This is more than a privacy disaster. It is so far so vaguely worded (maybe deliberately?) that the government can target everyone in the ecosystem with penalties:
While the language is still evolving, the proposal would seek to expand the definition of “broker” under section 6045(c)(1) of the Internal Revenue Code of 1986 to include anyone who is “responsible for and regularly providing any service effectuating transfers of digital assets” on behalf of another person. These newly defined brokers would be required to comply with IRS reporting requirements for brokers, including filing form 1099s with the IRS. That means they would have to collect user data, including users’ names and addresses.
The broad, confusing language leaves open a door for almost any entity within the cryptocurrency ecosystem to be considered a “broker”—including software developers and cryptocurrency startups that aren’t custodying or controlling assets on behalf of their users. It could even potentially implicate miners, those who confirm and verify blockchain transactions. The mandate to collect names, addresses, and transactions of customers means almost every company even tangentially related to cryptocurrency may suddenly be forced to surveil their users.
> regularly providing any service effectuating transfers of digital assets
I fail to see how this is a "privacy disaster." It looks like crypto brokers are going to be treated like all other brokerages.
Do you also call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government? Or when Robinhood/Schwab/Vanguard/Etc send the IRS a list of all your stock transactions for the year in a form 1099?
Bitcoin is basically digital gold, and just like with gold, when you chose to buy or sell it the convenient way (eg. through an ETF instead of actual physical gold), it gets reported to everybody.
You can always custody your own bitcoin and find partners to transact with directly and choose not to report it (like with physical gold), but, similar to physical gold, it will be extremely cumbersome, risky, and not worth your time to do so.
The argument is that software developers or miners should not be treated as brokers, the later being akin to ISPs. If you are not going to engage with this argument, why bother?
Why argue against something that isn't actually in the legislation and is intended to scare people?
Sure, if you bend over backwards and squint through one eye, you can contort yourself into the bad faith interpretation that developers will be treated as brokers--given they can engage in "transfers."
But just because some entity can be considered to exist on the same "continuum" as crypto brokers, doesn't mean there isn't a clear division between them:
https://rationalwiki.org/wiki/Continuum_fallacy
One could also contort themselves into the assertion that convenience stores engage in transfers with "digital assets" (shifting credit via digitally created loans provided by Visa).
Maybe I should publish an article saying this legislation will require 7-Eleven to report to the government every time you buy a twinkie? That'll really get some clicks!
> the proposal would seek to expand the definition of “broker” under section 6045(c)(1) of the Internal Revenue Code of 1986 to include anyone who is “responsible for and regularly providing any service effectuating transfers of digital assets”
Then this appears to be false
> something that isn't actually in the legislation
Because "digital asset" is extremely broad and can easily be seen to cover things like video game inventory items.
Is there a specific and detailed definition of "video asset" in the legislation?
See page 2435. Digital asset is defined as a digital representation of value recorded on a cryptographically distributed ledger or any similar technology.
Practically, the Secretary and the courts will decide what this means.
If you’re using in-game tokens to represent value and maintain a ledger, then sure, that could count. Which is good. why should it be possible to sidestep this law by creating a coin that is liquid and fungible and has etfs that track it but just happens to be used for in game purchases? That would be a silly and absurd loophole.
If your in game currency is one-way, ie can’t be converted back to USD or any other assets, then it’s by (legal) definition not representation of value.
> but just happens to be used for in game purchases
Because if I make a game where items drop, and players can transfer items between each other, but not convert any of it to real world money... then making the system, or possibly every single player, be responsible for reporting all activity and participants to the government is... to be blunt, bat-shit crazy?
If it is possible to sell in-game items for out of game money (either using in game processes or an external system like a 3rd party site), then would this mean they are "value". If so, does that mean each player that sells items needs to report every transaction? Or that the game system needs to report every in game transaction (transfer of items from one character to another). And that reporting needs to include real life information about the players involved?
Players already have to report substantial real gains on sales of game assets. If you’ve been doing this and not reporting income, especially if it’s beyond trivial sums (eg like 5 figures or so), talk with your accountant ASAP.
Beyond that, it depends, but the answer definitely isn’t “no”. That’s true even today, btw: game companies can’t knowingly allow money laundering through their in game currency, for example, and gambling laws almost always apply if you can cash out and the game contains any type of chance component (eg loot boxes).
Basically, if your game is setup in a way that could be trivially used for transferring real world assets between players, even existing regulations probably already apply. This is one of many reasons most games only support one way transactions — you can move money into the game but not back out (at least without breaking tos)
“X but in a video game” is almost always actually really X when it comes to money and other assets that can flow into and out of the game easily. A VR Wells Fargo branch is still a bank.
