Houston, we have a Major Problem!

[KBundy]

And another question for the cosmos...

If I earn 100 bitcoins and I have gains of 75 bitcoins in a given year, and I choose not to cash them in because the price might go up, will I be able to pay the IRS in bitcoins, or do I tell them I didn't pay my taxes because I was waiting for bitcoins to gain in value first?

Greetings all,

This thread has been an excellent read, very interesting, and with many good points and questions.

I would like to take it back to it back to this question for a moment if possible,

1) How do you go about reporting capital gains on a currency that is technically not accepted by the agency who's trying to collect from you?

2) How would the IRS ever know you were saving up bitcoins in the first place?

-KBundy

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[sadpandatech]

I has a question about interest!  Instead of learning from any of the many available sources that are the hallmark of the internet age I will spew crap on forums!  TALK GOOD, READ BAD.

+1

[qbg]

If lending fiat dollars with interest is causing the world economic collapse, will lending bitcoins at interest cause an internet collapse?

If we lend bitcoins with interest, what happens when there are not enough bitcoins to pay off all the interest on the borrowed bitcoins?

Lending with interest does not imply that more money has to be created for the loan+interest to be paid back. Money circulates. The money that is used to pay the interest finds its way back into the economy and may very well be used again later to pay back the loan.

In the current, fractional reserve lending system this would be correct.  With BTC's finite $21MM coins, it doesn't work this way.  Eventually someone will not be paid back.

As long as there are more coins outside of the lender's control than there are due to the lender, everyone can in theory pay back.  Even if the lender is owed 30 million coins, the debts can in theory be paid back as long as the lender spends enough of the coins as they are being paid back.

[bitrebel]

And another question for the cosmos...

If I earn 100 bitcoins and I have gains of 75 bitcoins in a given year, and I choose not to cash them in because the price might go up, will I be able to pay the IRS in bitcoins, or do I tell them I didn't pay my taxes because I was waiting for bitcoins to gain in value first?

Greetings all,

This thread has been an excellent read, very interesting, and with many good points and questions.

I would like to take it back to it back to this question for a moment if possible,

1) How do you go about reporting capital gains on a currency that is technically not accepted by the agency who's trying to collect from you?

2) How would the IRS ever know you were saving up bitcoins in the first place?

-KBundy

I thought I had too much to drink, but if you say it's a good thread, then so be it. Glad you are enjoying it. Maybe it was too much to smoke instead and I actually stirred up some good thoughts. lol

I was just doing what I always do. Think about crazy shit.   

In a monetary system such as the one we have now, bankers loan fiat currency (blips in a computer), and print a percentage of that in paper form and coin. Then, after 1 year, when interest is due, they subtract a percentage of that paper and liquid wealth from the economy. The amount they subtract can be a huge dent into what was injected to begin with hence we have the problem of this....

Banker/government loans people 100 at interest of 8%. One year later there is 91 1/2 dollars left in the economy. Being a regulated currency and economy (regulated being UNDER CENTRAL CONTROL) there is only so many there for people to own and spend and that is what everyone accepts by law. That same year later, when the interest is due, people lose their homes who do not have the currency or liquidity to pay. The loaning mechanism in a controlled economy causes a guaranteed theft from the bottom to the top.

In bitcoins, it would really be no different as I see it. Say I loan 1000 bitcoins at interest of 5 bitcoins, I will end up with 5 more bitcoins than I had before. So, the top loaning bitcoin dog, will eventually have all the bitcoins if people borrow in bitcoin. That can only happen though if there is only one central bitcoin loaning authority and there is and can never be anything like that. So I guess that should put the whole argument to rest.

I think.

[Rob Lister]

And another question for the cosmos...

If I earn 100 bitcoins and I have gains of 75 bitcoins in a given year, and I choose not to cash them in because the price might go up, will I be able to pay the IRS in bitcoins, or do I tell them I didn't pay my taxes because I was waiting for bitcoins to gain in value first?

Greetings all,

This thread has been an excellent read, very interesting, and with many good points and questions.

I would like to take it back to it back to this question for a moment if possible,

1) How do you go about reporting capital gains on a currency that is technically not accepted by the agency who's trying to collect from you?

2) How would the IRS ever know you were saving up bitcoins in the first place?

-KBundy

I think the irs would currently treat this as a barter.  and being the irs, they have that covered.
http://www.irs.gov/taxtopics/tc420.html

Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of goods and services received in exchange for goods or services you provide must be included in income in the year received.

So, you can report it or not report it, as you see fit.  If you choose not to report it, you're breaking the law.  If you get caught, you'll pay the fine (or potentially worse).  So there it is.

