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Author Topic: Bitcoin Easy Tax Chain  (Read 1441 times)
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December 19, 2011, 03:31:14 PM
 #1

I think a small government might benefit from using bitcoin as its currency, but it would face problems taxing it.

I could see them creating a separate chain that would be for their nation's currency. It would work on many of the same principles as bitcoin but would have tax collecting built into it so the government to eliminate two branches - tax collectors and currency management.

I see two ways that taxes could be collected:

1) Transaction tax - a percentage after the fee to the miner goes to the government treasury address
2) Wealth tax - a percentage of all moneys on all addresses goes to the government treasury address.

I think the second might work out better than the first, as the first would be a penalty on doing transactions, which might either decrease economic activity, or simply move money to banking services which would handle transactions without moving money between addresses.

Each branch and sub-branch of the government would have its own address, so all users would be able to see where money is distributed to.

For more some governments with more "communist" leanings, money brought in could be then redistributed evenly too all people in the country (so every person would have a public address individual to them). So someone would be tax N% but afterwards get some specific amount back. Those with a lot of money wouldn't get back as much as they paid in, and those with little money would get more back.

Interestingly if physical coins where created with their own addresses, and used as currency, they would be subject to the wealth tax, and thus the value physical money would decrease in value year to year.

Also interesting is that when your money is used outside of the country, it is still taxed just the same.

This thread isn't for an argument as to whether taxes are good or bad or even if wealth re-distribution is good or bad. So please take off any libertarian hat you have on at the moment, and think "If I were building a social-ist oriented state, how would I implement bitcoin."

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December 19, 2011, 05:32:29 PM
 #2

Still have the issue of no one wanting to mine it, leaving all the mining work to the government. Then there's the issue of Bitcoin type networks being global, meaning the government's mining activities could be supplanted or screwed with by foreigners. About the only secure option a small government would have is to either force everyone else in the country to mine, too, or get rid of mining and just run a secure ledger all by themselves, having total control of all coin distribution, and tracking all transactions digitally from a single centralized location (what central banks already do).
I don't think there is a way for any government or private entity to own a private Bitcoin clone, simply because not enough people would ever be willing to mine/secure it.

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December 19, 2011, 07:06:36 PM
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Still have the issue of no one wanting to mine it, leaving all the mining work to the government. Then there's the issue of Bitcoin type networks being global, meaning the government's mining activities could be supplanted or screwed with by foreigners. About the only secure option a small government would have is to either force everyone else in the country to mine, too, or get rid of mining and just run a secure ledger all by themselves, having total control of all coin distribution, and tracking all transactions digitally from a single centralized location (what central banks already do).
I don't think there is a way for any government or private entity to own a private Bitcoin clone, simply because not enough people would ever be willing to mine/secure it.

Why not just reward people for mining the way bitcoin does? This way it is a non-centralized government recognized currency that also pays for govt activities.

Anyone in the world could mine the currency for the govt, and it would be taxed world wide, and then spent in the country by the govt.

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December 19, 2011, 07:17:59 PM
 #4

Why not just reward people for mining the way bitcoin does? This way it is a non-centralized government recognized currency that also pays for govt activities.

Anyone in the world could mine the currency for the govt, and it would be taxed world wide, and then spent in the country by the govt.

*facepalm* good point.
I guess then the only issue would be people picking between a distributed decentralised currency that charges taxes, and one that doesn't.

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December 19, 2011, 07:42:05 PM
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Still have the issue of no one wanting to mine it, leaving all the mining work to the government. Then there's the issue of Bitcoin type networks being global, meaning the government's mining activities could be supplanted or screwed with by foreigners. About the only secure option a small government would have is to either force everyone else in the country to mine, too, or get rid of mining and just run a secure ledger all by themselves, having total control of all coin distribution, and tracking all transactions digitally from a single centralized location (what central banks already do).
I don't think there is a way for any government or private entity to own a private Bitcoin clone, simply because not enough people would ever be willing to mine/secure it.

