What happens in the government if Bitcoin takes over?

[ShakyhandsBTCer]

Dealing strictly in bitcoin would make it very difficult to sufficiently track a person's income. This is especially true for people who do a lot of "side" work as they could simply provide a different address to send payment to for each payment. A person could easily tumble their coins to hide the fact where they originally came from (a particular employer who could then trace them to the employee).

Currently it seems that, for many bitcoiners, just owning coins is all they want from life. But, in that distant future we are considering, that will be sort of passé:  people will presumably want to spend their bitcoins too. 

Suppose you buy a fancy car with the bitcoins from those "side jobs".  The tax detectives will know about the payment, and will link it to you, from the dealer and other sources.  They check their databases and discover that the payment did not come from any of the addresses that you declared in your tax forms.  What then?

Mixing won't help, quite the opposite. The tax office does not need to find out where your extra coins came from; it is you who will have to explain -- and prove -- to them that you paid the tax on that extra income.

Ditto for coins from "dirty" jobs -- if the tax guys suspect that your extra coins may be related to illegal activity, they will warn the police.  Then it will be you, not the police, who will have to explain -- and prove -- that those coins came from legal activities.

Note that the government does not have to catch every single tax evader.  They only need to catch and sternly punish enough of them to scare most of the other citizens into voluntary compliance. 

This would be assuming that using bitcoin would be similar to using "cash"

If that were the case what if you were to use the money from your "side" jobs for smaller things like to go out to eat, or to buy furniture (that is priced below reporting threshold), or other luxury type (but not costing thousands of dollars) items

[JohnnyLightning]

Governments throughout history have excelled in two areas, collecting taxes and killing people.  In other words, they'll do everyting they can.  The real question is, how much of it would we take?

[countryfree]

There are today in the world countries where governments don't control their currencies, and that doesn't prevent them to tax plenty of things. The government can tax properties, vehicles and every good which it says require to be registered. The government also control borders, so it's easy to tax anything coming in.

Several third world countries have their local currency pegged to the U.S. dollar, all for the better, because that helps investors believing in them.

So what makes you think the U.S. controls its borders?

I wasn't thinking about the U.S. but that particular country is doing a pretty good job at controlling its borders. A few Mexicans and some drugs get through, but if someone wants to imports cars, electronics equipments or any manufactured goods in large quantities, that someone will have to deal with the U.S. government in many ways.

[countryfree]

The biggest problem for the government if BTC were to replace "official" currency would be how to run the huge budget deficit which has become the norm in most "developed" countries. If there wasn't any deficit, with a crystal-clear and balanced budget, there should be no difference for the governement between using fiat or BTC.

[JorgeStolfi]

The biggest problem for the government if BTC were to replace "official" currency would be how to run the huge budget deficit which has become the norm in most "developed" countries. If there wasn't any deficit, with a crystal-clear and balanced budget, there should be no difference for the governement between using fiat or BTC.

The deficit is not created printing more cash, but by borrowing from banks and selling treasury bonds.   I don't see why bitcoin would prevent that.  Even if bitcoin replaces the dollar, there will be banks that lend bitcoins, even 10 times more bitcoins than they do actually own.  People would still have to pay lots of taxes so that the government can pay the interest on those borrowed coins.

[Lethn]

The biggest problem for the government if BTC were to replace "official" currency would be how to run the huge budget deficit which has become the norm in most "developed" countries. If there wasn't any deficit, with a crystal-clear and balanced budget, there should be no difference for the governement between using fiat or BTC.

The deficit is not created printing more cash, but by borrowing from banks and selling treasury bonds.   I don't see why bitcoin would prevent that.  Even if bitcoin replaces the dollar, there will be banks that lend bitcoins, even 10 times more bitcoins than they do actually own.  People would still have to pay lots of taxes so that the government can pay the interest on those borrowed coins.

Sorry, but it's made by doing both, banks print the money and the government issues treasury bonds, they work in tandem with each other to get the public into debt and make money off the interest, you've got some research to do if you think it's just borrowing and treasury bonds that are the problem. The borrowing and treasury bonds is how they make money, it's the money printing that causes the hyperinflation and makes the situation worse. Admittedly if the government just made treasury bonds that had a fixed supply, then that would mean that things wouldn't be as bad, but in the end that would require them admitting they were in debt and defaulting on those loans. This is something they're simply not willing to do and partly why money printing came into being in the first place, it's a way of cheating the whole debt system and it will last as long as the creditors they borrow off go along with it.

