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April 21, 2013, 12:35:11 AM |
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I don't think that Bitcoin makes government operations impossible. Yes, it is true that Bitcoins change some things - for instance, governments can no longer create new money and they have fewer powers when they want to interfere with the monetary system.
But that doesn't mean that it will be impossible for governments to operate.
OK, it's clear that sometimes it can be useful if a government is able to create money. However, there are several countries in the world which *do not* have their own currency: Montenegro, Andorra and the Kosovo are using the Euro without being members of the Euro zone. OK, there are many things in former Yugoslavia that aren't the way they should be - but I don't think that the government's lack of the ability to create money is making it impossible for those governments to operate.
The rest of the Euro zone is in a similar situation - they are part of a currency union, and only the ECB is allowed to create new money. The national governments of the Euro zone can't create money of their own. And government operations are still possible. Ok, we're going through an economic crisis and the fact that we are no longer using several independent currencies is sometimes seen as a cause for trouble - but I don't think that the Euro is going to kill the governments.
For a very long time, probably even indefinitely, fiat currencies and the Bitcoin will coexist - and those governments which are able to create money can just print new banknotes and buy bitcoins if they happen to need any.
So far, we only have to deal with the issues that arise from the decentralization of Bitcoin. I don't that everything is lost here. Bitcoin has some properties that are similar to cash - cash is issued by a central bank, bitcoin is issued by a p2p network. Anybody can store it with any means of storage they want. Cash can be stored in a wallet, in a box, in a vault or in your pocket. Bitcoins can be stored on your hard disk, on a piece of paper or you can try to use your brain to remember the keys (well, that requires a good memory, but in theory it works). You don't need a license to store cash or bitcoins. I don't think that this makes a large difference. Governments may complain that Bitcoins were easier to hide from them than fiat funds on a bank account - but the same is true of cash. However, there's one difference - unlike cash transactions, bitcoin transactions are public and everyone can read the blockchain. I do think that eventually, law enforcement agencies will start to track funds on the bitcoin network for whatever purposes.
Bitcoin is not going to make taxation impossible. After reading a bit about the legal status of bitcoin, it seems to me that most jurisdictions will regard bitcoin as something that is not exactly money, but something similar and apply similar rules. There were rumors that some countries would charge VAT on currency exchanges between fiat currencies and crypt currencies but it seems that this idea has been dropped. Instead, merchants who accept Bitcoin will be required to pay VAT on their sales the same way as they do for fiat sales.
So far, government operation and taxation will continue to work. The government will be unable to freeze your local bitcoin wallet (just as they can't freeze your cash wallet) but in a few years, we might hear about bitcoin bank accounts being frozen on government request.
Now, what about public service? Most of it can continue as before; People can use their BTC to buy Fiat currencies to pay their taxes. Alternatively, tax offices can accept BTC directly if legislation allows that. I don't think that any government will cease to operate because of bitcoin.
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