Has the Black Jacketed Boot of the Obama Administration on the Neck of Bitcoin just made it impossible for Bitcoin to become a viable Virtual Currency?


As I have stated many times already, the WHY is simple, the people who have taken over this once great country, own the current monetary system and would rather kill off everyone of us, than allow it to be changed. (See my article on the ten financial executives recently found dead, around the globe, of “suspicious” circumstances)

The How has been a bit more difficult. I believe they instigated the Mt. GOX failure as well as more nefarious incidents to attempt to stop Bitcoin from taking hold and when those attempts all failed (See my article on the new replacement for Mt GOX) and when you have people like Marc Andreessen and many other high profile businessmen and women all “buying in” to Bitcoin, they realized they would need to take another approach and after hauling CEO’ of multiple Bitcoin companies to Jail on false and completely idiotic charges (charged with money laundering because some stranger “might” use your services to launder money??? Why is every Bank CEO not in prison then?), and nothing worked they decided to use the Black Booted IRS instead to put the boot on the neck of Bitcoin…

On Tuesday, the Internal Revenue Service ruled that it would tax Bitcoin as a property, not a currency.

Some see the move as helping to bring the medium into the mainstream. Now that bitcoins can be taxed, they’re reportable, and the legal ramifications of buying and selling a coin are clear.

The IRS’s decision, though, may end one of the great dreams of Bitcoin. The U.S. government will now subject owners of individual bitcoins to capital gains taxes: What they gain on buying or selling a bitcoin, they must pay taxes on.

That’s a big deal, perhaps bigger than it seems, because—as a new blog post by Georgetown Law professor Adam J. Levitin explains—it means Bitcoin can no longer function as a digital currency.

To tax Bitcoin as property, he says, destroys its fungibility: One Bitcoin can no longer be exchanged for another.

This was one of the original intents behind the service. Bitcoin aimed to function as a kind of digital money, meaning it had to work as a unit of account, a medium of exchange, and a store of value. In reverse, that means:

As a store of value, Bitcoin’s price had to be predictably stable, such that you could neglect to spend a single bitcoin and know its value would not fluctuate wildly. In late 2013, many argued that Bitcoin’s quickly rising price kept it from functioning as a dependable store of value, but there were no technical or regulatory reasons it couldn’t function as such eventually.

As a medium of exchange, Bitcoin must be commonly desired. People must want to have Bitcoin; others must want to spend it. (Thus, it avoids the ‘coincidence of wants’ problem—in order to trade, both people don’t need to want something the other person has. Instead of trading rent for food, for example, you can rent living space from a landlord with money, and your landlord can use that money to buy food.)

Finally, as a unit of account, Bitcoin had to have a standard numerical value to be used to measure profits and settle debts. It had to be divisible (which it was, since smaller units of bitcoin could be traded); it had to be verifiable (which it was—this formed the basis of its cryptosecurity), and finally, it had to be fungible, meaning that every bitcoin was the same as every other bitcoin.

And that’s where it gets interesting.

Something like a $10 bill, for example, is fungible. The $10 bill you got from an ATM is the same as the $10 bill you got back as change at the ice cream parlor is the same as the $10 bill you (on a very lucky day) find on the street. It does not matter which $10 bill you spend.

So $10 bills, in other words, are interchangeable. This is why we don’t use horses, bananas, or hand-painted ceramic ashtrays as currency. (The hand-painted ceramic ashtray you got from an ATM is unlikely to be of the same quality as the one you found on the street. This is also why art doesn’t make a good currency.)

“So,” asks Levitin, “what does this have to do with Bitcoin?”

    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. […] This means Bitcoins are not fungible, and that makes it unworkable as a currency.

And then:

    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.

It still works as a speculative medium, Levitin writes. But one bitcoin, per Levitin, no longer equals one bitcoin no longer equals one bitcoin. Every bitcoin you own is a little different.

By Jarrett Neil Ridlinghafer 
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