the importance of currency exchange for the economy

[grondilu]

One of the things you can hear from opponents of bitcoin is :

You can't buy anything with it.  It's mostly used for currency exchange and gaming.

I once answered that you can exchange bitcoins just in order to buy something.  I once bought T-shirts on-line using canadian dollars I just bought for this purchase (using the excellent MadHadder's bitcoin-to-credit-card service).

I know it's not the same as buying directly in bitcoin.  But is it, really ?   I mean, if currency exchange is quick and efficient enough, there is no practical difference between buying in bitcoin and making a currency exchange just for a product purchase.


Oil is priced in dollar.  So I guess when I buy some gaz at a station in Europe, at some point in the exchange chain, there has been some euro-dollar conversion.  Yet, nobody would claim "you can't buy oil with euros".

As always, the comparaison between bitcoin and gold is also pertinent.  I can't enter a shop and buy stuffs with a gold coin.  There are very few things that I can buy directly with physical gold.  And yet, most people agree to say that gold is money.   Actually, when I need to buy something I sometimes sell a few gold coins in order to get just enough cash to buy the stuff in the same day.  So I consider I bought this stuff with gold.

Amongst the usages of money there are 1) intermediary for exchange 2) store of value 3) unit of accounting.  To me it seems clear that the currency exchange market allow people to use different currency for each of these usages.

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[ptd]

Amongst the usages of money there are 1) intermediary for exchange 2) store of value 3) unit of accounting.  To me it seems clear that the currency exchange market allow people to use different currency for each of these usages.

Bitcoin is useless for point 1, if I want to exchange it for something, if I have GBP and I want to buy something off amazon going GBP->BTC->USD (or any other combination) is pure waste, I might as well go GBP->USD.

As for point 2, for something to be a store of value, it needs value. For bitcoin to have value it must meet point 1.

Bitcoin in its current state would be destroyed by a run, whereas oil would still be traded by petrol manufacturers and gold by jewelers. The hope is that one day people will constantly trade BTC out of convience, protecting its value for people who save in it.

[Nefario]

A currency exchange is convienient to begin, but eventually goods and services must be offered for bitcoins to be useful.

[grondilu]

Bitcoin is useless for point 1, if I want to exchange it for something, if I have GBP and I want to buy something off amazon going GBP->BTC->USD (or any other combination) is pure waste, I might as well go GBP->USD.

Well, yes.  It's obviously more efficient to go directly GBP->USD.  I don't see your point.

As for point 2, for something to be a store of value, it needs value. For bitcoin to have value it must meet point 1.

Personnaly I don't believe in money as a storage of value anyway.   But it's common belief.  As far as I'm concerned, I never hoard money, in any currency.  There are many better ways to store value (real estate, share holdings)...

Bitcoin in its current state would be destroyed by a run

A run to what, whom, where??  People know that bitoin is not redeemable to anything.  Personnaly if bitcoin price was to decrease dramatically, I'd buy everything, just as I'd buy several kilograms of gold if the price went to 35$ an once.  I doubt I'd be the only one.

[markm]

To me BitCoin looks like it *is* a "share holding".

It looks like an IPO that is taking some years to take place, whose initial public offering is 21,000,000 shares.

The limit on the number to be issued seems somewhat arbitrary, I do not see why if the Fed took up BitCoins it would not be able to announce a change in that arbitrary value, so that miners will be able to keep going another number of years producing (say for example) another 21,000,000.

What is looks to be a share *of* is "whatever you end up being able to trade it for".

-MarkM-

[grondilu]

To me BitCoin looks like it *is* a "share holding".

It looks like an IPO that is taking some years to take place, whose initial public offering is 21,000,000 shares.

Well, yes, if you want.  But in the same way I could say that one gram of gold is a "share of the total amount of gold in the world".  I'm not sure this point of view is much pertinent, though.

By "share holding" I meant a share of a company's capital.

The limit on the number to be issued seems somewhat arbitrary, I do not see why if the Fed took up BitCoins it would not be able to announce a change in that arbitrary value, so that miners will be able to keep going another number of years producing (say for example) another 21,000,000.