Why not just reward people for mining the way bitcoin does? This way it is a non-centralized government recognized currency that also pays for govt activities.

Anyone in the world could mine the currency for the govt, and it would be taxed world wide, and then spent in the country by the govt.

So what's stopping an enemy nation from launching a 51% attack? Untraceable cyber-warfare with 100% chance of victory.
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December 19, 2011, 08:34:43 PM
 #6

+1

Undoubtedly being worked on.  Should be interesting to see the first trial attempts.  Any bets as to who will introduce the first semi-private block chain?  

Another couple ideas:  mining could be limited to "registered entities", i.e. no blocks accepted without some cryptographic proof that the miners are the "right ones" (friends of the king/CEO).  Or, different rewards could be given to the "govt./corp. miners".  And/Or, difficulty could be different for "regis"tered miners presenting appropriate crypto credentials.    

Transactions could be designed to automatically put a certain percentage in a separate royal, er, national account, as an automatic sales tax.

Even better (or worse depending on who you are), one or two addresses in the genesis block could start out with whatever balance you see fit.. or certain registered miners could be permitted to create as many as they like in any block.  Sound like a bad idea for Joe Q. Public?  At least it's better than the current most popular fiats in the world, as at least the public could really know how much was created.  So what's in it for the currency masters?  A little more trust from the public, who might prefer your brand over your competitor, as well as the guarantee of noncounterfeitability and control.  Further, the public ledger has some advantages.    

In general the addition of a third ledger in an accounting system only makes the system -more- accountable, not less.  How to tax block chain currencies, in addition to inflating them, taking fractions from balances, or from transactions:  ask people to report their incomes.  If you think they are living beyond their reported means, audit them.  

Yes, there will be the issue of people using BTCs, NMCs, gold, mooncakes, etc etc. which are competing with your new national/corporate currency and are superior (hold value better) for a non-insider.  This has always been true when introducing a private currency and always will be.  The usual way to start adoption is to pay people in your new currency, this forces them to use it so really it's a non-issue.  

Good luck, free dummy Wink

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December 19, 2011, 11:15:28 PM
 #7

Why not just reward people for mining the way bitcoin does? This way it is a non-centralized government recognized currency that also pays for govt activities.

Anyone in the world could mine the currency for the govt, and it would be taxed world wide, and then spent in the country by the govt.

*facepalm* good point.
I guess then the only issue would be people picking between a distributed decentralised currency that charges taxes, and one that doesn't.

Miners do not give a shit about the moral implications of charging taxes.

They just mine where there's money to be made. That is decided by the amount of economic activity in the network (tx fees) and the size of the economy it covers (value of each coin). What network do you think it is most profitable to keep secure?

A network used by an entire country where a percentage of the money goes to taxes?

Or a network that still isn't used by anyone other than speculators.

Although a viable idea, I don't think any government will be considering implementing their own countrycoin before bitcoin would already account for most economic transactions in the country. The idea is so far-fetched that the point they would be able to convince their conservative nay sayers about it being a good idea is when they are actually using them by themselves in day to day transactions. And at that point the coins would obviously be worthless compared to a Bitcoin that people actually use.

Btw of course the way to levy a wealth-tax should not be redistributing existing coins, but would just be done by a continuous inflation rate (so there would be no preset total amount of coins). That way it wouldn't feel like you're actually losing coins. Fun fact, thats how it's done today.
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December 19, 2011, 11:18:58 PM
 #8

I think a small government might benefit from using bitcoin as its currency, but it would face problems taxing it.
Why should it have problems taxing it? At least corporations could very easily and reliably be taxed with Bitcoins. Just let the government sign a pool of addresses for each corporation and require them to use only those assigned addresses. By setting up a publicly accessible query service, customers could check whether a BTC address they received for their payments is indeed registered to the payee, thereby also making sure that the money will be properly taxed. Every company has a high incentive to only use registered BTC addresses because otherwise they are at risk of getting reported by their customers.