> Players already have to report substantial real gains on sales of game assets
That's a pretty far cry from needing to report "user data, including users’ names and addresses" for every in game transfer of digital assets. (As noted in another message, it's still unclear to me if that's what the bill is requiring).
Can you go into more detail here? Looking at a writeup on the legal definition of value [1], it says
> Value sometimes expresses the inherent usefulness of an object and sometimes the power of purchasing other goods with it. The first is called value in use, the latter value in exchange. Value in use is the utility of an object in satisfying, directly or indirectly, the needs or desires of human beings. Value in exchange is the amount of commodities, commonly represented by money, for which a thing can be exchanged in an open market. This concept is usually referred to as market value.
Conceptually, in game items certainly have a an "inherent usefulness", in that they make the game more enjoyable for the person (or person's character) that possesses the item. This value is transferred between players regardless of whether or not the game provides a way to convert it to real money. For all practical purposes, it is impossible for any game that supports trading assets between characters to completely prevent interactions of the form "if you give me this item, I will give you some amount of real world money".
It seems that any in game assets meet the legal definition of value (that I understand from that page). This would mean that any transfer of said assets between characters would need to be reported on.
I'm open to clarification/correction, with a clear statement that my understanding of this is extremely limited. But it seems like the above is accurate. And seems to fall into the previously mentioned "bat-shit crazy" bucket, if true.
That’s a generic legal dictionary. And it’s a definition of one word in a term of art.
(Digital) representation of value means something more specific in the context of securities law. Something that has intrinsic value but cannot be used as a medium of exchange, unit of account, or store of value is unlikely to be regulated as a security.
There's the thing though. The minute you get to the point where the law is ambiguous, you start seeing law enforcement using it as leverage to get what the want. If the bar is "can they convince a judge that this should count", then they an use it to screw someone over.
I'm in favor of strong limitations on the powers granted to government officials, because there ARE bad apples; and giving the good apples power means the bad apples can decide to ruin someone's life because they can.
But thank you. I very much appreciate you taking the time to put forth your thoughts / knowledge on the subject.
> The minute you get to the point where the law is ambiguous, you start seeing law enforcement using it as leverage to get what the want.
Regulations are rarely explicitly legislated because legislative bodies don't have the time or expertise to maintain the specifics of regulations. Of course, you always want there to be appropriate scoping, but some division of responsibility between the executive and legislative branches is necessary.
I think a good middle-ground here is the updated language from Wyden et al.. I'm not sure how much leverage they have, though -- (D)s won't defect over this issue and it's unclear whether people like Toomey could be brought on board. And if it's not going to flip votes, then changing the language isn't really worth the lift. I would guess the best way to get this change adapted would be to pressure Toomey to vote on infra but insist on this change -- a single additional (R) in the Senate would make this language change over night. But, again, I kind of doubt Toomey considers this a wedge issue.
> If the bar is "can they convince a judge that this should count", then they an use it to screw someone over. I'm in favor of strong limitations on the powers granted to government officials, because there ARE bad apples; and giving the good apples power means the bad apples can decide to ruin someone's life because they can.
It's not just a judge or a single official. The Secretary will create rules through the regular rule-making process. And then those rules might be challenged in court.
That's the trouble with armchair legislation, no one bothers to read the text in full or understand the rules of the game. Most legislation has a dictionary to define the terms use within.
These definitions are critical and updates to modify a definition without modifying the text can still have dramatic affect.
> Sure, if you bend over backwards and squint through one eye, you can contort yourself into the bad faith interpretation that developers will be treated as brokers--given they can engage in "transfers."
Pardon me for having a legal education and knowing that prosecutors are often more than willing to bend over backwards and squint through one eye.
If it's possible for a prosecutor to argue it, they will eventually argue it, and most of the time the courts won't push back.
>Sure, if you bend over backwards and squint through one eye, you can contort yourself into the bad faith interpretation that developers will be treated as brokers
You mean that squinting and bending that DAs often do to get some ridiculous plea bargain from some innocent schmuck?
>>Law professors and lawyers instinctively shy away from considering the problem of law’s violence. Every law is violent. We try not to think about this, but we should. On the first day of law school, I tell my Contracts students never to argue for invoking the power of law except in a cause for which they are willing to kill. They are suitably astonished, and often annoyed. But I point out that even a breach of contract requires a judicial remedy; and if the breacher will not pay damages, the sheriff will sequester his house and goods; and if he resists the forced sale of his property, the sheriff might have to shoot him.
>>This is by no means an argument against having laws.
>>It is an argument for a degree of humility as we choose which of the many things we may not like to make illegal.
> Do you also call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government? Or when Robinhood/Schwab/Vanguard/Etc send the IRS a list of all your stock transactions for the year in a form 1099?
"Disaster" is a loaded word, but of course it would be a huge privacy improvement if they didn't!
