well i just typed up a bit explaining this paper i'm working on, but when i submitted it i got logged out and everything was erased
i guess its good to copy any longer posts before posting them on this site.
so basically i'm writing a paper that focuses on the controversy of bitcoins, i will be talking about possible tax/IRS problems for businesses accepting bitcoin; a US law the says it is illegal for currencies to be used the "competes with the USD";
also to start i will take a couple pages to explain what bitcoins are and how the are beneficial to use as an alternative to tradition money transfering.
any useful sources would be great, the legal issue section here will be helpful for me i noticed, i will try to find some sources their for my topic. thanks for reading, i am a little tight on time right now but i will be back to see any replies and to give some more explanation on what i'm doing with this paper.
ROUGH DRAFT
The Controversy of Bitcoin
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In 2009 the new currency, Bitcoin, came into existence. The producer goes by Satoshi Nakamoto, who wrote the paper Bitcoin: A Peer-to-Peer Electronic Cash System, in 2008 explaining the design of Bitcon. Although who Nakamoto is is a mystery, the name is believed to be a pseudonym and in 2011 he vanished (Evans-Pughe 1). A big motive for creating Bitcoin was the Euro crisis; Nakamoto did not have much trust in banks saying:
"The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve." (qtd. in Evans-Pughe 1)
Since the creation of the Bitcoin peer-to-peer network people all over the world have started acquiring “bitcoins,” the currency units in the Bitcoin network, by various means either to buy goods online, to sell for traditional currency, or just to hold onto for the future. There are a number of benefits and possible dangers to using bitcoins, as well as any “alternative” or “crypto-currency” for that matter. Whether or not this can be a good thing or bad thing, at this point in time, is totally up to the individual deciding whether or not to use bitcoins rather than traditional currency such as the U.S. dollar.
As a result the Bitcoin system has struck much controversy as it has become increasingly popular especially over the past year and a half. Some people foresee that, for a number of reasons, the use of bitcoins may become criminalized in the U.S. and other large countries. Some organizations that have once accepted bitcoins have now decided to refused them as a result to this growing idea( ). Several people say it is actually illegal to “create a currency that competes with the U.S. dollar” (Quittner par 18; Davis par 19). Obviously it would be impossible to pay sales taxes in bitcoins and the IRS doesn’t specify how to tax sales made using bitcoins, but that doesn’t mean business owners should be so sure that the IRS isn’t going to step in on their business when the IRS sees they aren’t paying sales taxes (Rounds). The real dilemma, as far as crime and bitcoins go, is that people can accept and spend bitcoins nearly anonymously, creating Internet black-markets accepting “untraceable” bitcoins rather than cash. So the term “money laundering” has become a popular way to describe the Bitcoin network (Elias; pretty much all sources). This controversy really poses the question people should ask themselves: should this new currency remain legal or be used only by rebellious criminals? Also for either possibility, what is in store for the future of Bitcoin? Before answering those questions, it is best to look at the hard facts of the matter because there is a flipside to every issue. In order to take a strong stance on what the legality of Bitcoin needs to be, it is very important to take a good look at these issues.
Clearly as anyone would agree on with this issue, a huge problem is that the vast majority of citizens are not so much aware of what a bitcoin even is. Yet powerful governmental figures are seriously considering prohibiting the use of bitcoins, and by the looks of it a drastic change in law such as this will end up going right over the majority of citizens heads simply because the issue is not getting enough coverage in mainstream media for the people to be informed. It is no stretch of the imagination that some politicians may want this issue stomped out before citizens are even informed about it at all. Keep in mind that there is something everyday citizens can do to affect this issue and that citizens have power to change laws and stop laws from being past, but only in vast numbers.
Why would anyone want to use Bitcoin? The main benefit for using bitcoins is that it cost factions of a penny or nothing in value to make a transfer of any amount of bitcoins. A thousand businesses in 98 countries accept bitcoin as payments with the help of Bitpay (Browdie). The exchange rate is volatile, so it goes up and down over time but over a longer period of time it tends to raise, so there is an investment opportunity. For example, If one were to purchase bitcoins in mid February this year and sold them in mid August they would have sold for three times the purchased price according to bitcoincharts.com.
