Do you think shorting of Bitcoins should be allowed?

[TonyT]

"Allowed" by whom? Bitcoin is not a monarchy.

Oh yes it is! Read the below on the death of Bitcoin--if it does not elect a monarchy to govern it ("governance structure").

There's trouble in paradise...

TonyT

http://www.technologyreview.com/news/525676/academics-spy-weaknesses-in-bitcoins-foundations/

Yet signs are emerging of more subtle flaws in the vision of Satoshi Nakamoto (which may or may not be a pseudonym), with analysis suggesting the rules governing how Bitcoin operates as a currency may be far from perfect. Some researchers claim that these rules leave room for cheats to destabilize Bitcoin. Others have concluded that major changes to the currency’s rules will be needed as the number of bitcoins in circulation increases.

The only solution Kroll sees is to rewrite the rules of the currency. “It would need some kind of governance structure that agreed to have a kind of tax on transactions or not to limit the number of bitcoins created,” he says. “We expect both mechanisms to come into play.”

[BurtW]

Same old bullshit we have been hearing for years.  Bitcoin is still here. 

[TonyT]

uh oh...bitcoins are not fungible after all... and taxable as capital gains says the IRS.

Trouble in paradise.

TonyT

The IRS ruled that Bitcoin and other virtual currencies are property, not currency.  This means that they are subject to capital gains taxation.  And that means that Bitcoins are not fungible.  The price at which a particular Bitcoin was acquired (and this is traceable) determines the capital gains on that particular Bitcoin when spent.  If I spend Bitcoin A, which I bought at $10, but is now worth $400, I’ve got a very different tax treatment than if I spend Bitcoin B, which I bought at $390. (Poor Satoshi–he’s got a lot more capital gains than most…)  This means Bitcoins are not fungible, and that makes it unworkable as a currency.  If I have to figure out which particular Bitcoin in my wallet I want to spend and what the tax treatment will be, Bitcoin just doesn’t work as a commercial medium of exchange.  Bitcoin still works as a speculative medium, but Bitcoin’s claim has always been to being more than the latest iteration of the trading sardines–it aspired to be a commercial medium.  I don’t see that happening now.

- See more at: http://marginalrevolution.com/#sthash.G16rvTlQ.dpuf

And what about this statement by the member BurtW here?  In view of the above?  Clearly it's panic time for bitcoin lovers!:

"Bitcoin must have unqualified fungibility to survive as a form of money.  We must support all efforts that protect and improve the fungible nature of Bitcoin and stand firmly against anyone or anything which threatens this essential property."

[BurtW]

It is simple:  the IRS is wrong.  I stand by my statement above and yes, it may be an issue for Bitcoin (and all other crypto). 

How much of an issue remains to be seen.

Of course you say it is a BIG issue.  We shall see.

[TonyT]

Great minds think alike! 

TonyT

Should we regulate Bitcoin?

by Tyler Cowen on April 11, 2014 at 9:16 am in Economics, Law, Web/Tech | Permalink

There is a new paper by Jerry Brito, Houman Shadab, and Andrea Castillo, the abstract is here:

    The next major wave of Bitcoin regulation will likely be aimed at financial instruments, including securities and derivatives, as well as prediction markets and even gambling. While there are many easily regulated intermediaries when it comes to traditional securities and derivatives, emerging bitcoin-denominated instruments rely much less on traditional intermediaries. Additionally, the block chain technology that Bitcoin introduced for the first time makes completely decentralized markets and exchanges possible, thus eliminating the need for intermediaries in complex financial transactions.

    In this article we survey the type of financial instruments and transactions that will most likely be of interest to regulators, including traditional securities and derivatives, new bitcoin-denominated instruments, and completely decentralized markets and exchanges. We find that bitcoin derivatives would likely not be subject to the full scope of regulation under the Commodities and Exchange Act because such derivatives would likely involve physical delivery (as opposed to cash settlement) and would not be capable of being centrally cleared. We also find that some laws, including those aimed at online gambling, do not contemplate a payment method like Bitcoin, thus placing many transactions in a legal gray area.

    Following the approach to Bitcoin taken by FinCEN, we conclude that other financial regulators should consider exempting or excluding certain financial transactions denominated in Bitcoin from the full scope of the regulations, much like private securities offerings and forward contracts are treated. We also suggest that to the extent that regulation and enforcement becomes more costly than its benefits, policymakers should consider and pursue strategies consistent with that new reality, such as efforts to encourage resilience and adaptation.

Along related lines, you might consider Adam Thierer’s excellent new book Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom.
- See more at: http://marginalrevolution.com/#sthash.g3xPJrde.dpuf