> Do you also call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government? Or when Robinhood/Schwab/Vanguard/Etc send the IRS a list of all your stock transactions for the year in a form 1099?
This isn't like that at all. This would be like the government requiring Microsoft to KYC every single user of Excel, because people use their software to manage money.
Not really, since excel can be used for everything from budgeting to making a list of your favorite movies. Cryptocurrency is for transactions and speculation, not much different than any other financial product when you shuck off the technical mumbo jumbo surrounding it. Why would that not be regulated?
Except it's not, if you look at the broader Ethereum & smart contract ecosystem. It's also for decentralized organizations (Aragon), incentivizing distributed storage (Filecoin/IPFS), pricing ad markets (Brave/BAT), supply chain management (VeChain), managing ownership (NFTs), and project governance and voting (many tokens).
This is like saying "The Internet is for porn" because that's your only exposure to it. Yes, it's the most common early use - but it's very far from the only use.
There has to be a coin attached to it because that is how you incentivize actors within the ecosystem to take certain actions (eg. "share their hard disk space" for FileCoin or "view ads" for BAT).
The central premise of these projects is that humans make terrible decisions, markets make good decisions, so let's replace humans with markets whenever possible. Right now, some exec at Google determines how many ads you see on the Internet. The premise of Brave & BAT is that you decide whether you want to see ads on the Internet, you get compensated for viewing them, and if enough people decide the ads are not worth their time, they'll turn them off and drive the price of BAT up enough that people do want to view them.
Right now, some exec at Amazon decides how much you pay for S3. The premise of FileCoin & IPFS is that lots of ordinary home users have spare hard drive space, and they should be able to be compensated for renting out that space to projects that need lots of distributed storage. The market price of FileCoin is that which equilibrates demand for storage with supply.
The requirement is compensation. You could just pay them through PayPal. There's no need to have them do a stock trade for somebody else in order for you to pay them for S3 space.
Is it accurate to treat crypto facilities as equity brokers, or more like foreign currency exchanges? (Forex probably have their own reporting requirements, the question is about analogous service, not the reporting/privacy part.)
You're confused. Section 1256 applies to futures, not forex. Spot forex positions are taxed as ordinary capital gains under Section 988. Under very specific conditions a high-volume spot forex trader who never takes deliver may elect to be taxed under 1256, but that's completely optional.
>Do you also call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government?
Yes. Do you not? They have no right to that information. Why do so many in the "hacker" culture simp for the authority structure?
Hi. I started hacking in 3rd grade in Apple Basic on an Apple IIe, published dozens of CVEs in my youth, helped start a hackerspace, build sota robots, etc etc etc.
Pretty sure I get to call myself a hacker in any sense of that word.
I’m a fan of KYC and paying taxes precisely because I’m a hacker and can immediately see how easy it is to hack civil society without those things.
Also, this isn’t a forum for hackers in any definition of the word. It’s a public discussion forum run by and often for the benefit of a powerful and rich VC firm with substantial investments in alt fin tech speculation. are you sure you’re not the one simping?
Most folks here arguing that banking laws are also a privacy disaster only because of the proposed law. I'm not saying they were ok with it earlier and changing their stance now. Just that, they simply had no stance earlier and accepted the status quo.
(Personally, I think the wording has to be tightened. My only stance is crypto should be on-par with other banking laws. No special treatment. Crypto should (hopefully) succeed but shouldn't become a refuge for money laundering, facilitation of crimes and other less than desirable activities. It could lead to long term harm for the ecosystem than adding KYC and making it mainstream.)
Be careful to attribute what you read on Hacker News to the entire "hacker culture". There are so many strongly held opinions I've never heard hackers say out loud in real life, most famous example must be about unions. I've heard zero hackers arguing that unions are bad in real life, while when the discussion comes up on Hacker News, the discussions seems to lean 50/50 on if unions are actually good or bad.
If you don't believe that the government has the right to make laws, then that's one argument.
If you don't believe that the government should be allowed to attempt to tackle money laundering, that such crime is simply to be shielded at all cost from being reduced, then that's another.
So the question is "what do you want?".
And the cryptocurrency community has been completely unable to present anything that isn't literal anarchy or feudalism. And guess what, nobody will be able to sell anarchy or feudalism to the general public, or even outside a very very small community.
> Do you also call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government? Or when Robinhood/Schwab/Vanguard/Etc send the IRS a list of all your stock transactions for the year in a form 1099?
Yes. Clearly.
My car doesn't keep an up to date record of my name and adress so it can report my position and speed to the authorities. Warrantless wiretapping is illegal in most (every?) form outside finance, and there's no justification for banks or investment firms being any different.
Governments have a right to make laws, they don't have a right to continuously monitor every citizen to enforce them.
> Do you also call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government?
