Is There A Good Reason To Still Be Calling BTC Money/Currency?

[FlipPro]

I'm all for calling them credits. Thats probably the most appropriate name. "Bitcoin Credits"

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[dennis_sweden]

Suppose we call it Bitcoin credit; credit must be debited. A Bitcoin account is credited with X Bitcoins whereas a $ account is debited with X dollars. It therefore still constitutes barter according to the law.

[bracek]

It behaves as a commodity and I was inclined since the very beginning I learned about it to call it a commodity.

I agree with the OP, I'd rather we'd call it a commodity then a currency.

digital property

[bracek]

USD is not backed by anything else than the paper they are printed on/metal used for coins. Gold backing etc. was removed a reaaally long time ago.

[/quote]

USD is backed by bullets

[benjamindees]

Only sovereign nations are allowed to issue "money" or "currency".

It'd be nice to know where you get this idea, since it's blatantly false.

[CryptoCommodity]

The Securities Exchange Act of 1934 (U.S. law again) defines an exchange as following:

The term "exchange" means any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.

So Mtgox, and all other exchanges, are subject to all law (any country has similar provisions) that regulates exchanges.

A couple quick notes. 

You are attempting to apply US Law that applies to securities and calling MtGox and the like stock exchanges when those laws apply specifically (and exclusively) to exchanges that trade securities.  Whether "any country has similar provisions" is a non-point but just fyi no they do not.

The IRS defines barter as:

Internet-based Barter

The Internet provides a new medium for the barter exchange industry.  Pure Internet-based barter companies differ from traditional, organized trade exchanges in that they do not have a physical office. In modern Internet barter exchanges, there is an agreement or process in place to value goods and services exchanged, which is facilitated by the barter exchange for a fee. A barter exchange functions primarily as the organizer of a marketplace where members buy and sell products and services among themselves.
Trade Dollars

Barter exchanges have their own unit of exchange, usually known as barter or trade dollars.  Trade dollars or barter dollars are valued in U.S. currency for the purposes of information returns.   Trade dollars allow barter to take place between parties when one party may not have a simultaneous need or desire for the goods or services of the other members.  Barter exchanges act as the bookkeeper for keeping track of trade dollars that participants accumulate. Earning trade or barter dollars through a barter exchange is considered taxable income, just as if your product or service was sold for cash.

http://www.irs.gov/businesses/small/article/0,,id=113437,00.html

So Bitcoins are, per se, legal. However, Bitcoins are subject to multiple laws, e.g. tax laws. In the U.S. (for example) any person engaged in barter "may be subject to liabilities for income tax, self-employment tax, employment tax, or excise tax. Your barter activities may result in ordinary business income, capital gains or capital losses, or you may have a nondeductible personal loss."

http://www.irs.gov/businesses/small/article/0,,id=188095,00.html

Now you consider bitcoins a barter system, which I think is also incorrect.

Even if it was a barter system the tax reporting requirements of 1099-b as it applies to commodities with certain criteria attached, namely:

Sales of precious metals.
A sale of a precious metal (gold, silver, platinum, or palladium) in any form for which the Commodity Futures Trading Commission (CFTC) has not approved trading by regulated futures contract (RFC) is not reportable. Further, even if the sale is of a precious metal in a form for which the CFTC has approved trading by RFC, the sale is not reportable if the quantity, by weight or by number of items, is less than the minimum required quantity to satisfy a CFTC-approved RFC. For example, a broker selling a single gold coin does not need to file Form 1099-B even if the coin is of such form and quality that it could be delivered to satisfy a CFTC-approved RFC if all CFTC-approved contracts for gold coins currently call for delivery of at least 25 coins.

A very important point is that brokers only need to file a 1099-b when a client sells them a commodity that is enough to satisfy a CFTC-approved RFC.  A person can buy an unlimited amount of commodities without any required reporting.  For example a person could buy 5-million dollars in silver and the broker would have no reporting requirements.  That 5-million in silver could then be sold to a private party with no reporting requirements. 

I will also throw in that if the exchange is not based in the US it is not required to report to the US IRS.  That does not mean that if someone makes income they shouldn't report it on their taxes, they should, but if someone sent funds to buy bitcoins, then withdrew those bitcoins there would likely be no need to file a 1099-b even if the exchange was based in the US and the buyer was in the US.

