Why Bitcoin is ultimately doomed to fail (not today or tomorrow)

[deisik]

To your point, I've been selling bitcoin this week and buying gold and silver (am I going to get ridiculed for admitting that on this board?) because I think the price has just gotten nuts (while gold and silver are at or near their points of maximum pessimism).

Absolutely not! I also sold some portion of my coins yesterday (just in time, not at the very top but close to it). So currently I don't care where the price will go, though I think we've topped already, at least for the nearest future...

By the way, your feedback on BTC transactions was one of the most valuable in the thread

[PrivateWorld]

To your point, I've been selling bitcoin this week and buying gold and silver (am I going to get ridiculed for admitting that on this board?) because I think the price has just gotten nuts (while gold and silver are at or near their points of maximum pessimism).

Absolutely not! I also sold some portion of my coins yesterday (just in time, not at the very top but close to it). So currently I don't care where the price will go, though I think we've topped already, at least for the nearest future...

By the way, your feedback on BTC transactions was one of the most valuable in the thread

Thank you, it's interesting you said that because we were coming at it from opposed views on Gresham's Law (although your response gave me pause, like  that awkward moment when you realize "I've got it backwards again" kind of pause)

Don't get me wrong, anybody who knows me or followed my writings on bitcoin on wealth.net knows I'm a huge advocate of crypto-currencies, I think they are a true game-changer in terms of re-asserting liberty and free-market principles into an increasingly centrally planned economy.

In that sense, I'm a Believer.

But you also have to look at what's actually happening, and being a businessman who accepts bitcoin in a non-bitcoin business (meaning I'm not an exchange, I'm not selling mining rigs, etc) you get a certain vantage point on the market - how are the participants actually voting?

It's been quite interesting to watch. My biggest surprise was how many of my existing customers were already involved in bitcoin and using it to pay vs how many new customers came in because of bitcoin. Back in 2003-2004 when we were accepting e-gold, it was 0% former, 100% latter (I saw the problems inherent with e-gold and made it a point to out-exchange into physical coins as fast as it came in).

With bitcoin, it started out as nearly 80% former, 20% the latter and has only lately begun to reverse trend (only in the sense that word is getting out that we accept bitcoin, bringing in new customers who want to use it to pay)

[RodeoX]

If government already taxes Bitcoin owners, then it was faster than I thought

There has never been a time when the growth in value on a bitcoin is not taxable in the U.S. The law is quite clear that anything you buy and sell at a higher price is taxable, bitcoin is no exception. Of course, the IRS is way behind the curve on this and may be able to do little about taxes.
I think it is a good practice to pay capitol gains when converting to $USD. Failure to do so may bite you later. You might have to pay back taxes and fines later that could wipe you out.

I think it is so everywhere throughout the world, but could they really trace you down, and what about the case when you mined bitcoins yourself (paid for electricity and bore other costs)? I'm not now talking about Silk Road and all that underground shit, but if you sold your coins at Coinbase, how would they even know in the first place?

Yeah, I doubt they have people who know how to track coins. And if you mined then sold bitcoin face-to-face, the IRS wouldn't know. Not sure about coinbase, but if they are compliant they will report ?some/all? sales for $USD. If you think about it, when you cash out for USD and the exchange deposits in your bank account or writes you a check, that is a business record that is linked to you.

[OneEyedJack]

I don't think that Bitcoin will fail as much as people think. The reason the dollar bill has been so strong is because we were forced to accept it as currency. We had no choice in the matter. Same as all other currencies that use paper.

The dollar is supposedly backed by gold, hence it's value. However, The gold is in one place controlled by one entity.
Bitcoin is not centralized. therefore the mention of paper currency for bitcoin is moot. You would have to gather all the bitcoins into one place, thereby centralizing it, which is the exact thing it was made to do against.

The problem with bitcoins is very simple, they can be lost without any hope for recovery. Therefore, alt currencies will help fill the gap. Kind of like, We have dollar bills, but we can also have Euros, or Drupals, etc. Other currencies besides the ones we rely on.

That's my 2 satoshis

[AnonyMint]

And if you mined then sold bitcoin face-to-face, the IRS wouldn't know.

You guys don't think.

Someone down the line of the coin's history won't be anonymous, then they are culpable for all activities on the coin unless they can provide the identities of whom they bought from and sold to. This will cascade right back to you the miner.

Once the IRS starts attacking, no one will accept or sell coins without knowing the identity of the counter-party.

The government is sitting back letting the wildwest go on so as to let electronic money become popular. Then they will crack their whip and it will done. There will be no difference between Bitcoin and 666. Everything is on the public ledger. Much worse than cash.

[PenAndPaper]

I don't think that Bitcoin will fail as much as people think. The reason the dollar bill has been so strong is because we were forced to accept it as currency. We had no choice in the matter. Same as all other currencies that use paper.

Noone thinks that bitcoin will fail. The only ones that do so is those that are thinking bitcoins as something that opposes the dollar and that's wrong anyway.

[deisik]

And if you mined then sold bitcoin face-to-face, the IRS wouldn't know.

You guys don't think.