> Do you also call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government? Or when Robinhood/Schwab/Vanguard/Etc send the IRS a list of all your stock transactions for the year in a form 1099?
Yes, I do. The IRS has slowly gathered power since 1913. Federal taxes were supposed to be short term and temporary, for war levies and such.
Furthermore, the tax code within the constitution controverts itself: "all Duties, Imposts and Excises shall be uniform throughout the United States" - I.8.1
I also must throw in the fact that IRS enforcement is disproportionately against "regular" people. The IRS doesn't go after enormous tax dodging billionaires very often, because going after some small business owner who mis-reported something or is trying to squeak something by is a better way to make quota.
It results in yet another area where "laws are for little people."
Yes I call it a "privacy disaster" when your bank account requires your name and address so they can report interest payments to the government. Or when Robinhood/Schwab/Vanguard/Etc send the IRS a list of all your stock transactions for the year in a form 1099.
This should be read along with https://news.ycombinator.com/item?id=28042185 "Wealthy Americans Targeted by U.S. in Panama Tax-Fraud Probe". The fundamental question is "should paying tax be optional for rich people?" Large parts of the crypto ecosystem believe that the answer should be "yes". The US government believes the answer should be "no".
Is privacy, or specifically the ability to earn income while concealing it, a core function?
(It's an unfortunate feature of the weightlessness of modern money, crypto or otherwise, that proportionate privacy is now hard. In the old days, if you wanted to move a lot of money, especially internationally, you had to go to a lot of physical trouble: https://www.rte.ie/news/newslens/2019/1204/1096878-poland/ ; this was hard to hide and easy to intercept. Nowadays you could theoretically move billions with a brainwallet. The binance cold wallet is twice as much as the Polish wartime gold: https://bitinfocharts.com/top-100-richest-bitcoin-addresses....
So we end up with a situation in which in order to track the large transactions a system is built which tracks all transactions.)
Contrary to popular belief, privacy is not a core function of most cryptocurrencies. Every transaction is on an open ledger viewable by anyone. If you fund an address from a regulated exchange, it's simple for the government to know who you are.
Mining is a core function. None of it works without that (or staking, which is equivalent). A miner is not able to know who you are, since the regulated exchanges are not reporting their KYC to all the miners. Making miners responsible for sending 1099s would effectively make it illegal to run public blockchains.
A miner could know who you are, though such functionality is not implemented in any of the current currencies I know of. There is no technical reason that a transaction cannot contain a cryptographically signed identifier of the sender.
A very rough sketch of such a system:
- Any exchange that wishes to offer crypto services to US citizens must do KYC according to the existing regulations.
- Those exchanges make available each day a file with all the KYC-ed wallet adresses.
- Miners can theoretically choose which transactions to include and which to reject, but at the moment the main (only?) criterion is how much fees are attached to the transaction. You could mandate that they also do a lookup into the KYC data and only accept the transaction if the sending address is present in the list.
- I could even see the SEC or some other central body (perhaps one per country) maintaining such a list, exchanges submit their lists and miner can download it. This is already done in several other sectors of the economy.
In that case, every transaction would not only be visible to everyone on a public ledger, but come with complete identification of all participants. It'd be like having your credit card and bank statements posted on a website. Any embarrassing purchases would be public, and anyone with a large balance would be a target.
And why would you do this? The KYC you're making public is already available to the government, and the on-chain transactions are already public.
Paying tax is and will always be optional for the rich. Crypto offers the middle class a chance to evade taxes as well, so lawmakers are of course far more adversarial to it than they are to the methods used by themselves and their corporate friends.
One cold hard look at https://usdebtclock.org/ is enough to convince me that paying taxes to the US government is not a moral imperative. Every penny I pay is going towards paying off a massive ever-expanding black hole of debt that is mathematically impossible to ever pay off, the government is going to spend the same amount regardless of the revenue it collects since the Fed just prints it all anyways. So what's the point in "paying your fair share" in such a system? You'd be a fool not to evade as much as you possibly can.
This misses the point: 'loopholes' often require sacrificing optionality. Most "X billionaire paid Y in taxes" have to do with _deferred_ taxes or charity, which can't exactly be spent on lamborghinis.
There are definitely bad tactics and real loopholes, but this isn't the main problem. The real problems are more subtle and they require trade-offs.
These problems won't be solved as long as the tax code remains as complex as it is.
Massive tax regulation is a surprisingly recent invention.[1]
What about the situation where they borrow against their stocks, pay some small amount of interest and then when they die all the stocks pass to their heirs after settling any remaining debt without paying any income tax?
This legislation will not raise more tax revenue like it proposes. It will stifle the US crypto industry and push it into friendlier jurisdictions. Ultimately it could end up reducing tax revenue compared to not touching the crypto industry.