[dennis_sweden]

I was blatantly wrong about the The Securities Exchange Act of 1934, inexusably so. However, from 1099-b must be filled when:

"A broker or barter exchange must file Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for each person:

    For whom the broker has sold (including short sales) stocks, bonds, commodities, regulated futures contracts, foreign currency contracts (pursuant to a forward contract or regulated futures contract), forward contracts, debt instruments, etc., for cash,

    Who received cash, stock, or other property from a corporation that the broker knows or has reason to know has had its stock acquired in an acquisition of control or had a substantial change in capital structure reportable on Form 8806, or

    Who exchanged property or services through a barter exchange"

http://www.irs.gov/instructions/i1099b/ar02.html

I still argue that Bitcoins fall under the scope of what IRS defines as "Internet-based Barter" and "Trade Dollars"

[dennis_sweden]

It'd be nice to know where you get this idea, since it's blatantly false.

Maybe I expressed myself wrongly; of course a soverign nation may delegate powers, but such powers must expressly be delegated. No sovereign nation has delegated powers to issue "money" or "currency" to an entity that is not controlled or officially affiliated to the nations governance. If in any nation another legal "money" or "currency" was issued, how would tax be paid on such transactions? There is no country that accepts payment of tax in a "money" or "currency" not issued by the sovereign nation.

As no sovereign nation has delegated powers to Bitcoin to issue "money" or "currency", Bitcoin is not deemed as such according to law.

[CryptoCommodity]

I was blatantly wrong about the The Securities Exchange Act of 1934, inexusably so. However, from 1099-b must be filled when:

"A broker or barter exchange must file Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for each person:

    For whom the broker has sold (including short sales) stocks, bonds, commodities, regulated futures contracts, foreign currency contracts (pursuant to a forward contract or regulated futures contract), forward contracts, debt instruments, etc., for cash,

    Who received cash, stock, or other property from a corporation that the broker knows or has reason to know has had its stock acquired in an acquisition of control or had a substantial change in capital structure reportable on Form 8806, or

    Who exchanged property or services through a barter exchange"

http://www.irs.gov/instructions/i1099b/ar02.html

I still argue that Bitcoins fall under the scope of what IRS defines as "Internet-based Barter" and "Trade Dollars"

The exemption list is long for 1099-b, it reads as follows:

Exceptions.   Brokers are not required to file, but may file, Form 1099-B for the following.
Sales for exempt recipients, including corporations, charitable organizations, IRAs, Archer MSAs, health savings accounts (HSAs), the United States, a state, or political subdivisions.

Sales initiated by dealers in securities and financial institutions.

Sales by custodians and trustees, provided the sale is reported on a properly filed Form 1041, U.S. Income Tax Return for Estates and Trusts.

Sales at issue price of interests in certain regulated investment companies.

Obligor payments on:

Nontransferable obligations, such as savings bonds or CDs.

Obligations for which gross proceeds are reported on other Forms 1099, such as stripped coupons issued before 
July 1, 1982.

Retirement of short-term obligations with original issue discount that is reported on Form 1099-INT, Interest Income. However, Form 1099-B is required for the retirement of short-term state obligations having no original issue discount.

Callable demand obligations that have no premium or discount.

Sales of foreign currency unless under a forward or regulated futures contract that requires delivery of foreign currency.

Sales of fractional shares of stock if gross proceeds are less than $20.

Retirements of book-entry or registered form obligations if no interim transfers have occurred.

Sales for exempt foreign persons as defined in Regulations section 1.6045-1(g)(1).

Sales of Commodity Credit Corporation certificates.

Spot or forward sales of agricultural commodities. See below.

Some sales of precious metals. See Sales of precious metals below.

Grants or purchases of options, exercises of call options, or entering into contracts that require delivery of personal property or an interest therein.

Would you call a diamond exchange a barter or trade dollar exchange?  Diamonds can be used to barter with but if the exchange only deals in diamonds (reference the New York Diamond Dealers Club) no goods or services are being bartered.  By definition if either side of a transaction involves payment in the form of a fiat currency that is not a barter but a purchase.

[d3wo]

USD is not backed by anything else than the paper they are printed on/metal used for coins. Gold backing etc. was removed a reaaally long time ago.

