That is a non-issue.  Most (as in 99.99999999999999999999999%) of stock trades are exactly the same way.

You buy 100 shares of Apple, then 20, then 50, then 30.  Later you sell 60 which 60 are sold.  Broker report simply shows bought and sold, they don't give you assigned share numbers.

If you can't track individual shares (which you actually could with Bitcoin using coin control) it is FIFO. The IRS is fine with that as long as it is consistent.  So in the Apple example above the 60 shares would come from the 20 share buy and 40 of the 50 share buy. 

The basis would be the valuation used for the gross income that you declared.  I showed an example above.  It would never be zero.  I agree the IRS is being inconsistent here but there would be no double taxation.

No different than lots of other assets.   Keep good records.  When you file a tax return you don't file any "proof" you just say here is my capital gains, here are the taxes.   The IRS doesn't audit every tax return so yes people do lie about capital gains.  They do so every year in every asset class you can imagine.  Now if you get audited and you don't have sufficient records well the IRS is going to recompute your taxes using the worst possible method and throw additional interest and penalties.

So it is important to separate out "the tax code" with "can I cheat on my taxes and get away with it".  They are two totally different questions.   The more you make, the more likely you are to be audited.  If we are talking a couple Bitcoins it is very likely the IRS wouldn't catch on even if you were audited (they don't have magical powers).  If we are talking about tens of thousands of Bitcoins you should be using the services of a CPA. Period.

There are TWO taxable events.  The first is at the point you had taxable income, the second is at the time of the sale.

To expand on your example:

Say you mined 1 BTC today and the current exchange rate is $580.  That would be $580 in "regular income".  You can file this as a business and reduce that by the electricity and amortized hardware cost. Lets say your costs are $320.  You would file a Schedule C report the income, your expenses (like electricity) and the depreciation on your miner.  Lets pretend it works out to $320.  Then you would have a net income of $580 -$320 = $260 added to your other income (wages, tips, interest) and it would be taxed at your normal tax rate.

Now if you sold that coin today as well then you would have NO capital gain.  However lets say you held on to that 1 BTC for three months and when you sold it you got $900.   You would have a capital gain on the GAIN over the $580.  So $900 - $580 = $420.  On the other hand lets say the price had declined and you sold it for only $400.  You would have a capital loss of $180 ($400 - $580 = -$180).  The capital loss can offset capital gains and up to $3K can be applied against "regular income", the rest rolls forward to the next year.  If the time between mining and selling was greater than a year then those would be long term capital gains/losses otherwise they are short term capital gains/losses.

Note this isn't legal advice just trying to parse out what the IRS said.  It also doesn't mean I agree with any of it.  Just going by what was written and pointing out it is possible for there to be two taxable events.  It is very likely the IRS will need to provide some concrete examples with figures before this debate it put to rest.

Even if it is a single sale (i.e you sold 110 shares) it would be recorded as two transactions.

100 shares as a long term capital gain.
10 shares as a short term capital gain.

Yes it gets very complicated, and yes there is expensive software (i.e. gainskeeper) to make sense of it all.  If it is a lot of money/value we are talking about, get an accountant.

Pretty much.  FinCEN ruling was a stretch to begin with.  They wanted to regulate Bitcoin.  The most appropriate category would be a "dealer in currency" however the law for currency is airtight.  It would states (paraphrased) currency is the physical money of the United States or a foreign government.  A $100 federal reserve note is currency but even $100 of value in your bank account (or on a gift card) is not currency.  To fit Bitcoin there (which IMHO is where it is legally the most consistent) would require Congress amending existing laws and that might have taken years.

So they jumped through a bunch of legal contortions which would break the spine of an olympic gymnast to make the exchange of virtual currency for real currency, "money transmission".   It is important (to grasp the full lunacy) to understand FinCEN is saying the very act of exchange 1 BTC for $600 in value is money transmission.  Even if neither the Bitcoin or dollars are transmitted.  All that is required is the act of exchanging.

Their insane part is this isn't even consistent with their EXISTING rulings.  A business which exchanges dollars for euros is NOT a money transmitter.  FinCEN has even provided administrative ruling indicating so on more than one occasion. 