Only if the government continues to insist on taxing income as a main source of income. The government could easily implement a sales tax and crypto would only be a small obstacle to enforcement. And as a bonus feature we could fire a bunch of bureaucrats too.
> Progressive taxation benefits society at large...
... claim the poor and the people who make their money off capital gains.
Who gets to decide what "good for society" means in context of taxation is possibly the most political question out there. It is not at all obvious that making the most productive people pay most of the burden gets to the best outcome.
Being highly paid or at the top of a management structure does not equal being more productive.
It is one philosophy that there exists some line, some fuzzy DMZ that gets crossed between being merely "wealthy and more prosperous than others" and obscene. Colloquially that seems to be "billionaire" but I bet a lot of people on the farther-left would define is somewhere north of $10 million.
Especially in a country so far behind the rest of the developed world with regards to access to health-care and housing for so many millions of people.
As OSS dev this very often not true for instance: there is a lot of OSS having a positive effect on a huge amount of people and yet the authors scraping by. Paying for OSS should be a tax write off aka charity. Would stimulate more people to just open source it all.
You assume that the value in this case is created merely by its existence but software in a vacuum is worthless. The value in software is also created by orgs that choose to use the software, by distribution networks. It must be reduced to practice.
As a software dev that can be a hard pill to swallow.
This is alleviated with a probate and has been studied in depth ala the FairTax. It's FUD and is holding us back.
Not to mention there are many efficiencies that come with this system which would likely cause prices to even out over time near their current levels or just slightly higher.
Sales taxes can be done in a progressive way if you calculate total purchases for the year as (reported income minus reported money added to savings).
Though, of course, you then need even more reporting than we already have, but it would have the upside of no longer disincentivizing work like the current system does, and rewarding savings over spending too.
Not sure why I got downvoted; while it's not super well-known, this is a real and potentially feasible idea that has been studied by economists and has had papers written about it. You can absolutely apply tax brackets to sales tax to avoid making it a regressive tax, it's just a little bit more administratively complex.
There are a number of reasons for your downvotes. For starters, income taxes don't disincentive work and are in fact lower now than they were during our greatest periods of economic growth.
And from the perspective of someone who actually works in tax: the "FairTax" simply pushes all the complexity to everyday transactions, instead of minimizing it to periodic transactions occurring 1-2 times a month (with reporting once a year). It would hugely disincentive paying for actual things, and artificially incentivize (untaxed) services over (heavily taxed) goods.
Moreover, the "FairTax" rate would be 30% or more on all purchases. Not only would the FairTax would obscenely regressive in effect, but a tax rate that large would push a substantial portion of the economy underground!
There's so much wrong with "FairTax" that it should be called "Ridiculous Tax."
While I agree with much of your post, current taxes on income (featuring reduced taxes on capital income, exclusion of most income from gifts/inheritances, and supplemental taxes on labor income [“payroll tax”]) absolutely disincentivize working for income if you have choices of how to get income. Now, lots of people don't have choices and are stuck with work, but that doesn't mean there is no disincentive effect.
(Of course, “treat income as income” makes this much fairer than the status quo, much less the laughably misnamed “FairTax”.)
All of those alternative sources of money require an individual to already be quite wealthy: capital income means capital assets; gifts/inheritances means wealthy family. At that point...it honestly doesn't matter how you get your money. Over my career I have provided tax consulting and compliance services to many HNW individuals, and income taxes were never once a disincentive to working. A person rich enough to choose how they earn their income works because they choose to.
(Note: payroll taxes such as FICA, etc., actually phase out pretty quickly after $100k in earnings, so they're regressive in nature. There is the high-wage supplemental tax, but this is offset by the cap on income subject to SSI tax, so workers earnings more than $140k actually pay less in payroll tax.)
That being said, I agree that capital gains should be treated as regular income (as it was historically, pre-Reagan) and that income received via gift/inheritance should not receive a FMV cost basis.
That is probably different than the incorrect argument I've often heard, that "if I get paid more and move into a new tax bracket, I'll net less money" which shows up when someone doesn't understand the concept of taxation on marginal dollars.
I think the people who argue for higher taxes on wealthier brackets also argue for capital gains to be taxed at a similar/equal rate to income.
Right, exactly. And besides the examples you mentioned, the differing income tax brackets on married couples is also a big example of this. If only one spouse is working, and the second spouse is deciding whether to get a job, then having all of the second spouse's income taxed at a higher marginal rate from the get go can easily influence people's decisions.
Note: for married couples, the tax bracket thresholds are doubled, except for the highest (37%) bracket, which kicks in for couples making more than roughly $625k but for singles at roughly $520k.
The actual effect is that you need to actually have a huge wealth disparity between partners' earnings for the so-called marriage penalty to kick-in. Fox News notwithstanding, the overwhelming majority of married couples will not see a marriage penalty.