You don't seem to understand how bitcoin works.  Bitcoins produced by such modified miners would be rejected by my client.  Basically only people who would agree with such an increase of bitcoin total amount could use them.

[markm]

The chain could be forked, if people wanted to keep running with the only 21,000,000 coins model.

But the client has been changed before, if enough people with enough guns decided to try to force it to be changed again then there isn't a lot stopping them. We could fork, sure. Theirs could be made legal tender and ours not, whatever.

But it is very much a share in an endeavour.

-MarkM-

[Mahkul]

A currency exchange is convienient to begin, but eventually goods and services must be offered for bitcoins to be useful.

This is a very important point. I have a few friends who trade different things, some small, some big. I told them about Bitcoin and they like the idea, but what's stopping them from selling their goods for Bitcoin is the legal factor - how do you declare income, or do you do it at all etc. No one seems to be able to give some definite guidelines for people wanted to open Bitcoin shops. I am thinking about opening one myself, but I don't want to get in trouble either.

I realize that the legal issues really depend on the country you live in, but some general guidelines would be nice.

Say, for example, I register myself as a sole-trader and buy 40,000€ worth of computer parts, I launch a small computer store on-line. I sell these parts for Bitcoin without declaring it as income (I wouldn't even know where to start even if I wanted to declare it). How would all the invoicing work? Also, if I just sold those parts for Bitcoins and had no income in €, what if someone drops in to my warehouse and there is nothing there?

This is a very important issue and any advice would be appreciated. Sorry for drifting off the subject a little bit.

[grondilu]

I'm pretty sure that, as long as you declare what you do, it's perfectly legal.  I guess for IRS bitcoin is nothing but a "foreign currency" and it should be treated as such, nothing more.

Forbidding it would be completely crazy.

[Mahkul]

I'm pretty sure that, as long as you declare what you do, it's perfectly legal.  I guess for IRS bitcoin is nothing but a "foreign currency" and it should be treated as such, nothing more.

Forbidding it would be completely crazy.

Yes, but who decides how much 1 BTC is worth? What if the value goes up by 100% before there is time to pay the tax? It isn't that simple I am afraid.

[markm]

How much is your World of Warcraft gold worth?

If you play a nation in Freeciv, how much is it's gold worth?

Basically unless you actually manage to sell some any guess about it's value is purely speculative, and even if you do manage to sell some at one price there is no guarantee you could sell any more at all at that same price.

How much do babies sell for?

Is your baby taxable merely because in theory someone might consider it a marketable one?

How about your hours? How much are they worth?

When you don't happen to sell them?

When you choose not to put them on the market that hour or week or year or decade?

If you sold 40,000 euros your cost of machinery maybe it might be worth at least a tenth of that, depending on the speed of depreciation / rate of increase in competing tech of that machinery since you bought or built it.

So you could if you are optimistic at least claim you accepted what you imagined to be worth at least as much as the inventory you sold.

(Does computer machinery depreciate to half value every 18 months as new ones double in power each 18 months?)

There is a parallel buyer side problem too. How much is inventory worth that was bought with BitCoin?

How much is stuff worth that is given as a gift or in barter?

Some of those are solvable presumably.

Most likely, legal tender laws require that you offer to accept legal tender and the amount of legal tender they could have paid for it could be naively imagined at least by those who do choose the legal tender option to be the value.

So maybe help drive up BitCoin value by offering things at much much fewer bitcoins than you will take in legal tender?

-MarkM- (Not licensed to practice law in any known nation of Sol III)

STOP PRESS! Freeciv Gold now only $1000 u.s. per unit (or 1.00 bitcoin...)

[Nefario]

How much is your World of Warcraft gold worth?

If you play a nation in Freeciv, how much is it's gold worth?

Basically unless you actually manage to sell some any guess about it's value is purely speculative, and even if you do manage to sell some at one price there is no guarantee you could sell any more at all at that same price.

How much do babies sell for?

Is your baby taxable merely because in theory someone might consider it a marketable one?

How about your hours? How much are they worth?

When you don't happen to sell them?

When you choose not to put them on the market that hour or week or year or decade?