Someone down the line of the coin's history won't be anonymous, then they are culpable for all activities on the coin unless they can provide the identities of whom they bought from and sold to. This will cascade right back to you the miner.

If they don't know your wallet, the information about someone down the chain won't help them. If they do, then they won't need this information either. To track all transactions with that wallet would be enough to corner you, unless you're a miner. So it is all six of one and half a dozen of the other...

[RodeoX]

And if you mined then sold bitcoin face-to-face, the IRS wouldn't know.

You guys don't think.

Someone down the line of the coin's history won't be anonymous, then they are culpable for all activities on the coin unless they can provide the identities of whom they bought from and sold to. This will cascade right back to you the miner.

Once the IRS starts attacking, no one will accept or sell coins without knowing the identity of the counter-party.

The government is sitting back letting the wildwest go on so as to let electronic money become popular. Then they will crack their whip and it will done. There will be no difference between Bitcoin and 666. Everything is on the public ledger. Much worse than cash.

I will accept them. I'll just spend them when I'm living in another country. All the IRS can do now is drive bitcoins out of the country. That is no benefit to them.

[deisik]

Once the IRS starts attacking, no one will accept or sell coins without knowing the identity of the counter-party.

The government is sitting back letting the wildwest go on so as to let electronic money become popular. Then they will crack their whip and it will done. There will be no difference between Bitcoin and 666. Everything is on the public ledger. Much worse than cash.

Despite what you say, they weren't able to do anything to Edward Snowden, so I think it is not too late yet. Though I agree that anonymity of Bitcoin is a myth. Was trying to explain this to one of the converts here, but to no avail...

[yntro]

I don't think they will make out of the internet ... Only we will use BitCoin nothing major wont happen.

[zimmah]

And if you mined then sold bitcoin face-to-face, the IRS wouldn't know.

You guys don't think.

Someone down the line of the coin's history won't be anonymous, then they are culpable for all activities on the coin unless they can provide the identities of whom they bought from and sold to. This will cascade right back to you the miner.

Once the IRS starts attacking, no one will accept or sell coins without knowing the identity of the counter-party.

The government is sitting back letting the wildwest go on so as to let electronic money become popular. Then they will crack their whip and it will done. There will be no difference between Bitcoin and 666. Everything is on the public ledger. Much worse than cash.

I will accept them. I'll just spend them when I'm living in another country. All the IRS can do now is drive bitcoins out of the country. That is no benefit to them.

in that case you also should not accept dollars, you know almost every dollar has cocaine traces on them? sometimes even enough to cause police dogs to smell it.

now, how many times had the IRS contacted you for having cocaine in your wallet?

[RodeoX]

And if you mined then sold bitcoin face-to-face, the IRS wouldn't know.

You guys don't think.

Someone down the line of the coin's history won't be anonymous, then they are culpable for all activities on the coin unless they can provide the identities of whom they bought from and sold to. This will cascade right back to you the miner.

Once the IRS starts attacking, no one will accept or sell coins without knowing the identity of the counter-party.

The government is sitting back letting the wildwest go on so as to let electronic money become popular. Then they will crack their whip and it will done. There will be no difference between Bitcoin and 666. Everything is on the public ledger. Much worse than cash.

I will accept them. I'll just spend them when I'm living in another country. All the IRS can do now is drive bitcoins out of the country. That is no benefit to them.

in that case you also should not accept dollars, you know almost every dollar has cocaine traces on them? sometimes even enough to cause police dogs to smell it.

now, how many times had the IRS contacted you for having cocaine in your wallet?

I also accept cocaine cover bills for payment. In fact, if there is a lot of blow on it I prefer them.

[deisik]

I don't get either what can be difficult to understand here. If you get an income, you should pay an income tax. If you sale something, you pay taxes from the profits you make. As far as I know, currently no government collects taxes from an income or profit obtained in bitcoins (but can be wrong here).

You are wrong. Gross income is all income from any source derived. 26 USC 61. If you have income obtained in bitcoins, it is taxable just the same as income obtained in any manner whatsoever. Unless there is an exception, income is taxable. There is no exception for income obtained in bitcoins

I'm not very familiar with the US tax system, lol... It is pretty clear with buying and selling bitcoins, but what about bitcoins that you mined yourself and then sold them through an exchange? Should you calculate the profit or can get away with taxes by claiming a net loss? Will they ever come after you?

[deisik]

If you had a time machine which would allow you to travel to the future (say, two-three years ahead of now) and saw the Bitcoins were universally accepted and dollar banned (Bitcoin addicts' pipe dream), would you spend your coins instead of dollars in the present?

Yes. Definitely. As soon as I got paid I'd immediately convert all my dollars into bitcoins. And when I had to buy something, I'd try to pay in bitcoins, rather than converting my bitcoins into dollars and then paying in dollars. The less time I have to hold dollars, the better. If I convert my bitcoins into dollars and then my dollars into food, I have to worry about the value of the dollar going down for the period of time I hold dollars. If I convert my bitcoins directly into food, then I eliminate this risk.