USD is backed by bullets

bitcoin is backed by sins

[benjamindees]

As no sovereign nation has delegated powers to Bitcoin to issue "money" or "currency", Bitcoin is not deemed as such according to law.

Well the Queen Mother hasn't specially knighted anyone and blessed them with the sovereign authority to issue turds into their toilet bowls.  Yet, there they are.

Would you care to cite any of these laws, or are you just unlawfully issuing opinion from your nether regions?

If in any nation another legal "money" or "currency" was issued, how would tax be paid on such transactions?

Dollars still exist.  You can pay your tax in dollars, yes?  As far as I can tell, there's nothing preventing the US from printing up more dollars?

[netrin]

I think you're a bit off-base there - Associated Press reported that the guys behind Liberty Dollars recruited businesses to not only accept them, but to hand them back in change to unsuspecting people. That's not a voluntary participation in an alternate currency, that's counterfeiting and just general scumbag/scammer behavior, regardless of what you happen to think of the USD right now.

Maybe you'd consider updating the Wikipedia. If true, that is a very interesting fact missing from the discussion: http://en.wikipedia.org/wiki/Liberty_Dollar#Conviction

[dennis_sweden]

A very important point is that brokers only need to file a 1099-b when a client sells them a commodity that is enough to satisfy a CFTC-approved RFC.  A person can buy an unlimited amount of commodities without any required reporting.  For example a person could buy 5-million dollars in silver and the broker would have no reporting requirements.  That 5-million in silver could then be sold to a private party with no reporting requirements.  

If a person bought $5 million worth of silver and sold it for $5 million within a short time-span, than I agree with you that a 1099-b would not be required. If instead they sold it for a profit of $5000 a form is required. The IRS would presumably have a lot of problems enforcing the law upon thousands of traders based in the U.S., which is why they are more than likely to enforce the law upon the exchange.

I will also throw in that if the exchange is not based in the US it is not required to report to the US IRS.  That does not mean that if someone makes income they shouldn't report it on their taxes, they should, but if someone sent funds to buy bitcoins, then withdrew those bitcoins there would likely be no need to file a 1099-b even if the exchange was based in the US and the buyer was in the US.

Again I am in agreement with you; however similar laws exist in the U.K., Australia, China taxes virtual money trading despite having outlawed the practice, in South Korea "a court ruled in September of last year that profits from the trading of "cyber money" should be subject to 10 percent value added tax (VAT)". So such laws are either global or definately globally expanding. Most of Bitcoin traders are located in advanced economies where the likelihood of such laws already being in existence is high.

http://www.koreatimes.co.kr/www/news/nation/2010/01/116_58775.html

CryptoCommodity; none of these exceptions are applicable to Bitcoins. The issue of "Internet Based Barter" and "Trade Dollars" is multifaceted as Bitcoins have several uses. It can be traded for USD, it can be traded for other goods and services. If you purchase 10 Bitcoins for $100 and sell them for $200 you earn $100. Is that to be considered as a strict capital gain, or do you "earn trade or barter dollars through a barter exchange"? You could be right that this is not considered a barter exchange, however I believe that it is. You could purchase 10 Bitcoins for $100 and after an aprreciation of value exchange them for goods or services valued, say, $200. In this case it is clear that the transaction is considered a barter, in which $100 has been earned which may or may not (due to specific circumstances) be subject to tax.

benjamindees What are you talking about - you cannot pay U.S. taxes with Dwolla, Pound Sterling or any other currency but USD.

[netrin]

Lets call them kittens, everyone loves kittens and kittens will never be illegal.

That's not a bad idea. I'll offer one gram of kitten for each bitcoin.

[CryptoCommodity]

A very important point is that brokers only need to file a 1099-b when a client sells them a commodity that is enough to satisfy a CFTC-approved RFC.  A person can buy an unlimited amount of commodities without any required reporting.  For example a person could buy 5-million dollars in silver and the broker would have no reporting requirements.  That 5-million in silver could then be sold to a private party with no reporting requirements.  

If a person bought $5 million worth of silver and sold it for $5 million within a short time-span, than I agree with you that a 1099-b would not be required. If instead they sold it for a profit of $5000 a form is required. The IRS would presumably have a lot of problems enforcing the law upon thousands of traders based in the U.S., which is why they are more than likely to enforce the law upon the exchange.