FinCen is willing to pretend that the following statements are consistent:
If you exchange dollars for euros, you are a currency dealer, NOT a money transmitter.
If you exchange dollars for bitcoins, you are a money transmitter, NOT a currency dealer.

Is it any surprise that every other governmental agency simply ignored FinCEN's "guidance"?

In QT client the chance is exactly 0%.  Change addresses (and requests for new address) are always pulled from the keypool not active keys.

Agreed.  Since the title of the thread makes no mention of salary it is very likely the OP just used that word as an incorrect proxy for "income".  It is more believable that ~15% of people claim that 100% of their income is in Bitcoins.

The best possible case would be someone who had airtight proof of owning bitcoins, that were later stolen.  The stolen bitcoins then ended up on silk road through no action or fault of the original owner and ended up in the bitcoins seized by the FBI.

It would be interesting because a judge ruling that bitcoins are property and not a bearer instrument, would likely rule that nemo dat quod non habet applies.  That would force the US treasury to return the stolen property.  Even if the DOJ (acting on behalf of the US Treasury) had already auctioned off the silkroad coins, the coins could be taken from the purchaser (and I am sure the US Treasury/DOJ will keep good records).

So you could actually see the US Treasury and DOJ filing briefs stating arguing that bitcoins are a bearer instrument and that nemo dat quod non habet does not apply.

Agreed. I am fairly certain the number of persons who's SALARY is 100% paid in Bitcoins is ~0%  I would love to be proven wrong though so if you receive a Salary 100% paid in Bitcoin please let me know.

Mining income =/= salary
Doing contract work (i.e. 1099 worker) =/= salary
Making a profit day trading =/= salary

A salary is wages paid by an employer (and that employer is subject to payroll taxes and withholding requirements).  In the US if you receive a salary you would also receive a W-2 at the end of the year stating your salary and the taxes withheld.

Nothing.

The IRS is saying THAT FOR THE SOLE PURPOSE OF DETERMINING TAXES OWED Bitcoin gains are treated as gains in property (aka capital gains).
A federal court also said THAT FOR THE SOLE PURPOSE OF DETERMINING IF A CONTRACT IS A SECURITY that Bitcoin is considered money.
FinCen has provided guidance THAT FOR THE SOLE PURPOSE OF DETERMINING THE APPLICABILITY OF THE BSA that entities which convert Bitcoins to "real" currency (and the reverse) are Money Transmitters (under federal law) but Bitcoins are not money.

These ruling don't have any relevance outside of their very limited scope (a good thing because they are in direct conflict with each other).

The applicability of US law when it comes to traced/recovered bitcoins that were stolen is as of yet undetermined in the US.  It will remain so until an old guy in a black robe makes a "wise decision".  Of course plenty of people can speculate one way or the other but until a judge rules on it, it is just that speculation.  Bitcoin isn't just cutting edge technology it is cutting edge in the legal arena as well.   

Gold and Silver are not money at least not anymore.   They fail #1 on your list.

What % of merchants accept gold and silver as payment for goods and services.  Please compile a list.  Would that % constitute "general acceptance" to you.  The number and scope of merchants which accepts Bitcoin is incredibly small but is far larger than gold and silver.

Is Bitcoin "money"?  I don't know I guess it depends on who's definition you use (there is no universal standard) but I think based on the properties you laid out in the OP that Bitcoin is closer to the definition of money than gold and silver are TODAY.  Now 500 years ago yeah Gold and Silver were money.  Maybe in 500 years they will be money again but they aren't today.

Of the eight properties you described Bitcoin is only inferior to gold or silver on one of them (#7) and for a currency that is less than six years old that isn't too bad.  If Bitcoin continues to gain traction and the markets get deeper and more liquid I would expect that #7 will improve as well.

An online address book wouldn't do any good.  Remember spending goes both ways.  If you generate a key which is in use (which we can safely say is so unlikely as to be infeasible) you could steal the funds of the existing keyholder (just as the existing keyholder could spend any funds you send there). 

So you find out a key you generated already exists?  What do you do delete the key?  Ok so the system now relies everyone to be honest.   Simply put if you EVER randomly generate an existing address, don't tell anyone.  Sell every bitcoin you own and THEN tell everyone because it likely means some kind of catastrophic flaw in the cryptographic primitives.   The infeasibility of not being able to duplicate a private key is a cornerstone on which the security model is based.