That's what Gresham's Law is about. You run away from a bad money (dollars) into a good money (bitcoins). If you are paid in dollars, you would then try to get rid of them as soon as possible, either through exchange for things or for bitcoins. So with that knowledge in your head you are first of all spending all your dollars...

[deisik]

Obviously you don't know much about how IRS audits work. If you mine bitcoins and sell bitcoins for dollars and then use those dollars to pay your rent, the IRS doesn't have to know that you mined bitcoins and/or sold bitcoins for dollars. They audit you, ask you how you've been paying the rent without earning any income, and then they ask you to prove it.

If you're making $30,000 a year mining bitcoin, or if you're living like someone who makes $30,000 a year, then maybe you'll get away with it. If you're making $30,000,000 a year mining bitcoin, and living the lifestyle of someone who makes $30,000,000 a year, but you're not reporting any income on your taxes, you will get caught.

What would happen if you tried to tell them the truth, that you mined the coins yourself and then sold them paying taxes only for the real profit you made? Would they take you to court if they don't believe you? Any real life evidence or things have yet to happen somewhere in the future (given the number of new millionaires)?

[deisik]

I'm not very familiar with the US tax system, lol... It is pretty clear with buying and selling bitcoins, but what about bitcoins that you mined yourself and then sold them through an exchange? Should you calculate the profit or can get away with taxes by claiming a net loss? Will they ever come after you?

Oversimplifying things (there are 3.4 million words in the tax code alone): You report your revenues and you report your expenses. You pay taxes on the net. If you claim a net loss year after year, there's a good chance you'll get audited. If you get audited, then you have to prove that you reported everything accurately. If you fudge the numbers by a little bit, and report $2,400,000 instead of $2,500,000, then maybe you'll get away with it. Maybe not.

Yeah, I remember Al Capone, then the public enemy number one, was indicted for income tax evasion and sentenced to 11 years of imprisonment. He didn't get away with it!

[RodeoX]

If government already taxes Bitcoin owners, then it was faster than I thought

There has never been a time when the growth in value on a bitcoin is not taxable in the U.S. The law is quite clear that anything you buy and sell at a higher price is taxable, bitcoin is no exception. Of course, the IRS is way behind the curve on this and may be able to do little about taxes.
I think it is a good practice to pay capitol gains when converting to $USD. Failure to do so may bite you later. You might have to pay back taxes and fines later that could wipe you out.

I think it is so everywhere throughout the world, but could they really trace you down, and what about the case when you mined bitcoins yourself (paid for electricity and bore other costs)? I'm not now talking about Silk Road and all that underground shit, but if you sold your coins at Coinbase, how would they even know in the first place?

Yeah, I doubt they have people who know how to track coins. And if you mined then sold bitcoin face-to-face, the IRS wouldn't know. Not sure about coinbase, but if they are compliant they will report ?some/all? sales for $USD. If you think about it, when you cash out for USD and the exchange deposits in your bank account or writes you a check, that is a business record that is linked to you.

Obviously you don't know much about how IRS audits work. If you mine bitcoins and sell bitcoins for dollars and then use those dollars to pay your rent, the IRS doesn't have to know that you mined bitcoins and/or sold bitcoins for dollars. They audit you, ask you how you've been paying the rent without earning any income, and then they ask you to prove it.

If you're making $30,000 a year mining bitcoin, or if you're living like someone who makes $30,000 a year, then maybe you'll get away with it. If you're making $30,000,000 a year mining bitcoin, and living the lifestyle of someone who makes $30,000,000 a year, but you're not reporting any income on your taxes, you will get caught.

(If you've got a really high electricity bill that's also a good way to get caught. They'll probably suspect you of manufacturing drugs rather than bitcoins, but either way it's a big red flag.)

I don't understand what that has to do with my statement? How is it the IRS knows, an audit? I never turn bitcoin into USD, how would they audit my bitcoins?

[ashaw596]

I don't understand what that has to do with my statement? How is it the IRS knows, an audit? I never turn bitcoin into USD, how would they audit my bitcoins?

If you never turn bitcoin into USD, how do you pay your rent?

Well what if his landlord accepts the btc directly and also never reports his income. The transaction would never be recorded. (Of course the same with case ) Theres a reason those chinese restaurants like cash (and its not just because of the lack of credit card fees).

[RodeoX]

I don't understand what that has to do with my statement? How is it the IRS knows, an audit? I never turn bitcoin into USD, how would they audit my bitcoins?

If you never turn bitcoin into USD, how do you pay your rent?

With all the USD I also own.
 

[deisik]

That's what Gresham's Law is about. You run away from a bad money (dollars) into a good money (bitcoins).

I'd like to hear what exactly you think Gresham's Law says. It only applies when bad money and good money are required by law to be treated as equal. It doesn't apply to dollars vs. bitcoins, because the exchange rate between dollars and bitcoins floats.

Strictly speaking, you're right. Yes, it does actually say that the law requires bad money and good money should be treated as equal. But this doesn't mean that we can't extend it a bit by substituting that requirement with an individual's discriminating judgment about the moneys, leaving bad money and good money where they are. So let's call it Gresham's Law Extended to keep things simple and clear...

Or you can call it in my honor, I wouldn't mind!