[barbarousrelic]

If there are 21 Million bitcoins potentially and someone lends someone 1 million bitcoins with .5% interest, 20,000 bitcoins are the interest. In fiat currency the interest would be stolen off, in bitcoins, it cannot really be taken anywhere, so the question is semi-redundant and a joke in fact. It's a trick question of sorts.

The situation you describe is not a problem at all. Even (taking this to absurdity) if you borrowed all 21 million bitcoins at 5% interest and had to pay back 22,050,000 bitcoins, more than there exist, this would not be a fundamental problem for the monetary system. You would just have to present goods and services to holder(s) of Bitcoins at an agreed upon value of BTC22,050,000.

[kjj]

If there are 21 Million bitcoins potentially and someone lends someone 1 million bitcoins with .5% interest, 20,000 bitcoins are the interest. In fiat currency the interest would be stolen off, in bitcoins, it cannot really be taken anywhere, so the question is semi-redundant and a joke in fact. It's a trick question of sorts.

The situation you describe is not a problem at all. Even (taking this to absurdity) if you borrowed all 21 million bitcoins at 5% interest and had to pay back 22,050,000 bitcoins, more than there exist, this would not be a fundamental problem for the monetary system. You would just have to present goods and services to holder(s) of Bitcoins at an agreed upon value of BTC22,050,000.

This is how the COMEX continues their long running fraud, and always will be able to.

Also, see the term "evergreen" in relation to gold leases.

[bitrebel]

If there are 21 Million bitcoins potentially and someone lends someone 1 million bitcoins with .5% interest, 20,000 bitcoins are the interest. In fiat currency the interest would be stolen off, in bitcoins, it cannot really be taken anywhere, so the question is semi-redundant and a joke in fact. It's a trick question of sorts.

The situation you describe is not a problem at all. Even (taking this to absurdity) if you borrowed all 21 million bitcoins at 5% interest and had to pay back 22,050,000 bitcoins, more than there exist, this would not be a fundamental problem for the monetary system. You would just have to present goods and services to holder(s) of Bitcoins at an agreed upon value of BTC22,050,000.

Knife cuts right through the shit.

[bitrebel]

And another question for the cosmos...

If I earn 100 bitcoins and I have gains of 75 bitcoins in a given year, and I choose not to cash them in because the price might go up, will I be able to pay the IRS in bitcoins, or do I tell them I didn't pay my taxes because I was waiting for bitcoins to gain in value first?

Greetings all,

This thread has been an excellent read, very interesting, and with many good points and questions.

I would like to take it back to it back to this question for a moment if possible,

1) How do you go about reporting capital gains on a currency that is technically not accepted by the agency who's trying to collect from you?

2) How would the IRS ever know you were saving up bitcoins in the first place?

-KBundy

I think the irs would currently treat this as a barter.  and being the irs, they have that covered.
http://www.irs.gov/taxtopics/tc420.html

Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of goods and services received in exchange for goods or services you provide must be included in income in the year received.

So, you can report it or not report it, as you see fit.  If you choose not to report it, you're breaking the law.  If you get caught, you'll pay the fine (or potentially worse).  So there it is.

Did a little investigating into this over the weekend.

Barter is taxed by the IRS only in a certain way, as far as I can tell.
Barter exchanges are taxed because the Barter exchange holds goods for a chosen value in relation to the dollar and that chosen value is taxed. So, Barter is all based on the dollar and that is how they tax it.

Bitcoins are not based on the dollar and can never be, since they are their own currency and fluctuate solely by supply and demand. So, therefore, it stands to reason that bitcoins cannot be taxed, hence the TurboTax ad we saw recently.

[CurbsideProphet]

If there are 21 Million bitcoins potentially and someone lends someone 1 million bitcoins with .5% interest, 20,000 bitcoins are the interest. In fiat currency the interest would be stolen off, in bitcoins, it cannot really be taken anywhere, so the question is semi-redundant and a joke in fact. It's a trick question of sorts.

The situation you describe is not a problem at all. Even (taking this to absurdity) if you borrowed all 21 million bitcoins at 5% interest and had to pay back 22,050,000 bitcoins, more than there exist, this would not be a fundamental problem for the monetary system. You would just have to present goods and services to holder(s) of Bitcoins at an agreed upon value of BTC22,050,000.

I'm having difficulty following your logic.  In your example, you hold all $21MM Bitcoins.  There are no other holders of Bitcoin.  You're it.

How do you "present goods and services to holder(s) of Bitcoins" when none of them exist?  Further why would anyone agree to pay something knowing that they can never collect on those 1,050,000BTC's that exceed the limit?   

[kjj]

If there are 21 Million bitcoins potentially and someone lends someone 1 million bitcoins with .5% interest, 20,000 bitcoins are the interest. In fiat currency the interest would be stolen off, in bitcoins, it cannot really be taken anywhere, so the question is semi-redundant and a joke in fact. It's a trick question of sorts.

