Why employment taxes and enriching early adopters may actually help Bitcoin

[Rassah]

Direct link here: http://goo.gl/LIFCz


Why some of Bitcoin’s hurdles may actually be its drivers

     There are two biggest complaints I keep hearing about Bitcoin, first, that it makes tax evasion too easy and governments will hate it, and second is that it only benefits early adopters. I argue that the first is not really thought through, and the second is already proving to be wrong.

     Bitcoin is designed to be completely anonymous, but that anonymity is only by choice. The argument is that, with people creating anonymous addresses, companies will be able to hire people and pay them under the table, and the government will have no way of tracking such transactions. Technically, the same could be said of cash payments, which could be, and very often are, paid “under the table.” However, companies have an incentive to report their financial transactions. That incentive may be due to failure to report may bring down the law on them, or that reporting transactions and being in good standing allows them to operate more securely within the government legal system, and contest any theft or dispute between other companies and participants.

     Regarding a Bitcoin based scenario, just as a company can hire employees, report their social security numbers to the government, and make payments against those social security numbers, having to report all the payments every few quarters, a company can hire employees, use their self-selected Bitcoin addresses to pay them, and report those addresses to the government. The huge benefit is that, since all transactions are public, there is no longer any need to collect and report payroll information. As long as the government has all the employee addresses, all salary information can be collected automatically from the Bitcoin blocks. And if the employees feel that they would still rather keep the rest of their transactions private, sending the received salary amounts through a few addresses before sending to another one of your own would make the amount of money anonymous again. Yes, that could be considered money laundering, but we will have to see how the law comes down on that when we get there.

     The second biggest claim I keep hearing against Bitcoin is that “it mainly benefits early adopters.” I guess the claim is that, since people who got into it early will have all the money, newcomers will want to stay out of the system, and that will lead it to failure. What this claim fails to take into account is that those people who got in early, and now have a lot of wealth, have an incredibly high incentive to see this system succeed. They will very likely use their wealth to invest in improved financial service companies, design easier ways to transact with Bitcoin, and make the system more prevalent and user friendly in general. In a way, early adopters who have taken on enormous risks on the hopes that this currency goes anywhere, will be paid by the currency itself to make sure that it succeeds. An excellent example of this is the largest Bitcoin currency exchange site MtGox. At present volume, they already make an estimated $30,000+ a day in revenues, and the owners have pledged to use the money to continue to expand and improve the system, and to create a lobby to defend Bitcoin in governments. At $14,000,000 a year that is expected to only grow, that is a pretty nice chunk of cash to run a lobby with.

     Am I sure that Bitcoin will succeed? No. Rick Falkvinge has written some excellent analysis of it’s other more realistic hurdles (goo.gl/HBvYM). But, after reading up on the technology behind it, and meeting the community involved with it, I am personally fairly confident in it.

-- Rassah

[finnthecelt]

Good points.

I find it interesting that many people miss the fact that many of the complaints about Bitcoin can be directed right back at fiat currencies.

An interesting statistic: nearly 95% of US dollars has some type of drug residue. We don't however hear senators like Schumer calling for the destruction of the "narco" dollar.

Bitcoin is forcing people to talk about the very nature of money and it's freaking people out across the board. The boat is being rocked and drinks are being spilled on white shirts.

[nazgulnarsil]

both excellent points.

and even if hoarders just cash out to buy a house and a ferrari, it's peanuts next to the wealth created by finally having a currency that doesn't inflate.  they richly deserve whatever rewards they get.  even if bitcoin fails I wont regard early adopters as scam artists.  they invested their time and money at great risk to try and get a new system off the ground.

[MoonShadow]

both excellent points.

and even if hoarders just cash out to buy a house and a ferrari, it's peanuts next to the wealth created by finally having a currency that doesn't inflate.  they richly deserve whatever rewards they get.  even if bitcoin fails I wont regard early adopters as scam artists.  they invested their time and money at great risk to try and get a new system off the ground.

And those same early adopters can expect to be rewarded relative to the risk and efforts they put into it.  Consider the teenager who convinced his parents to let him sell their alpaca wool as socks for bitcoin.  That relatively simple action brought new business to their family farm, and also likely set that teen up for a very bright future in the process.

