Bitcoin, tax, and privacy

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It’s a funny thing when it comes to Bitcoin. Many early adopters saw Bitcoin as a tax-free haven. As a way to facilitate borderless payments outside the bounds of regulatory frameworks and tax laws. What many later came to learn is that Bitcoin tax in most countries is treated with the same vigor as property tax. Apparent in Bitcoin’s design is the traceability factor. We often say that Bitcoin is “pseudonymous.” That’s like saying it isn’t exactly anonymous, but nor is it outright giving your name away. Another way of saying it is that Bitcoin is private.

Privacy is a fundamental human right. It is even recognized as such in the UN Declaration of Human Rights and many other international treaties and declarations from various organisations. Then, it is found to be by any reasonable measure, a right that is on shared grounds to Freedom of Speech. Particularly now, more than ever, perhaps, in the midst of our global technological revolution, never has our privacy been under threat as it is today.

Bitcoin is built with privacy in mind. It is not an anonymous coin or ledger like many that have flourished over the past several years such as Monero or ZCash. Recently, several exchanges have felt the pinch of regulatory forces and have started delisting such anonymous tokens. Bitcoin itself remains safe.

Why?

I believe the crux of this reason is that Bitcoin remains magnitudes more transparent than your local bank. Think about that for a minute. The statement isn’t one made by some crypto-fanatic pushing an agenda; this is a fact of the Bitcoin blockchain. Every coin can ultimately be traced back to its mining birth. For this reason, the quintessential Bitcoin Whitepaper describes a coin as a “chain of signatures.”

Most governments around the world have come to sufficiently understand the transparent nature of the blockchain and have appropriately come to assess Bitcoin’s nature suitably. When it comes to tax laws, many governments around the world have come to treat it no different to property. Take, for example, the IRS position “For federal tax purposes; virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.” – That is, upon sale or trade of the asset, the transaction is subject to capital gains tax. Of course, there are also a few tax havens around the world, and on the other hand, there are some states (including Japan, Bolivia, Columbia) that have cryptocurrency tax laws that are incredibly severe. But worse are those that have banned Bitcoin (such as Egypt).

Severe measures against Bitcoin come from a lack of understanding the technology. If most governments understood the transparent nature of Bitcoin and how it could help them, they would jump at the opportunity to embrace the technology. Fear is often a motivator of a strong response. The moderate response is the one many countries have already adopted, likening Bitcoin to property.

Bitcoin doesn’t need to be feared, nor banned, nor should it be under a constant watchful eye. Surveillance is for things that are opaque and hidden. Bitcoin’s blockchain is transparent and can be audited on-demand on an as-need basis. And this is the beauty of Bitcoin’s design. It does not require a watchful eye nor an extreme response that requires its users to report the ongoing funds at every single address. Why? Because it is sufficient to declare the profit and loss on trades, and where there is a discrepancy, an audit can yield further information.

Excessive opposition will only drive users to move to dark web markets, and trade with anonymous coins where tracking becomes much more difficult. However, for Bitcoin, the overall response from the governments around the world has been somewhat encouraging ‘till now… As the most honest and transparent ledger the world has ever known, it is perhaps time that the world embraces this technology, rather than shy or fear it.

To embrace Bitcoin is to embrace its private nature, a fundamental human right. A ledger of truth can yield profound positive changes for the world, but it requires level-headedness. It requires a balance in law that protects users, but also provides visibility of those funding child abuses, terrorism or slavery.

Bitcoin, in the fulfilment of its purpose, will go some way not only to keep citizens honest but governments also. A transparent ledger keeps accountability of all parties – equally, irrespective of whether one is a politician, businessman, or thief.

Eli Afram
@justicemate