election is coming. Also with the taxes of the people only those rich and greedy politicians becomes richer and the poor becomes poorier. This has been decades after decades of political dynasties ruling over my democratic country so all in all i dont really believe that bitcoin can creat a hole in the cycle of economy. It is actually the greedy and evil people who does.

That is a far fetched scenario and one that will most probably never happen. But you can bet your stars that if everybody does transition to crypto they will have a way of taxing it no doubt. If they didn't economies would collapse every which way and I can't foresee a dystopian future due to Bitcoin and cryptocurrencies. War, famine, disease, those are acceptable causes of ending the world and putting us on notice, but Bitcoin? Should not and will not happen, I think the world leaders are smarter than this.

I don't think it creates any kind of hole in economy because when people withdraw their money from the local exchanges, they actually do pay taxes in terms of FIAT. The tax rate varies from country to country and it is around 33% for my country while different for the rest of the nations. Also, government loses more money in terms of scams when people do money laundering. Bitcoin is just a baby in front of it. So neither Bitcoin nor Cryptos are creating any sort of hole in the economy of the nation.

I do not see the need to impose a tax for the implementation of small domestic transactions in the crypto currency. The tax can be imposed for the purchase of certain groups of high-value goods, such as real estate, cars, antiques, jewelry, etc. We do not pay a tax for the purchase of small items in the store, paying with usual national money.

Well this query is really good to be answered actually this question is the reason government don't like the bitcoin and other cryptos' as they can't control the transactions and levied taxes on them as per they wish as all the transactions are done without any involvement from the side of third partys like banks or brokerage houses. I think the only solutions for all these things to be managed with proper taxations is by regulating the crypto-coin by the countries governments themselves.

Everything you buy in life has taxes. This pen probably has its own taxes, and the stipulated price is calculated with the included taxes.
If you go to a supermarket and see the prices of rice, bread, and beer, for instance, the taxes are different between the products, but all of them have taxes included.
Even so, the pen manufactures obviously pay taxes, in their raw material, which happens to have taxes included too.
The light you pay in your house, it has taxes included (in Spain, for instance, is the incredible 80%), so if you use the light to build this pen, then you are paying taxes.

Taxes are everywhere. In every coke, you take, in every beer, in each clothes you are wearing. It doesn't matter how you pay for them, the taxes are included, so, regarding the pen, taxes are covered.

Regarding your initial question, Does Bitcoin create a hole in the cycle of economy? The answer should be NO. Of course, no. There are many regulations ahead which are going to be necessary if bitcoin wants to become mainstream or be used as a normal payment system rather of an investment product. But, regarding the cycle of the economy, there is no hole (yet).

What is the important role of the state in the country's economy? Regulation of the economy, stimulation of its growth, smoothing of crises. For this, in particular, the state has a monopoly right to issue the main currency. This tool can be used so that the country is flourishing. But at the same time everyone is forced to trust the right to issue a certain narrow circle of persons that no one knows personally. With all the ensuing problems and a constant desire to do everything in a new way (and in fact, the old, but with new people).

But you can also lay the mechanism of automatic regulation of emissions algorithmically into the currency itself. At the same time, the scheme can be very simple, for example: if the market volume increases, we reduce emissions; volumes fall - we increase emissions. By analogy with the automatic regulation of the complexity of mining, which allows you to more or less accurately adhere to a clearly defined volume of emissions. Such regulation can achieve more or less stable value of the currency, which will allow the economy to develop much more fully.

This is all from the realm of fantasy since governments of different countries will never allow such a thing! They will buy up the main shares of crypto-currency and control its price. And if they can control the price, then the whole meaning of the crypto currency is lost

Income tax, property tax (millage rate), sales tax and tons of other tax can be easily traced and must actually be reported or else the person can be prosecuted and face huge amount of penalties. Direct taxes can not be imposed on bitcoin, but the government can still tax consumers/producers indirectly. So i don't any issue when people starts using crypto currencies instead of fiat - like i said they will still have to report their taxes. And if someone still talks about tax and government, just hit them with the dead weight loss issue.

Yes its true, this creates a hole in economy if the government did not legalize bitcoin because they can't impose taxes on tranactions so in order to control bitcoin the gov't should legalize first for them to enforce the law on establishment to obey and pay taxes.