If you sold 40,000 euros your cost of machinery maybe it might be worth at least a tenth of that, depending on the speed of depreciation / rate of increase in competing tech of that machinery since you bought or built it.

So you could if you are optimistic at least claim you accepted what you imagined to be worth at least as much as the inventory you sold.

(Does computer machinery depreciate to half value every 18 months as new ones double in power each 18 months?)

There is a parallel buyer side problem too. How much is inventory worth that was bought with BitCoin?

How much is stuff worth that is given as a gift or in barter?

Some of those are solvable presumably.

Most likely, legal tender laws require that you offer to accept legal tender and the amount of legal tender they could have paid for it could be naively imagined at least by those who do choose the legal tender option to be the value.

So maybe help drive up BitCoin value by offering things at much much fewer bitcoins than you will take in legal tender?

-MarkM- (Not licensed to practice law in any known nation of Sol III)

STOP PRESS! Freeciv Gold now only $1000 u.s. per unit (or 1.00 bitcoin...)

These are only definitions, but if the government thinks you are conducting a lot of trade then they want to take a share, the easy way is to tax the medium of exchange. Whatever names you want to use the government will do whatever it can to make you pay.

The only option is to pay or keep trade as secret.

[markm]

Some things it doesn't seem reasonable to try to tax until they finally emerge from the virtual/game universes into some kind of legal tender.

If I do get $1000 usd for a Freeciv Gold I won't mind paying tax on it.

If all I get is a bitcoin and that can buy two units of freeciv gold at the next planet in the galactic milieu I can offer two units for $2000 and maybe make my gov't (Canadian govt) more tax than by trying to sell the bitcoin for my tax bracket percent of $1000 usd...

Volume is relevant though, because at some number of usd in a year I will attain a tax bracket so high that I will be paying the gov't instead of them paying me via GST rebates on top of whatever I earn.

-MarkM-

[grondilu]

Yes, but who decides how much 1 BTC is worth? What if the value goes up by 100% before there is time to pay the tax? It isn't that simple I am afraid.

It is.

If you don't trust bitcoin to have a little stability in the future, then I guess you're unlikely to use bitcoin anyway.

The currency you want to use to price your products is an economic decision you have to make for your business.  Whether it is USD, EUR, JPY or BTC doesn't matter: it's always the same problem.

[markm]

Also, business is different from personal.

If Mark Metson "earned" a month of hosting normally retailed for $5, that very likely needs to be declared as $5 income.

On the other hand if Mark Metson's Sole Proprietorship "Digitalis Data Services" aquired that same hosting and failed to make any money with it - or come to think of it, even if succeeding in making money with it - it is merely an expense, and thus a tax deduction if Digitalis or MarkM paid for it, not income at all!

Get yourself at least a Sole Proprietorship or (as Digitalis used to be) a partnership (that happened to have no partners just me), and if you actually do "take off" look into the lovely scam (as some Libertarians seem to consider it) known as a Limited Liability Company.

Or your planet/regions similar constructs/entities.

-MarkM- (These keystrokes are a business expense, but being a business Digitalis won't beg. ) (Yet hahahaha)

[Mahkul]

Yes, but who decides how much 1 BTC is worth? What if the value goes up by 100% before there is time to pay the tax? It isn't that simple I am afraid.

It is.

If you don't trust bitcoin to have a little stability in the future, then I guess you're unlikely to use bitcoin anyway.

If I didn't trust Bitcoin I wouldn't be opening a shop.

The currency you want to use to price your products is an economic decision you have to make for your business.  Whether it is USD, EUR, JPY or BTC doesn't matter: it's always the same problem.

What do you mean? The rules of opening a business using USD, EUR or any other common currency are clear and out there. My question is very simple: how technically do you do this - I put goods on the offer and price them in BTC. I only accept BTC as a payment method, but it is very unlikely (at the moment) thatI will be able to buy goods from a wholesaler for BTC, so I will have to use EUR. So, after I sell all the goods for BTC how do I deal with taxes? This is my main question - how to legally run a Bitcoin only shop. I don't think anyone answered that clearly.