As for taxes on individuals: just rely on the tax declarations like normal - checks for tax fraud may be a bit harder but then again, it's not like you'd really need Bitcoin if you want to hide wealth from the government.

Of course, Bitcoin might go against other interests of a government, but taxation won't really be a problem.
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December 19, 2011, 11:32:22 PM
 #9

Just like namecoin I would suggest that the govenment coin uses the same hashing scheme. This way you can easily take in all the miners looking to make free extra money. This would possibly lead to many nations following the same idea. Miners would end up with a bucket of different currencies to toss up on global exchanges. Collectively they would keep everyone honest and would enforce the currency rules.

Some need to implement some generic bitoin branch that would give govts the incentive to imlempent it as a national currency. Incude some parameters such as where to get current tax rates and treasury output addresses and you might have something a small country or even a local community might adopt. Remember taxes and currency aren't strictly national.

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December 19, 2011, 11:35:34 PM
 #10

I think a small government might benefit from using bitcoin as its currency, but it would face problems taxing it.
Why should it have problems taxing it? At least corporations could very easily and reliably be taxed with Bitcoins. Just let the government sign a pool of addresses for each corporation and require them to use only those assigned addresses. By setting up a publicly accessible query service, customers could check whether a BTC address they received for their payments is indeed registered to the payee, thereby also making sure that the money will be properly taxed. Every company has a high incentive to only use registered BTC addresses because otherwise they are at risk of getting reported by their customers.

As for taxes on individuals: just rely on the tax declarations like normal - checks for tax fraud may be a bit harder but then again, it's not like you'd really need Bitcoin if you want to hide wealth from the government.

Of course, Bitcoin might go against other interests of a government, but taxation won't really be a problem.

You describe a lot of reporting effort. This could all go away if you incude it directly into the currency system.

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December 20, 2011, 12:00:25 AM
 #11

You describe a lot of reporting effort. This could all go away if you incude it directly into the currency system.
True, but most of it could probably be automated.

I don't really see the point of a government wanting to start its own chain - if it dislikes the rules of Bitcoin, then it could simply issue any other centralized digital money instead (or stick to fiat for that matter) - there's no need to go decentralized if they would enforce their rules on the currency anyway. If they don't want to control the currency, then why would people prefer a nationalized version of Bitcoin over the standard global one?
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December 20, 2011, 03:03:29 AM
 #12

You describe a lot of reporting effort. This could all go away if you incude it directly into the currency system.
True, but most of it could probably be automated.

I don't really see the point of a government wanting to start its own chain - if it dislikes the rules of Bitcoin, then it could simply issue any other centralized digital money instead (or stick to fiat for that matter) - there's no need to go decentralized if they would enforce their rules on the currency anyway. If they don't want to control the currency, then why would people prefer a nationalized version of Bitcoin over the standard global one?

A desire to create an uncorruptable money system. For the same reason the usa used currencies based in specific amounts of precious metals. It is a healthy lack of faith in future contollers of a country. It is the same reason you create a constitution that puts limits on the govt. This would be digital handcuffs on the financial manipulators.

Also it creates a faith in the money by users of it.

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December 20, 2011, 04:14:01 AM
 #13


Miners do not give a shit about the moral implications of charging taxes.

They just mine where there's money to be made. That is decided by the amount of economic activity in the network (tx fees) and the size of the economy it covers (value of each coin). What network do you think it is most profitable to keep secure?

Most of the people in this world most of the time do things for reasons other than making money.  Do not underestimate ideology, emotions, sex drive, fear, jealousy, love, ignorance, curiosity, stupidity, spitefulness, and yes, moral implications.  Any analysis based on the assumption that people always choose the best deal based solely on money is out of touch with reality.

They're there, in their room.
Your mining rig is on fire, yet you're very calm.
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December 20, 2011, 05:07:10 AM
 #14

Taxes can also be assessed by requiring green or whitelisted address registered with the state. Outside the country, the currency can be spent tax free, but will need to be re-registered and taxed when brought back and spent.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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