All true, and good points. However the marriage bonus for single earners is much greater than the bonus for double earners, so if you look at it from a certain angle there is sort of a penalty for dual earners vs sole breadwinner marriages.
I think you're making some incorrect political assumptions about my views. I have no idea what this "FairTax" thing is that you're referring to, but that sounds like something pretty different from what I'm talking about.
Your parent comment described one of the proposed ways for implementing the FairTax system, in which a national sales tax would replace the national income tax.
Even if you did not mean to suggest FairTax and you mean something very different, your proposal still ends up being significantly more complicated than an income tax, since now taxpayers must track all purchases made over the year rather than the relatively limited sources of income they have. Your proposal would increase the compliance burden on buyers, sellers, and the government.
No, my comment said calculate total purchases for the year as (reported income minus reported money added to savings) which specifically does not require tracking any purchases, only income and contributions to bank/investment/retirement accounts and such.
By not tracking purchases individually, and only inferring the total amount of money spent by subtracting savings from income, you can also apply brackets to purchases, and thus avoid the regressive nature of a "simple" flat sales tax.
I don't think this would be a good idea for fairness reasons, but assuming you'd implement it this way: How would you collect sales tax if you allow completely anonymous transactions? This is already a problem with cash, it would become a bigger problem if you introduce more convenient alternatives to cash in the form of crypto.
It's a lot easier to require businesses in the country to report sales tax (of which the infrastructure is already in place and could be funded more heavily) than it is to go after individuals. Even if the business' individual transactions are in cash or anonymous.
There will always be a black market, but eventually that money has to flow back into the regular economy (food, housing, etc...) and will be taxed.
It could be done anonymously if you calculate purchases implicitly as income minus savings. This would de-anonymize savings of course, but they’re not really that anonymous right now anyway since most methods of savings have to report interest/dividends/etc.
Right, but the problem cited earlier up in the thread is that sales tax would prevent anonymous purchases; if you accept that income is not anonymous (which it already isn't), then you can still have a system with both sales tax and anonymous purchases.
Savings: unknown (held in cryptocurrency, private)
Tax: divide by zero error
Besides, doesn't the US already have sales taxes? Or are they state-only? I'm starting to favor a tax on real estate and/or land value, since that's physically impossible to hide.
> Besides, doesn't the US already have sales taxes? Or are they state-only?
State. City. County. Sub-divisions of same that are special sales tax districts and have extra sales tax applied. Not every instance of those entities applies a sales tax, but any could and many do. Basically everything except federal. The sales tax where I am, in a "red" state, is about 11% (we actually have a really high effective all-inclusive tax rate in this state, for how entirely shitty government services and infrastructure are)
> I'm starting to favor a tax on real estate and/or land value, since that's physically impossible to hide.
The challenge with that is the system for assigning value—everything else about it is easy. We already have something close to what you'd need in the US because real estate property taxes are common. That system's not perfect but it may still be good-enough, despite its flaws. It seems to work kinda OK. That might change if that became a more important revenue source, and for more levels of government, though.
I suppose people could quibble over what “large” means, but there is unquestionably a not insignificant portion who want cryptocurrency for the express purpose of keeping the government out of money. And another not insignificant piece who believe taxes is a key piece of this.
Anyone who believed governments of the world would sit by and say “oh, a technology that can greatly aid in tax evasion, we’ll just let this grow with zero input from laws” are fooling themselves.
The technology is perfectly sound and in its original blueprint it was never meant to be "traded" or denominated in an actual mainstream or fiat or government currency. So if centralized elements (i.e. major exchanges) are the cancer, then regulations such as these are the scalpel.
If adopted, a cryptocurrency can perfectly serve an ecosystem as an exchange of value, without ever crossing the barrier to the mainstream monetary systems. I.e. a loaf of bread for a certain fraction of a Bitcoin.
That sounds lovely in theory, but once you get to an exchange of value, you cross the line into taxable territory, and will have to exchange something for fiat currencies.
Sure, most minor barter transactions are ignored as de minimus, but that does not make it legal (i.e., not tax evasion).
So paying your neighbor for a loaf of her home baked bread with a wad of coupons for the local store (or Satoshis) is probably ignored because she is not an official business, but if you do the same at the store, or she grows to anything beyond casual home cooking, the store and your neighbor will need to pay both sales tax and income tax - in fiat - on those transactions.
Same goes for us trading anything large, say we barter my car for your boat (or a bunch of BTC, gold, gift cards or whatever), we'll have to pay taxes on the transaction, in fiat. And we may have the additional pleasure of needing to get an appraisal too.
So the idea that crypto currency could never touch fiat was never anything more than a lovely figment of the internet imagination.