[grondilu]

What do you mean? The rules of opening a business using USD, EUR or any other common currency are clear and out there. My question is very simple: how technically do you do this - I put goods on the offer and price them in BTC. I only accept BTC as a payment method, but it is very unlikely (at the moment) thatI will be able to buy goods from a wholesaler for BTC, so I will have to use EUR. So, after I sell all the goods for BTC how do I deal with taxes? This is my main question - how to legally run a Bitcoin only shop. I don't think anyone answered that clearly.

Can't you just declare your business income in BTC, and pay whatever the government asks you for that?

My point is that as long as you tell the government exactly what you do, I don't see how it could blame you for anything.

[ribuck]

Calculate your BTC income and expenditure. The difference between them is your BTC profit. Calculate your dollar income and expenditure. The difference between them is your dollar profit. On the last day of your tax year, work out the dollar-equivalent of your BTC profit, using a market rate (e.g. MtGox). Declare the total profit in dollars (most countries have a box near the end of the tax form for "other income").

The only problem is that you will need to pay tax to the government.

Don't forget to keep records of all your costs, including electricity for your computer, and heating/lighting for your home office.

When your business grows much bigger, you can afford to pay an accountant to tell you whether there are more profitable ways to structure your business. But at this point, your need is to get the business established.

[Mahkul]

Calculate your BTC income and expenditure. The difference between them is your BTC profit. Calculate your dollar income and expenditure. The difference between them is your dollar profit. On the last day of your tax year, work out the dollar-equivalent of your BTC profit, using a market rate (e.g. MtGox). Declare the total profit in dollars (most countries have a box near the end of the tax form for "other income").

The only problem is that you will need to pay tax to the government.

Don't forget to keep records of all your costs, including electricity for your computer, and heating/lighting for your home office.

When your business grows much bigger, you can afford to pay an accountant to tell you whether there are more profitable ways to structure your business. But at this point, your need is to get the business established.

Finally some proper advice. Thanks ribuck!

[markm]

Yes that sounds very very squeeky-clean, and less whatever you're taking I want some than "calculate your net gain of README files, Makefiles, sundry executables paperclips popped-off keyboard-keys, slightly wonky mice bitcoins sheets of newspaper and so on, all the tools of business you have more of now than last year and calculate what you could get on e-bay or mtgox or whatever for them".

When I am raking in taxable-tax-bracket income in Bitcoins I think I like the suggestion of only calculating what my bitcoin gains would be worth not what all the other sundry digital and non-digital tools gained might be auctionable for,

But meanwhile I will continue to figure that I am not sure yet how many paperclips to accept for a Freeciv Gold unit instead of $1000 usd or one Bitcoin.

-MarkM- (Now accepting offers in CDN-Delivered paperclips!) (And Genuine Antique Hand-Carved Tally-Sticks!)

[ptd]

A run to what, whom, where??  People know that bitoin is not redeemable to anything.  Personnaly if bitcoin price was to decrease dramatically, I'd buy everything, just as I'd buy several kilograms of gold if the price went to 35$ an once.  I doubt I'd be the only one.

The US dollar (which isn't redeemable for anything either), imagine suddenly everyone sold all their BTC on Mtgox and then more people and more people. You can have crash in the bitcoin market just like you can in the stockmarket.

[grondilu]

The US dollar (which isn't redeemable for anything either), imagine suddenly everyone sold all their BTC on Mtgox and then more people and more people. You can have crash in the bitcoin market just like you can in the stockmarket.

That would be great.  I could buy a LOT of bitcoins.

I would also love to see this happen in the gold market.

[markm]

Luckily for me the paperclip market already crashed. I wonder how many buggy-whips I should accept instead of how many paperclips?

Anyone got any genuine Henry Moore Paperclip Sculptures they wanna sell?

I have too many USD already. My 5 in mtgox my browser doesn't seem to want me to sell and those in PayPal I can spend some on renewing my domains but not sure I want to throw any more away on hosting I spent a lot that way already and have less now to show for it.

-MarkM- (Actually Henry Moore Pipecleaner Sculptures might also be of interest?)