A $5000 profit would not create a need for a 1099-b to be filed as it would be a private party sale.  1099-b filing requirements only apply if the sale is in the normal course of trade or business.

Your view that the purchase of bitcoins for fiat currency constitutes a barter exchange because you could possibly trade them for a product or service elsewhere after receiving them is not a valid argument.  First barter is defined as trading goods or services for goods or services.  If an exchange only deals in bitcoins for fiat currency no barter exists.  Any bartering done later by that individual with the bitcoins they purchased is outside the realm of the exchange.  If the person makes a profit it is their responsibility to report income to the proper taxing authority.

[FreeMoney]

Lets call them kittens, everyone loves kittens and kittens will never be illegal.

That's not a bad idea. I'll offer one gram of kitten for each bitcoin.

I'd love a few milikittens.

[dennis_sweden]

Your view that the purchase of bitcoins for fiat currency constitutes a barter exchange because you could possibly trade them for a product or service elsewhere after receiving them is not a valid argument.  First barter is defined as trading goods or services for goods or services.  If an exchange only deals in bitcoins for fiat currency no barter exists.  Any bartering done later by that individual with the bitcoins they purchased is outside the realm of the exchange.  If the person makes a profit it is their responsibility to report income to the proper taxing authority.

Having read a different topic, a person posted that he had spoken to a securities lawyer, and they had reached the conclusion that public trading on the "Global bitcoin stock exchange" (and hence any exchange in the US dealing with securities) would subject it to SEC and relevant laws. A security is defined as:

 "(3) the term “security” means—

(A) a note, stock certificate, treasury stock certificate, bond, treasury bond, debenture, certificate of deposit, interest coupon, bill, check, draft, warrant, debit instrument as defined in section 916(c) of the Electronic Fund Transfer Act, money order, traveler’s check, letter of credit, warehouse receipt, negotiable bill of lading, evidence of indebtedness, certificate of interest in or participation in any profit-sharing agreement, collateral-trust certificate, pre-reorganization certificate of subscription, transferable share, investment contract, voting trust certificate, or certificate of interest in tangible or intangible property;"

US Code Title 18 § 513. Securities of the States and private entities.

Considering the fact that a securities lawyer has a far superior legal comprehension than myself, I concur that Bitcoins are not considered Barter. Also, it cannot be considered both a barter and a security, which I fallaciously argued earlier. However, as Bitcoin is a "debit instrument as defined in section 916(c) of the Electronic Fund Transfer Act" ("As used in this section, the term "debit instrument" means a card, code, or other device, other than a check, draft, or similar paper instrument, by the use of which a person may initiate an electronic fund transfer.") any Bitcoin exchange based in the U.S. is subject to the SEC and relevant laws. And, of course, in the globalized financial business sphere, all stock exchanges in the world are subject to similar legal provisions and all defintions of "securities" are likewise or very similar, and due to "harmonization" the laws and definitions are being aligned continuously.

So all Bitcoin exchanges, wherever situated are subject to the exchange laws of the host nation, as Bitcoin is a kind of "security", I contend. Exactly which tax laws that are applicable is beyond my current knowledge; although the only point that we have agreed upon so far is that gains on Bitcoin trades are subject to some kind of tax.

[CryptoCommodity]

Your view that the purchase of bitcoins for fiat currency constitutes a barter exchange because you could possibly trade them for a product or service elsewhere after receiving them is not a valid argument.  First barter is defined as trading goods or services for goods or services.  If an exchange only deals in bitcoins for fiat currency no barter exists.  Any bartering done later by that individual with the bitcoins they purchased is outside the realm of the exchange.  If the person makes a profit it is their responsibility to report income to the proper taxing authority.

Having read a different topic, a person posted that he had spoken to a securities lawyer, and they had reached the conclusion that public trading on the "Global bitcoin stock exchange" (and hence any exchange in the US dealing with securities) would subject it to SEC and relevant laws. A security is defined as:

 "(3) the term “security” means—

(A) a note, stock certificate, treasury stock certificate, bond, treasury bond, debenture, certificate of deposit, interest coupon, bill, check, draft, warrant, debit instrument as defined in section 916(c) of the Electronic Fund Transfer Act, money order, traveler’s check, letter of credit, warehouse receipt, negotiable bill of lading, evidence of indebtedness, certificate of interest in or participation in any profit-sharing agreement, collateral-trust certificate, pre-reorganization certificate of subscription, transferable share, investment contract, voting trust certificate, or certificate of interest in tangible or intangible property;"

US Code Title 18 § 513. Securities of the States and private entities.