[ShakyhandsBTCer]

The biggest problem for the government if BTC were to replace "official" currency would be how to run the huge budget deficit which has become the norm in most "developed" countries. If there wasn't any deficit, with a crystal-clear and balanced budget, there should be no difference for the governement between using fiat or BTC.

The deficit is not created printing more cash, but by borrowing from banks and selling treasury bonds.   I don't see why bitcoin would prevent that.  Even if bitcoin replaces the dollar, there will be banks that lend bitcoins, even 10 times more bitcoins than they do actually own.  People would still have to pay lots of taxes so that the government can pay the interest on those borrowed coins.

bitcoin could hamper that effort by making it difficult to create a deflationary environment that makes it cheaper to repay such debt.

Generally very small countries wish to replace their currency with a currency they do not control.

[DeathProxy]

The current goverments will support the banksters to the end. If Bitcoin takesover it means that the current goverment is defeated or replaced. And the new government is pro bitcoin.

The government will still function with bitcoin but does not have the monetary control they have before considering the new currency is bitcoin and decentralized in nature. They can still tax through property tax, sales tax, value added tax.

[niothor]

The biggest problem for the government if BTC were to replace "official" currency would be how to run the huge budget deficit which has become the norm in most "developed" countries. If there wasn't any deficit, with a crystal-clear and balanced budget, there should be no difference for the governement between using fiat or BTC.

The deficit is not created printing more cash, but by borrowing from banks and selling treasury bonds.   I don't see why bitcoin would prevent that.  Even if bitcoin replaces the dollar, there will be banks that lend bitcoins, even 10 times more bitcoins than they do actually own.  People would still have to pay lots of taxes so that the government can pay the interest on those borrowed coins.

bitcoin could hamper that effort by making it difficult to create a deflationary environment that makes it cheaper to repay such debt.

Generally very small countries wish to replace their currency with a currency they do not control.

Show me one country who wishes that.

And one who has no economic problems. So no examples of countries pegging their currency to the usd or euro.

[Lethn]

We have a classic case of this not happening with Scotland where even though you've got the SNP ranting on about Scottish independence they still want to keep the pound! >_< I don't think many small countries have the balls to become fully independent from empires.

[niothor]

We have a classic case of this not happening with Scotland where even though you've got the SNP ranting on about Scottish independence they still want to keep the pound! >_< I don't think many small countries have the balls to become fully independent from empires.

I don't know to much on this subject but this is a pretty weird decision when I think about it.
Seems there are two factions on this:

http://www.scotsman.com/news/politics/top-stories/independent-scotland-should-have-own-currency-1-3378368

LABOUR leader Johann Lamont has said that the “only logical place to go” for a currency option in an independent Scotland would be to have a separate Scottish currency. in a speech to the Scottish Trades Union Congress (STUC).

[Spendulus]

You know what? There have already been coins being set up to make it so that the developers can take a percentage of transactions and block mining and use it for their own purposes, it would actually be incredibly easy and even eliminate the need for tax collectors etc. for governments to make their own coin and take a percentage of all the currency to fund anything they want. While yes, currencies like Bitcoin will remain tax free, it could actually be incredibly easy to set up a government backed cryptocurrency. They'd just have to make it appealing, hell because of the way the blockchain works, they wouldn't even need a tax revenue department anymore because it would all be done automatically.

I have had some in depth discussions about this and am not convinced that a government could successfully do this.

It would certainly be interesting to see one or several try it and see what happened.

[ShakyhandsBTCer]

You know what? There have already been coins being set up to make it so that the developers can take a percentage of transactions and block mining and use it for their own purposes, it would actually be incredibly easy and even eliminate the need for tax collectors etc. for governments to make their own coin and take a percentage of all the currency to fund anything they want. While yes, currencies like Bitcoin will remain tax free, it could actually be incredibly easy to set up a government backed cryptocurrency. They'd just have to make it appealing, hell because of the way the blockchain works, they wouldn't even need a tax revenue department anymore because it would all be done automatically.

I have had some in depth discussions about this and am not convinced that a government could successfully do this.

It would certainly be interesting to see one or several try it and see what happened.

I understand how this would be beneficial to the government (they easily collect taxes) but how would this benefit users?

If "IRScoin" (I don't think this is a real coin) automatically pays taxes and you do "not" owe any taxes on bitcoin wouldn't bitcoin always trade at a premium to IRScoin? If it traded at a premium I would think that it would be more profitable to mine bitcoin then IRScoin (assuming they could not be merged mined and they use the same algo) making the IRScoin network less secure.  

EDIT: it would depend on the difficulty, but you still have the issue of bitcoin trading at a premium