The imagination then continues -- the users of this cryptocurrency-based break-away economy then establish a voluntary tax system, where each user sends crypto to the address/wallet belonging to the respective part of the government they want to see stronger/they agree with their direction -- e.g. firemen, army, roads. The address of an entity e.g. army could further be separated by policies e.g. defence vs foreign missions. It would also be customary to publicly advertise one's own tax contributions source address (which then can be easily expanded to all addresses this address has contributed to). In other words, for the first time in history, we'd have an actual democracy.
Yeah, right, the same trope that 'we don't need taxes on the rich (e.g., progressive rates, wealth taxes, etc.), because they can just donate any time they like.
Meanwhile, in the real world, without such wealth taxes, the problem is not' how do we accept all these donations and what do we do with the surpluses?'. The problem is that the wealthy spend enormous sums both capturing regulators to minimize tax, setting up legal structures to avoid tax (trusts, corps, etc.), and setting up outright illegal global tax evasion schemes.
What you propose does not even work on the scale of a condo building. That Miami building that collapsed couldn't even get agreement for years in time to expedite critical repairs, and it killed like half the residents.
Even myself, I'm proud to pay my taxes, understand that in every large complex endeavor or system there will be significant things that can be called out as 'waste', yet I also take advantage of every tax break my accountant recommends.
Enjoy your fantasies, and let us know when you are interested in joining the real world.
That sounds great in theory, but how would you properly fund foreign interventions, the war on drugs, dragnet surveillance, bailouts, anti-competitive corporate regulations, and other unpopular policies if nobody is willing to pay for it?
That's why bundling taxes in a few non-optional packages is so important. Otherwise people will try to selfishly evade paying for services they believe they don't need, and needlessly pry into public finances despite having no expertise in it.
When the rules make it illegal to not pay tax then rich people will pay tax. The rules are made in such way that people can avoid paying tax, legally. So you should call your representative and make it clear that you want it, but I doubt they will listen to you.
A great deal of tax avoidance strategies used by the rich are illegal, but the IRS either doesn’t notice or frequently chooses not to prosecute them.
A recent great example of why they don’t notice. Rich individual 1 was paying for an employee’s children/grandchildren to go to school while deducting that money from his salary via a second set of books. Rich individual avoids payroll tax, employee avoids income tax, and on the surface it looks legal except the second set of books made it a clearly illegal action. It’s exactly that mix of personal and business activities that makes such criminal evasion so hard to track.
Another interesting example of not prosecuting, personal Roth IRA’s may not invest in companies under specific conditions and transactions must be at the fair market rate. Rich individual 2 broke both rules, but the IRS investigation decided to leave it alone. This is adding up to hundreds of millions of dollars in tax fraud, but if the IRS chooses not to prosecute then he’s free and clear.
It’s telling that local law enforcement frequently receives money from confiscated items but the IRS doesn’t. On one hand that’s great from a conflict of interest standpoint, but when IRS funding pays for it’s self via taxes collected it’s an interesting argument to starve them of funds.
I am advocating for state-sanctioned punishment for extremely deleterious behaviour.
Look up the punishments for being a traitor. In most countries, treason is punishable with the death penalty. I see rich people avoiding taxes as a low-level treason. They extract wealth, while damaging society across all strata -- in a way, they are betraying the fundamental underpinnings of society. That should be treated as a sort of treason, and suffer the same punishments.
Capital punishment is not murder. Even killing millions of innocent people, like the US likes to do for financial and racial reasons, is not technically a murder.
I think they were referring to the fact that the state has the monopoly of violence: it is the only moral agent, in the country, with the right to kill without making it a crime.
So it's a murder "technically physically" but not "technically legally".
PS: I'm not endorsing death penalty in anyway. I oppose death penalty.
Murder has a meaning that predates legal definitions.
Also, many groups in history are currently accused of murder despite it being legal at the time.
From slave owners to Nazis, from communists to African warlords.
They committed genocide. Even worse, obviously, but it fits the definition of word “genocide” better than “murder”, thus I believe we should be using that word instead.
Okay, let’s use another example. Is software piracy stealing? Some people claim it is. I don’t, because words have meanings.
If the government does it it's not murder, because murder is specifically unlawfull killing. I also agree that tax evasion should not be punished by the death penalty, but prison and extremely harsh fines would be a good start imo.
According to German law at the time, presumably, they were not committing murder. It's hard to say because it's entire possible for members of a country's military to follow illegal orders and be breaking the law.
According to international law, they were committing murder.
Murder is defined as illegal homicide. As such, it can only be really be discussed in the context of a legal framework. But there can be many legal frameworks at play in any one place/instance.
I'm saying there is a moral framework that supersedes a legal one, and I reject the "dictionary.com" definition as the conical definition.