Considering the fact that a securities lawyer has a far superior legal comprehension than myself, I concur that Bitcoins are not considered Barter. Also, it cannot be considered both a barter and a security, which I fallaciously argued earlier. However, as Bitcoin is a "debit instrument as defined in section 916(c) of the Electronic Fund Transfer Act" ("As used in this section, the term "debit instrument" means a card, code, or other device, other than a check, draft, or similar paper instrument, by the use of which a person may initiate an electronic fund transfer.") any Bitcoin exchange based in the U.S. is subject to the SEC and relevant laws. And, of course, in the globalized financial business sphere, all stock exchanges in the world are subject to similar legal provisions and all defintions of "securities" are likewise or very similar, and due to "harmonization" the laws and definitions are being aligned continuously.

So all Bitcoin exchanges, wherever situated are subject to the exchange laws of the host nation, as Bitcoin is a kind of "security", I contend. Exactly which tax laws that are applicable is beyond my current knowledge; although the only point that we have agreed upon so far is that gains on Bitcoin trades are subject to some kind of tax.

There is a reason that lawyers "practice" law.  You can ask ten lawyers the same question and get fifteen different answers.  Does it surprise you that a securities lawyer would see bitcoins as a type of security?  A real estate lawyer would see them as real property, an Intellectual Property Lawyer would see them as IP etc etc etc.....

My background is in economics, econometrics, commodities, equities and derivatives so I am also biased.  My opinion is based on what mostly resembles bitcoins in use and utility, I find this to be diamonds.  If we had a willy wonka teleportation machine and could move diamonds instantaneously and securely across space they would function exactly as bitcoins do.  Does Lil Jon have to wear a USB stick with 5000btc in it around his neck to give it another use and make you accept it as a physical good?

There is no way bitcoins are a security.  Bitcoins are individual things.  You could securitize bitcoins by creating a security that signifies ownership in a bitcoin (or bitcoins) and possibly trade that on a stock market but by definition a security is only a document ownership of some underlying thing.

As far as if bitcoins need to be taxed that depends on your jurisdiction.  A blanket statement saying they are subject to some kind of tax is ridiculously broad.

[dennis_sweden]

There is a reason that lawyers "practice" law.  You can ask ten lawyers the same question and get fifteen different answers.  Does it surprise you that a securities lawyer would see bitcoins as a type of security?  A real estate lawyer would see them as real property, an Intellectual Property Lawyer would see them as IP etc etc etc.....

My background is in economics, econometrics, commodities, equities and derivatives so I am also biased.  My opinion is based on what mostly resembles bitcoins in use and utility, I find this to be diamonds.  If we had a willy wonka teleportation machine and could move diamonds instantaneously and securely across space they would function exactly as bitcoins do.  Does Lil Jon have to wear a USB stick with 5000btc in it around his neck to give it another use and make you accept it as a physical good?

There is no way bitcoins are a security.  Bitcoins are individual things.  You could securitize bitcoins by creating a security that signifies ownership in a bitcoin (or bitcoins) and possibly trade that on a stock market but by definition a security is only a document ownership of some underlying thing.

As far as if bitcoins need to be taxed that depends on your jurisdiction.  A blanket statement saying they are subject to some kind of tax is ridiculously broad.

I do not simply listen to any professional and go with what he/she thinks; the wording of section 916(c) of the Electronic Fund Transfer Act describes the functioning of Bitcoin. It is not Intellectual Property, I went through that many hours ago, when some poster suggested it would be Intellectual Property. I would not accept a usb with bitcoins stored on it, as the usb would only be a medium used to store the code. By that reasoning a cd containing Windows 7 would be a "goods" whereas it is "intellectual property".

The tax statement is broad - but in which jurisdiction do the tax authorities say - hey, make a quick buck by selling any random article for a higher sum than you just bought it for, and keep the dough - no probs!

[CryptoCommodity]

I will look into tax issues of various jurisdictions but did you know that gambling winnings are not taxed in the UK?  You can't assume that all countries have laws similar to the US.