[finnthecelt]

both excellent points.

and even if hoarders just cash out to buy a house and a ferrari, it's peanuts next to the wealth created by finally having a currency that doesn't inflate.  they richly deserve whatever rewards they get.  even if bitcoin fails I wont regard early adopters as scam artists.  they invested their time and money at great risk to try and get a new system off the ground.

Right. The amount of money we're talking about is nothing compared to the $1.4 QUADRILLION derivatives market!!! Investing too much energy into investigating and routing out bitcoin users could be anti-productive. Besides, it could take valuable resources away from law enforcement from searching for "terrorists" and bigfoot.

[AllYourBase]

a company can hire employees, use their self-selected Bitcoin addresses to pay them, and report those addresses to the government.

This is the worst idea I've read in the past three days.  The point of bitcoin is to get AWAY from this crap.  If you get your jollies off reporting your employee's income to the USG, use $.

[finnthecelt]

a company can hire employees, use their self-selected Bitcoin addresses to pay them, and report those addresses to the government.

This is the worst idea I've read in the past three days.  The point of bitcoin is to get AWAY from this crap.  If you get your jollies off reporting your employee's income to the USG, use $.

Are you sure you're not misguided? My understanding is that the idea of BTC was to decentralize the monetary powers, not destroy government. Reporting employees income to ensure taxes are paid for the benefit of society would legitimize BTC.

From Wiki under "Why?" :

Be safe from instability caused by fractional reserve banking and central banks. The limited inflation of the Bitcoin system's money supply is distributed evenly (by CPU power) throughout the network, not monopolized by banks.

[AllYourBase]

Well it seems to me that if x% of 1 billion people's income (take China or India for instance) goes to the same organization, that's pretty centralized monetary power.  Sure, the number one goal is to prevent central bankers from toying with the money supply for their own ends, but really whether it's through inflation or taxation, the current monetary system enables theft.  And as far as I understand it, that's what bitcoin was designed to stop.

I don't think it's possible to legitimize bitcoin in the eyes of governments whose operation rests on constantly inflating the money supply.  And I'm unconvinced that the people who worry about paying taxes will see bitcoin as legitimate when government is publicly decrying it.

[Mark Oates]

This is the worst idea I've read in the past three days.

Government isn't that bad of a thing... but right now it has accumulated many laws that cause it overstep its boundaries (many of these regulations are already outdated by technology).  And also right now it's hijacked by the banks.  And it's wading through its own outdated legislative muck.  A government can provide some good security without these ills.

Another thing that is being overlooked is that some people are still thinking of "Government" in terms of nation.  There are no "nations" on the internet.  Everyday, we are more and more all part of the same world community.

[finnthecelt]

but really whether it's through inflation or taxation, the current monetary system enables theft.  And as far as I understand it, that's what bitcoin was designed to stop.

I don't think it's possible to legitimize bitcoin in the eyes of governments whose operation rests on constantly inflating the money supply.  And I'm unconvinced that the people who worry about paying taxes will see bitcoin as legitimate when government is publicly decrying it.

We agree here but we must take one step at a time. The suggestions you are alluding to take decades to unfold. Look how long it's taken for BTC to come around. What's our beginning reference point? Writings in Mesopotamia? 5 thousand years ago?

I see BTC (and all things digital really) as an evolution in mankind's progress path. It cannot be rushed. The destruction of governments right now would be terrible for the mass of sheeple out there regardless of your own enlightenment. Sometimes it's hard to have a grounded perspective when you've been flying through the clouds. 

[bayes]

I don't think it's possible to legitimize bitcoin in the eyes of governments whose operation rests on constantly inflating the money supply.  And I'm unconvinced that the people who worry about paying taxes will see bitcoin as legitimate when government is publicly decrying it.

Governments subsist on the wealth and productivity of their citizens, not on any currency. 

Showing that businesses can use Bitcoins and increase their wealth while paying the appropriate taxes will get governments behind Bitcoin.  They already have small amounts of people working hard to anonymously exchange using USD, they don't really care if a small amount of people will do the same with Bitcoin. 

People arguing that tax paying USD businesses are going to become tax evading Bitcoin businesses is what will get a government to stomp its foot down.