The situation you describe is not a problem at all. Even (taking this to absurdity) if you borrowed all 21 million bitcoins at 5% interest and had to pay back 22,050,000 bitcoins, more than there exist, this would not be a fundamental problem for the monetary system. You would just have to present goods and services to holder(s) of Bitcoins at an agreed upon value of BTC22,050,000.

I'm having difficulty following your logic.  In your example, you hold all $21MM Bitcoins.  There are no other holders of Bitcoin.  You're it.

How do you "present goods and services to holder(s) of Bitcoins" when none of them exist?  Further why would anyone agree to pay something knowing that they can never collect on those 1,050,000BTC's that exceed the limit?   

Unless the loan has some sort of silly provision requiring the entire payment to be atomic, the loan holder could easily pay part of it, then buy some bitcoins back from you to pay off the rest.

[bitrebel]

If there are 21 Million bitcoins potentially and someone lends someone 1 million bitcoins with .5% interest, 20,000 bitcoins are the interest. In fiat currency the interest would be stolen off, in bitcoins, it cannot really be taken anywhere, so the question is semi-redundant and a joke in fact. It's a trick question of sorts.

The situation you describe is not a problem at all. Even (taking this to absurdity) if you borrowed all 21 million bitcoins at 5% interest and had to pay back 22,050,000 bitcoins, more than there exist, this would not be a fundamental problem for the monetary system. You would just have to present goods and services to holder(s) of Bitcoins at an agreed upon value of BTC22,050,000.

I'm having difficulty following your logic.  In your example, you hold all $21MM Bitcoins.  There are no other holders of Bitcoin.  You're it.

How do you "present goods and services to holder(s) of Bitcoins" when none of them exist?  Further why would anyone agree to pay something knowing that they can never collect on those 1,050,000BTC's that exceed the limit?   

Unless the loan has some sort of silly provision requiring the entire payment to be atomic, the loan holder could easily pay part of it, then buy some bitcoins back from you to pay off the rest.

But what if that amount costs you interest?

[kjj]

If there are 21 Million bitcoins potentially and someone lends someone 1 million bitcoins with .5% interest, 20,000 bitcoins are the interest. In fiat currency the interest would be stolen off, in bitcoins, it cannot really be taken anywhere, so the question is semi-redundant and a joke in fact. It's a trick question of sorts.

The situation you describe is not a problem at all. Even (taking this to absurdity) if you borrowed all 21 million bitcoins at 5% interest and had to pay back 22,050,000 bitcoins, more than there exist, this would not be a fundamental problem for the monetary system. You would just have to present goods and services to holder(s) of Bitcoins at an agreed upon value of BTC22,050,000.

I'm having difficulty following your logic.  In your example, you hold all $21MM Bitcoins.  There are no other holders of Bitcoin.  You're it.

How do you "present goods and services to holder(s) of Bitcoins" when none of them exist?  Further why would anyone agree to pay something knowing that they can never collect on those 1,050,000BTC's that exceed the limit?   

Unless the loan has some sort of silly provision requiring the entire payment to be atomic, the loan holder could easily pay part of it, then buy some bitcoins back from you to pay off the rest.

But what if that amount costs you interest?

The solution to Zeno's Paradox of Achilles and the Tortoise has been known for centuries now.  The answer is calculus.

[bitrebel]

If there are 21 Million bitcoins potentially and someone lends someone 1 million bitcoins with .5% interest, 20,000 bitcoins are the interest. In fiat currency the interest would be stolen off, in bitcoins, it cannot really be taken anywhere, so the question is semi-redundant and a joke in fact. It's a trick question of sorts.

The situation you describe is not a problem at all. Even (taking this to absurdity) if you borrowed all 21 million bitcoins at 5% interest and had to pay back 22,050,000 bitcoins, more than there exist, this would not be a fundamental problem for the monetary system. You would just have to present goods and services to holder(s) of Bitcoins at an agreed upon value of BTC22,050,000.

I'm having difficulty following your logic.  In your example, you hold all $21MM Bitcoins.  There are no other holders of Bitcoin.  You're it.

How do you "present goods and services to holder(s) of Bitcoins" when none of them exist?  Further why would anyone agree to pay something knowing that they can never collect on those 1,050,000BTC's that exceed the limit?   

Unless the loan has some sort of silly provision requiring the entire payment to be atomic, the loan holder could easily pay part of it, then buy some bitcoins back from you to pay off the rest.

But what if that amount costs you interest?

The solution to Zeno's Paradox of Achilles and the Tortoise has been known for centuries now.  The answer is calculus.

