Wire transfers?

[Dan The Man]

You guys are overthinking it. Bitcoin already replaces the structure of Western Union. If you try to build a business that handles both ends of the transfer, then you are just copying WU's business model and you don't even need Bitcoin. You could use your own internal ledger system. In fact there are a lot of underground money transfer organizations that do just this. The thing about Bitcoin, is that the system is in place. All you need is a way to exchange local currency for Bitcoin. We already have these to an extent. But Bitcoin is Western Union, it doesn't need a Western Union business to be built around it. It just needs exchanges.

[1714063964]

1714063964

[Dan The Man]

You guys are overthinking it. Bitcoin already replaces the structure of Western Union. If you try to build a business that handles both ends of the transfer, then you are just copying WU's business model and you don't even need Bitcoin. You could use your own internal ledger system. In fact there are a lot of underground money transfer organizations that do just this. The thing about Bitcoin, is that the system is in place. All you need is a way to exchange local currency for Bitcoin. We already have these to an extent. But Bitcoin is Western Union, it doesn't need a Western Union business to be built around it. It just needs exchanges.

So what we need is for corner stores to hang a sign out front saying "bitcoin bought and sold here". Person A goes into the store with Country A cash, buys bitcoins from merchant. Person A then sends those bitcoins to person B. Person B walks into corner store near them, transfers bitcoins to merchant, and then walks out with Country B cash.

Anybody have a friend who owns a store? I think this will happen naturally as bitcoin catches on around the world, but you can certainly help the process along by suggesting it to the businesses around you. Maybe even tell them about your cousin in Azerbaijan who you want to send money to, and if they started trading bitcoins they would get commision. Help them see the benefit to themselves: If they charge a commision of the right amount, they could keep more themselves but charge the customer less than using other forms of money transfer.

Well there are already stores that accept Bitcoin as payment. If they aren't hording them, what are they supposed to do with them? Mark them up 2% and sell them back to the public of course. Since there is a generally high general demand for bitcoin right now, this seems like the easiest way to get them into circulation. Most people I talk to want to get one or two to see how it works or whatever. Going through Dwolla and Mt Gox is too much hassle for them. But if they could go to say, that restaurant in New York and buy some of their Bitcoin reserve on the spot, it might be worth while.

[ovidiusoft]

So what we need is for corner stores to hang a sign out front saying "bitcoin bought and sold here". Person A goes into the store with Country A cash, buys bitcoins from merchant. Person A then sends those bitcoins to person B. Person B walks into corner store near them, transfers bitcoins to merchant, and then walks out with Country B cash.

This will not work in countries with VAT. If you want to be legal, you'll have a huge spread between buy and sell price (your markup and the VAT). Minimum 20%, much more in some countries. In order to avoid the VAT issue, you'd have to be registered as an exchange office (but Bitcoin is not a recognized currency...), or as a money transfer/non-banking financial institution, which has its own many issues, costs and regulations.

The only way I could find that might work is as a "commercial intermediary" (sorry if I didn't translate correcly) - a company that introduces two parties who will engage in a commercial exchange. Think auction sites. User A has bitcoins, user B has USD, company C provides the way for them to engage in the exchange, for a small fee. It does have the issue that company C can't be a party of the exchange, both A and B are needed...

It's complicated

[repentance]

So what we need is for corner stores to hang a sign out front saying "bitcoin bought and sold here". Person A goes into the store with Country A cash, buys bitcoins from merchant. Person A then sends those bitcoins to person B. Person B walks into corner store near them, transfers bitcoins to merchant, and then walks out with Country B cash.

This is exactly how a lot of the smaller money transmission companies here operate.  Merchants whose core business is something else entirely offer money transmission services.  They are still required to be licensed in order to do this though, so they operate as agents of a parent company.  They're also required to sight the same ID as larger services like Western Union.

As long as you're taking someone's money in order to transmit it to someone else - even if the means by which the actual transmission happens is through Bitcoins - you're going to need licensing as a deposit-taker/money transmitter/payment processor/whatever.  Being a small corner store offering the service as a sideline isn't going to exempt you from the legal requirements for operating such a service.

And service based taxes are also going to be an issue in some countries. 

[Dan The Man]

So what we need is for corner stores to hang a sign out front saying "bitcoin bought and sold here". Person A goes into the store with Country A cash, buys bitcoins from merchant. Person A then sends those bitcoins to person B. Person B walks into corner store near them, transfers bitcoins to merchant, and then walks out with Country B cash.

This is exactly how a lot of the smaller money transmission companies here operate.  Merchants whose core business is something else entirely offer money transmission services.  They are still required to be licensed in order to do this though, so they operate as agents of a parent company.  They're also required to sight the same ID as larger services like Western Union.

As long as you're taking someone's money in order to transmit it to someone else - even if the means by which the actual transmission happens is through Bitcoins - you're going to need licensing as a deposit-taker/money transmitter/payment processor/whatever.  Being a small corner store offering the service as a sideline isn't going to exempt you from the legal requirements for operating such a service.

And service based taxes are also going to be an issue in some countries. 

The key though is that nobody know what the client is doing with their Bitcoins or where they got them from. The store just exchanges them for dollars. 

[MatthewLM]

But they can't advertise to the government inspectors "bitcoins bought and sold here VAT free" can they?

[Dan The Man]

But they can't advertise to the government inspectors "bitcoins bought and sold here VAT free" can they?

Mt Gox does it.

[repentance]

But they can't advertise to the government inspectors "bitcoins bought and sold here VAT free" can they?

Mt Gox does it.