Your friend has a great curiosity. It's a good discussion to have.

First, taxes are participatory. They require the income earner (be it your friend or the business he purchased that pen from) to pay the taxes to the government. So the hole your friends speaks of isn't driven by crypto currency, it's driven by people wanting to evade paying their taxes!

Second, crypto currency makes the flow of money across borders easier. The market is opened up, which means earning and spending can happen more freely regardless of border...this feature will spread the money around and open the opportunity for tax obligations to be spread to other countries. Which will help some countries more so than others.

But this isn't a hole in the cycle of the economy.

And in pure economic terms, a freer market is a stronger market. Cryptocurrency creates competition in markets that have remained the same for decades, ignoring the technological revolution. It's time for whole industries to change as a result of cryptocurrency.

well, anything can happen. BTC tend to take the trust of people.

What about the the claim that a good currency needs to be stable? Users need confidence that the money they're paid in isn't going to lose its value. The argument is that Cryptos are so far too volatile to be useful as widely accepted medium of exchange.

I'm an enthusiastic bitcoiner as well, but I don't consider anybody with a different opinion to be economically illiterate.
Otherwise you're right on point. Bitcoiner should start developing their own knowledge instead of relying on other people to explain economics to them.

about what a hole can generally be said, bitcoin on the contrary helps to solve the problems of the economy!

This is ridiculous  ;) Many governments for years have had indirect ways to trace your income whether you declare it or not. So, in this way I don’t really see a big difference between good old cash that is traditionally used in the ‘shadow economy’/ ‘black market.’ Whenever a person tries to evade payment of taxes, s/he will easily succeed in it. At least for some time ;) But then the IRS and other authorities come into play. Remember Al Capone? Had he used btc, I believe the result would have been the same :) So, not to worry, btc just cannot “create a hole in the cycle of economy.”

I think that will depend on the government in each country considering cryptocurrency will evolve in the businees community and I believe that would be a part of the discussion when that kind of situation will be establisbed.  It would be normal for the government to tax the goods and services since that is just how government works.

Only there that it is not taxed and allows people not to share money with the state

On the contrary! bitcoin can help the economy in its development!

Does Bitcoin create a hole in the cycle of economy?

I don't think, and I would say No!

 For the simple reason that morally speaking a government do not own a right to cute taxes as he sees fit.
 ( I imply by that that if you don't want to pay taxes to a government , you have the right morally and legally to defend in first your action until a judgment (equitable) is pronounced. Not the repression that will inflict you the government )

 Secondly, If everyone in the planet uses cryptocurrency governments would not escape the rule.

Many economic expert already predicted that scenario, and the way to handle the problem is through regulation, too many crypto usage without regulation from government going to end up with economic instability, like crypto, fiat also need to be spend and circulate to make the economic healthier, without the flow it can cause serious problem

Great posts.. However, have you ever thought about a Tax free world and government providing money to people rather as a Universal Basic Income after the disruption of jobs through AI ?

It is a legit question that can across to the mind of any beginner.
  From the (production), the next bloc who will created, to the possessor of the last fraction of bitcoin from this bloc. The Bitcoin across  with so many events unknowns and unpredictable toward the "actual economy", and with gives that would act by so unpredictable and unknown way!

 That's why earlier in the beginning ,(2012 ~ 2014-2015), we'd remarked governments and decidants moving  in favor toward apprehend Bitcoin and integrate it (to the economic model).

So the Bitcoin is yet 8 years old, so the idea (I think), is that Bitcoin is good investment to the leading to the freedom of the peoples

Governments can always force business to add vat too what they sells in bitcoins. Just like they add vat to what they sell in fiat currency.
I can't see the big difference here.

Crypto itself can leave a hole in every country economic, for now the country can't control the money flow, and when they print more fiat, bitcoins just gets more expensive.

It can happen too. Trusting too much in e-money will neglect the basic money. The cash flow will have to flow further flow of the market. Only so can increase the revenue and profit of all markets. Especially electronic money in the financial market economy. Everything needs to be linked together so that economic development continues.

it all comes from the field of fantasy because governments are their own countries that are never allowed in such matters! They buy the very first shares of a crypto-currency and control their prices. And if they get the price, all the meaning of money in a crypto will disappear.