Having some kind of lookup and check would be as useful as having a "has the world been destroyed by a blackhole" app on your smartphone which will in realtime continually advise you that it hasn't happened.  As long as the app shows a green checkmark you can safely know the world hasn't yet been destroyed by a rogue backhole.

There are no fees hardcoded in the protocol. 

It doesn't.  However law of probabilities make the chance of a collision infintesimal.  Note this isn't something unique about Bitcoin, all public key cryptography works the same way.  You may have a much better chance of just mashing keys on your keyboard and producing the private key for htttps://google.com than you do creating a private key which is in use.  2^160 is more atoms than exist on our solar system.   If you need a visualization imagine you randomly selected a single atom from somewhere in solar system (it could be an atom of carbon in the dust bunny under your bed, or an atom of hydrogen in a storm of jupiter).  It would be easier for someone else to pick a single atom in the solar system and happen to pick the same one as you then it would be to generate the same 160 bit number.


If you generate the same private key (or one which produces the same pubkeyhash) then either you or the other party could spend the funds.  This isn't anything unique about paper wallets, the same thing would apply if you used an online wallet as well (how do you know the colliding address isn't a paper wallet which is unknown to the network).  The chance is essentially zero.  You could generate quadrillions of keys per day for the next billion years and not even have a 1% chance of a collision. 


Of course.  To check the "value" of an address you only need the address.   If there is a collision either you or the other person could spend the funds.  See above for why that is essentially a zero percent chance.

I can see that.  I will avoid wasting my time in the future.  Hopefully others found it more informative.

Greed isn't necessarily bad.  Greed is what drives people to create new companies and services.  Coinbase for example and its investors/backers is taking a risk.  The risk is they will lose everything (including years of hard work) however they (like all companies/startups) take that risk for the potential profits they can secure. 

Now unchecked greed is bad.  The good thing about Bitcoin is it is an open network.  If some miners get to be too greedy, other miners will undercut them.  If some miners are too risky (cutting margins too thin) they will go bankrupt and be replaced by more conservative miners.  That is how open free networks self regulate.   You either believe in free markets or you don't.  If you don't then no system like Bitcoin (or any decentralized system) can ever work, they are doomed to failure from the genesis block. If you believe in free markets then the greed of any individual actor is irrelevant.  They will simply price themselves out of the market.

No you are correct.  I was unclear.  IIRC a future version will drop the create limit to the relay limit.  We need solid relay support in the network before it is wise to make creation of new tx at that fee level so relay support always comes before creation support in the network.

It isn't greed.  Fees are a rounding error on miner compensation and any pool making six figures a year knows that.  Fees are used to prioritize tx and avoid spam.  High priority txs don't require any fee.  Roughly 20% of all tx (at the time of the post when I ran the query) in the past 24 hours paid no fee.

However lets imagine there was no fee, it was impossible to pay a fee until some future block.  So what happens when someone makes 48927490147289379328437894732498374983 txs for free involving 1 satoshi each.  We go to a 39829137902 TB blockchain in one year?  

Even more mundane say a given miner is only willing to make a 700KB block (because losses due to orphans are real and a much bigger impact on net revenue than fees).  Now lets say 701KB of tx are waiting.  Who gets into the block?  Pick tx at random?  So randomly you could have to wait 50 blocks before getting confirmed?  Sound like a good plan?  Or maybe sort tx by priority?  So the rich get unlimited free tx (having large old coins) and the poors always go last (having smaller younger coins).  The worse part is that since there is no fee system they have no way to EVER get ahead of the "bitcoin rich" in priority.

Fees (which are insanely low compared to conventional payment systems and a rounding error for miner compensation) serve a purpose to prioritize the critical resource which is space in the next block.   It is how free markets work.  Price control (even price of zero) never work.  They simply never work, you either end up with excessive usage (and someone else pays the cost) or you end up with resource shortfall and having to put in place artificial limits (think gas lines in the oil shock of 1970s).

The fee is higher for all traditional electronic forms of payment.