Decentralized currency verses centralized currency. (note: need to write a paragraph explaining this)
“Miners,” who could be anyone that owns the appropriate equipment to download bitcoins as they are being put into the network, develop Bitcoins compared to how the US Department of the Treasure prints US dollars to be put into circulation. The equipment is not complicated, the components that a miner needs are a computer with Internet access and free software. Pretty much everyone can mine bitcoins, but to actually do it efficiently you need high processing speed that can be achieve by connecting as many video cards that you can find and afford to a computer. The rate a single miner will receive bitcoins depends on their processing speed and how many miners are on the Bitcoin network, because there is a limited amount of bitcoins being created worldwide at a constant rate of about 50 bitcoins per minute until the total in circulation is 21 million bitcoins (McCarthy 4:30). So once 21 million bitcoins are on the Bitcoin network there will no longer be miners. As of 2am October 31 2012 there were 10,291,400 bitcoins in circulation and one bitcoin had the exchange rate of about $10.79.
So what are the facts concerning “currencies competing with the U.S. dollar,” as Quittner and Davis put it? Is there actually a law that says this, and if so what defines a competing currency? Quittner gives no context for this quote, while Davis explains the actual case the quote Quittner used out of context:
In 1998, a Hawaiian resident named Bernard von NotHaus began fabricating silver and gold coins that he dubbed Liberty Dollars. Nine years later, the U.S. government charged NotHaus with "conspiracy against the United States." He was found guilty and is awaiting sentencing. "It is a violation of federal law for individuals . . . to create private coin or currency systems to compete with the official coinage and currency of the United States," the F.B.I. announced at the end of the trial.” (Davis par. 19)
In the case, NotHaus actually was creating coins that resembled U.S. dollars that were being passed off as actual U.S. dollars, in context the term “compete” is actually describing counterfeiting rather than alternative currencies. If most people were to look at the “Liberty coins” they would likely mistake them as rare U.S. dollar coins like half dollars and dollar coins (Liberty coin photo
http://www.howtovanish.com/wp-content/uploads/2011/03/Liberty-Dollars-multiple.jpg). In reality there is actually no law about different currencies competing with the U.S. dollar, it is just a misinterpretation caused by a quote being used out of context.
The issue with taxing sales made using bitcoins a really plausible reason to not decide to have a business accept bitcoins, even though it is not actually illegal to do so. It is possible to still pay taxes on sales made with bitcoin considering the business accepting them exchanges for traditional currency, this would be a safer way for businesses to go about accepting bitcoins but even that is not a fail proof practice and it entirely depends on the individual IRS agent who might be auditing the business at some point (Rounds). Although since most business accepting bitcoins will only be conducting their business online most of them shouldn’t have to worry about sales tax anyway in most places. Sales tax in most cases is not required on sales made over the Internet as long as the business does not have a storefront, depending on the location of the business.
The primary reason that bitcoins are so controversial and people are claiming them to be money laundering is because the relative anonymity, this depends on how people use them, of people who accept strictly bitcoins has made online black markets possible and extremely difficult for authorities to bring to justice. The reason for this is that banks or the IRS cannot see who is being sent bitcoins, meaning there is a sort of anonymity that can go along using them. This really is a problem for bitcoin, but this doesn’t mean that it cannot be solved in the future. Although, when stepping back and considering what exactly money laundering is: concealing the source of money obtained by illicit means, you can clearly see that merely using bitcoins is not actually money laundering anymore than using printed dollars are. Just because cash can be used to purchase and sell illegal goods doesn’t mean everyone using cash is laundering money, so why wouldn’t bitcoins be looked at in the same way? A currency is a currency and whether or not a specific currency is being used for illicit purposes is entirely the responsibility of the individual using the currency. Bitcoin developers would like to see in the future traditional banks using bitcoins, this would mean that the majority of people spending and receiving them will be able to be monitored just as banks can see where the majority of money comes from and goes to with traditional currency(Evans-Pughe ).
Another type of digital currency called e-Gold has actually been shut down and charged for money laundering. The difference between e-Gold and Bitcoin is that e-Gold was actually a company and they were the only people that e-Gold users where buying the currency from and spending the currency on. Also the company e-Gold was directly tied into money laundering, not the customers of the company. Bitcoin is not a company, so whether or not it considered actual money laundering by any government there is nothing that can be done to bring down Bitcoin completely. If the use of bitcoins were to be criminalized then that would just mean the people who use bitcoins in countries where it is illegal would just have to use them as anonymously as possible and it would not cause them to stop being used completely.
Hopefully after a thorough investigation of the nature and facts of bitcoins citizens will be able to decide for their selves on the issue of criminalizing this decentralized digital currency. Most importantly it would be very noble for citizens to take a stand for what they believe is right, even if individuals feel this issue might not affect them personally. As well as having many more citizens becoming well informed on this issue before politicians can have the chance to officially prohibit citizens from having the legal option to use the rising type of currency.