[AllYourBase]

Fair enough, you have more finesse and patience than I do

Perhaps it would be best if governments went away completely.  Time will tell.  In the meantime, I would like to escape from it.  

When I first started reading the forums, there was broad support for freedom from monetary theft.  Since then, there has been a surge in forum posts supportive of making bitcoin work with government and their tax systems.  I wish those who want to do this would fork the block chain and make tax-compatible-bitcoin, rather than changing bitcoin to be something different.  Not that it really matters.  If it gets bad enough, I'll have to either fork the chain myself, or join someone else's bandwagon, but it is vexing.    

[finnthecelt]

Fair enough, you have more finesse and patience than I do

Perhaps it would be best if governments went away completely.  Time will tell.  In the meantime, I would like to escape from it.  

When I first started reading the forums, there was broad support for freedom from monetary theft.  Since then, there has been a surge in forum posts supportive of making bitcoin work with government and their tax systems.  I wish those who want to do this would fork the block chain and make tax-compatible-bitcoin, rather than changing bitcoin to be something different.  Not that it really matters.  If it gets bad enough, I'll have to either fork the chain myself, or join someone else's bandwagon, but it is vexing.    

I think eventually governments do go away. Either that or manking destroys itself....

I think initially people must have really bought into the dream and then reality set in. You can't just go from an existing system to something new and radical. Things have to "break" first.

Wouldn't we all love our freedom from gov't and not fear our neighbor?

[bayes]

AllYourBase,

It's true that Bitcoin empowers people that want to stay hidden from the government's view.  The technology seems sound enough that this will be true no matter what additional costs governments impose on using Bitcoins.

The force that drives that empowerment is Bitcoin's ability to substantially reduce transaction costs.  This is a force that can also increase the wealth of anyone that chooses to transact in compliance with government.  Focusing on this fact is more honest to what the technology really is.  If governments don't act to impose additional costs onto Bitcoin, then everyone - governments, citizens, and the rare anarchist - will benefit.

[Stevie1024]

What this claim fails to take into account is that those people who got in early, and now have a lot of wealth, have an incredibly high incentive to see this system succeed.

Yup, they will have that incentive, but they are a minority. A better system would be if newcomers also had that incentive.

In a way, early adopters who have taken on enormous risks on the hopes that this currency goes anywhere, will be paid by the currency itself to make sure that it succeeds.

Please tell me what "enormous risks" the finders of the first blocks took? Which cost them about half a million (current 'difficulty') times less computer power (and energy) than what newcomers have to compete for now?

[wren]

i just had to register after reading this idiotic post...i can't believe op is saying trickle down economics works.  are you stupid?

[finnthecelt]

i just had to register after reading this idiotic post...i can't believe op is saying trickle down economics works.  are you stupid?

Rassah, you have caused this lurker to crack his shell!!! Idiotic is harsh isn't it? In a world where idea leads to idea?

[Rassah]

Please tell me what "enormous risks" the finders of the first blocks took? Which cost them about half a million (current 'difficulty') times less computer power (and energy) than what newcomers have to compete for now?

Lots of time, work, and their own money. Especially for the people who spent the time coding it and setting up the initial networks. Really, the same risks that people like Bill Gates, Steve Jobs, and Eric Schmidt, along with their first few employees, took when they created their software revolutions.

[finnthecelt]

Please tell me what "enormous risks" the finders of the first blocks took? Which cost them about half a million (current 'difficulty') times less computer power (and energy) than what newcomers have to compete for now?

Lots of time, work, and their own money. Especially for the people who spent the time coding it and setting up the initial networks. Really, the same risks that people like Bill Gates, Steve Jobs, and Eric Schmidt, along with their first few employees, took when they created their software revolutions.

You forgot sleepless nights and nausea.....

[Stevie1024]

Please tell me what "enormous risks" the finders of the first blocks took? Which cost them about half a million (current 'difficulty') times less computer power (and energy) than what newcomers have to compete for now?

Lots of time, work, and their own money. Especially for the people who spent the time coding it and setting up the initial networks. Really, the same risks that people like Bill Gates, Steve Jobs, and Eric Schmidt, along with their first few employees, took when they created their software revolutions.

Lots of time and work I could understand, 'their own money' you'd have to explain. Anyhow, doesn't convince me as "enormous risks"...