Nobody's ever suggested that MtGox even tries to comply with financial services laws in the countries in which it operates.  They're operating unlicenced and unregulated and France probably won't be the only country where that bites them on the ass.

The key though is that nobody know what the client is doing with their Bitcoins or where they got them from. The store just exchanges them for dollars.

And how is the merchant going to deal with this from an accounting point of view?  What's he going to explain the outgoing dollar payments as in the books?  If he keeps the transactions totally off the books then he's in for a world of grief if his activity gets discovered.  Plus he needs a legitimate way of converting the Bitcoins transferred to him back to hard currency because there's only so much you can buy with Bitcoins at this point in time.  He doesn't want to be stuck with Bitcoins he exchanged for $2.50 each when they're now only worth $1.50.

[Dan The Man]

VAT stands for Value Added Tax. It means that the government is adding value to everything you buy, but not in the way you would think, by encrusting it with diamonds or something. They add value by making you pay more for it, and since you get what you pay for, you are getting more value for the same product. Pretty ingenious way to make everything more valuable.

[phillipsjk]

My understanding of a VAT, is that the product is taxed whenever "value" is added in the chain. According to the Wikipedia Article, suppliers are able to deduct the tax they pay on inputs, such that they only pay the government tax on the "value" they add.

This is awkward for bitcoin if it is considered a commodity. That implies that in a country with a 20% VAT, 10 BTC of any 50 BTC coin creation transactions should go to the government as tax. If you buy coins low, and sell them high, you would also pay 20% tax on the profit (if your coin supplier also paid the VAT, 20% on the face value otherwise).

This brings up an awkward situation where it may be considered beneficial to consider bitcoin a currency (and all the expensive regulation that entails) in some countries (like where VAT is a concern), and a commodity in others. If it is a commodity, you you need to secure export and import permits to move Bitcoins across borders?

Edit: I also did not mention that informal transactions totalling less than ~$35 thousand a year are often exempt. As BTC prices rise, more and more miners (and informal traders) may flirt with the threshold.

[iamzill]

My understanding of a VAT, is that the product is taxed whenever "value" is added in the chain. According to the Wikipedia Article, suppliers are able to deduct the tax they pay on inputs, such that they only pay the government tax on the "value" they add.

This is awkward for bitcoin if it is considered a commodity. That implies that in a country with a 20% VAT, 10 BTC of any 50 BTC coin creation transactions should go to the government as tax. If you buy coins low, and sell them high, you would also pay 20% tax on the profit (if your coin supplier also paid the VAT, 20% on the face value otherwise).

This brings up an awkward situation where it may be considered beneficial to consider bitcoin a currency (and all the expensive regulation that entails) in some countries (like where VAT is a concern), and a commodity in others. If it is a commodity, you you need to secure export and import permits to move Bitcoins across borders?

Edit: I also did not mention that informal transactions totalling less than ~$35 thousand a year are often exempt. As BTC prices rise, more and more miners (and informal traders) may flirt with the threshold.

Only if your business is trading bitcoins (good luck convincing the tax man). Your scenario is describing a capital gain, so the capital gains tax applies, which is usually much higher than the VAT.

[ovidiusoft]

For those of us who live somewhere without a VAT tax, could you explain what it is, and how it could apply to bitcoins?

Much better explained than I could do: https://en.wikipedia.org/wiki/VAT

Do all these legal requirements apply if you are exchanging local currency for foreign currency?

No. Currency exchange is VAT-exempt.

[ovidiusoft]

Only if your business is trading bitcoins (good luck convincing the tax man).

Well, that's not really a problem, the taxman won't care, as long as he can put a price on that. It will be like selling services, or SSL certificates, or selling the same copy of an MP3 over and over.

The sale of bitcoins for fiat is actually easier for the accounting dept., since it has an evident value attached. It's more complicated to sell products for bitcoins, as this will be a barter (which must have a fiat value attached, too). But I digress.

[ovidiusoft]

If you buy coins low, and sell them high, you would also pay 20% tax on the profit (if your coin supplier also paid the VAT, 20% on the face value otherwise).

Yes, that is the real problem with VAT vs bitcoins. In probably 90% of the cases, bitcoins will be purchased from people, and will not carry VAT, so there's nothing to deduct .

[MatthewLM]

Mt. Gox doesn't sell bitcoin, it sells the service of exchange. They don't have to charge VAT.

Question is: If an individual bitcoin seller trades above the VAT threshold in their country do they legally have to include this? I don't know, if bitcoin exchanges come into legal problems I just hope they can work OK underground.

[ovidiusoft]

Mt. Gox doesn't sell bitcoin, it sells the service of exchange. They don't have to charge VAT.

I don't know what is the procedure for VAT in Japan, but as the general case says, they should charge VAT on their exchange fees.

Question is: If an individual bitcoin seller trades above the VAT threshold in their country do they legally have to include this?

I believe they would have to, yes.

[MatthewLM]

I don't know what the VAT is like in Japan is either but VAT on fees is much different than VAT on the whole thing.

[ovidiusoft]

I don't know what the VAT is like in Japan is either but VAT on fees is much different than VAT on the whole thing.

Of course, it's the difference between selling the coins and being an intermediary for two parties who want to exchange coins. See my post #24.

[byronbb]

I think focusing on a single country would be a good start for such an idea. USA <-> Philippines or Mexico are the obvious to me.

[Stephen Gornick]

I was driving down the road and I saw a "Western Union" sign and thought...why do we still have those places around?

Bitcoin could easily replace Western Union all over the world

$350 billion this year ... just to developing countries.

http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:23058070~pagePK:64257043~piPK:437376~theSitePK:4607,00.html