Can you explain this to me?

[kjj]

In Zeno's paradox, the tortoise has a head start, say 100 meters, but Achilles runs 10 times faster.  By the time Achilles reaches the place where the tortoise started, the tortoise is 10 meters down the course.  When Achilles reaches that point, the tortoise will be a meter further.  And then 10 centimeters, then 1 centimeter, and so on.  Achilles can never win.  He can't even catch the tortoise because every time he reaches where the tortoise has been, the tortoise has moved a tiny bit forward.

We now understand this problem in terms of the limit of the infinite sequence.  Even though the sequence is infinite, the limit is not.

In the same way, a borrower can pay back a loan of more than 21 million BTC, even if the loan has interest, and the total amount paid can be finite.

[bitrebel]

In Zeno's paradox, the tortoise has a head start, say 100 meters, but Achilles runs 10 times faster.  By the time Achilles reaches the place where the tortoise started, the tortoise is 10 meters down the course.  When Achilles reaches that point, the tortoise will be a meter further.  And then 10 centimeters, then 1 centimeter, and so on.  Achilles can never win.  He can't even catch the tortoise because every time he reaches where the tortoise has been, the tortoise has moved a tiny bit forward.

We now understand this problem in terms of the limit of the infinite sequence.  Even though the sequence is infinite, the limit is not.

In the same way, a borrower can pay back a loan of more than 21 million BTC, even if the loan has interest, and the total amount paid can be finite.

Well, I definitely won't attempt that one after a couple drinks. I'm still struggling with it sober.
Thanks.

Isn't this just an accounting system of perpetual debt at this point, though. Just ledger entries posting more and more debt, similar to the current ponzi scheme of the US dollar today?

[barbarousrelic]

I'm having difficulty following your logic.  In your example, you hold all $21MM Bitcoins.  There are no other holders of Bitcoin.  You're it.

How do you "present goods and services to holder(s) of Bitcoins" when none of them exist?

None of what exist? Goods and services still exist, I assure you.

edit: And in this extreme example, the single holder of Bitcoins would be the person you owe to. But that doesn't make it impossible to provide him/her with goods and services with a value of the amount owed, thereby canceling your debt.

In reality there will always be a large number of people holding Bitcoins with which you could trade goods/services for Bitcoin.

[Rob Lister]

And another question for the cosmos...

If I earn 100 bitcoins and I have gains of 75 bitcoins in a given year, and I choose not to cash them in because the price might go up, will I be able to pay the IRS in bitcoins, or do I tell them I didn't pay my taxes because I was waiting for bitcoins to gain in value first?

Greetings all,

This thread has been an excellent read, very interesting, and with many good points and questions.

I would like to take it back to it back to this question for a moment if possible,

1) How do you go about reporting capital gains on a currency that is technically not accepted by the agency who's trying to collect from you?

2) How would the IRS ever know you were saving up bitcoins in the first place?

-KBundy

I think the irs would currently treat this as a barter.  and being the irs, they have that covered.
http://www.irs.gov/taxtopics/tc420.html

Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of goods and services received in exchange for goods or services you provide must be included in income in the year received.

So, you can report it or not report it, as you see fit.  If you choose not to report it, you're breaking the law.  If you get caught, you'll pay the fine (or potentially worse).  So there it is.

Did a little investigating into this over the weekend.

Barter is taxed by the IRS only in a certain way, as far as I can tell.
Barter exchanges are taxed because the Barter exchange holds goods for a chosen value in relation to the dollar and that chosen value is taxed. So, Barter is all based on the dollar and that is how they tax it.

Bitcoins are not based on the dollar and can never be, since they are their own currency and fluctuate solely by supply and demand. So, therefore, it stands to reason that bitcoins cannot be taxed, hence the TurboTax ad we saw recently.

I'm not understanding your argument.  If you are a U.S. merchant and accept BTC as payment, then come tax-time you must report the equivalent dollar amount of BTC that you earned as income.  The irs even has several point papers on it for their auditors.  They assist the auditor in detecting these transactions.  Here's one
http://www.irs.gov/businesses/small/article/0,,id=210735,00.html
but there are many.

[FreeMoney]

Private people borrow so much because it's so damn cheap, just like if blueberries were 90% subsidized we'd have a hell of a lot more blueberry juice. People calling themselves governments borrow so much because they aren't going to pay you back with actual value.

OP mentions people will lend with no interest in Bitcoin because they will be getting more valuable coins back. Wrong. Holding the coins yourself is much less risk then letting someone else use them and maybe pay back, the lending that does happen will be at interest.

[lettucebee]

The title of this thread is a VERY poor example.  A good title gives the reader some idea of what the thread is about without having to click into it.  Forum etiquette 101.