From the Oxford dictionary, there is more to the meaning than your shallow lawful vs unlawful demarcation line:
. a. The most heinous kind of criminal homicide; also, an instance of this. In English (also Sc. and U.S.) Law, defined as the unlawful killing of a human being with malice aforethought; often more explicitly wilful murder.
In OE. the word could be applied to any homicide that was strongly reprobated (it had also the senses ‘great wickedness’, ‘deadly injury’, ‘torment’). More strictly, however, it denoted secret murder, which in Germanic antiquity was alone regarded as (in the modern sense) a crime, open homicide being considered a private wrong calling for blood-revenge or compensation. Even under Edward I, Britton explains the AF. murdre only as felonious homicide of which both the perpetrator and the victim are unidentified. The ‘malice aforethought’ which enters into the legal definition of murder, does not (as now interpreted) admit of any summary definition. Until the Homicide Act of 1957, a person might even be guilty of ‘wilful murder’ without intending the death of the victim, as when death resulted from an unlawful act which the doer knew to be likely to cause the death of some one, or from injuries inflicted to facilitate the commission of certain offences. By this act, ‘murder’ was extended to include death resulting from an intention to cause grievous bodily harm. It is essential to ‘murder’ that the perpetrator be of sound mind, and (in England, though not in Scotland) that death should ensue within a year and a day after the act presumed to have caused it. In British law no degrees of guilt are recognized in murder; in the U.S. the law distinguishes ‘murder in the first degree’ (where there are no mitigating circumstances) and ‘murder in the second degree’ (though this distinction does not obtain in all States).
Founder of cryptotaxcalculator.io here. First of all I agree the proposed rules aren’t particularly well thought out. The thing is, the 1099 forms that the IRS gets from existing brokers don’t make any sense because as soon as you move funds between exchanges the broker can no longer accurately track the cost basis. Pre-crypto you generally wouldn’t have this problem. From a tax compliance perspective it is an absolute nightmare, and I am sure this is just an ill thought out attempt at trying to make their lives easier. Probably not the best way to go about it though. There is a lot to solve in this space.
One of the underlying problems is that the capital gains tax code itself is designed for a world from a pre-financialized, pre-electronic world from the 1950s. The idea that someone might trade in and out of positions within milliseconds, possibly using complex derivatives or sophisticated leveraged is completely absent from the code. There's nothing in the code that addresses even how to treat trades that are done in the same day. Wash sale rules are literally non-determinable for high frequency traders. There's no guidance whatsoever on when and how derivatives are rolled against the a position in the underlying.
I run a HFT operation, and just computing my US tax returns required thousands of lines of code of custom software. And then to actually file it, I print off a PDF, thousands of pages long of each and every individual trade. Not a CSV, not a data file, literally a printout. As if some IRS accountant is going to manually go through millions of rows line by line with an adding machine.
Ha, I always wondered what HFT tax returns looked like.
Of course, the IRS cannot and will not check every transaction. But I do wonder if they actually verify some subset of the reported transactions, or would this only happen in an audit?
Luckily, never had to go through an audit yet. But spot checking a subset of transactions isn’t actually workable. Because of the wash sale rule, the adjusted basis on any single transaction is path dependent on both the previous and future trades in that symbol.
This is also true of stocks transferred between brokerages -- it's supposed to be transfered with. If it's not, there's a correction line on the 1099 with
a space for accurate cost basis info, and you'd provide the original purchase receipt as an attachment. There might be issues in the space, but cost basis on a transferred equity isn't one of them.
Yes, this is correct. The technical term for this is an "in-kind" transfer, and while it might occasionally allow for things to slip through the cracks, it certainly hasn't stopped capital gain reporting requirements from being both feasible and largely effective.
>It is so far so vaguely worded (maybe deliberately?) that the government can target everyone in the ecosystem with penalties:
That's the point. They reserve the power of arbitrary enforcement early on because they don't know what the stuff they won't like will look like. So then they'll go after anything they don't like and leave it up to the courts and the legislature to clean up the mess.
I would suspect that under the current proposed wording, yes. Facebook, Google, etc. all become brokers. This could be a means for the government to go after social platforms and get transparent vies on all the social media activities of U.S. citizens. It is scary.
As far as I can tell[1], any miner that does NOT verify the identities of the source and destination of a bitcoin transaction, and these happen to involve illegal transactions, are guilty of money laundering under Swedish (and probably most countries') law.
In that law, anyone who actively assists in the transference of valuable tokens need to ensure that they're not assisting in the transfer of value that originates from crime.
And since a miner has explicit choice of what transactions to include in the block, this means that they cannot hide behind a "common carrier"-like[2] exception.
[1] Nope, don't even pretend to be a lawyer in secret, and I may have missed some subtleties.
[2] This is basically what protects the inter-bank transfer services, the banks themselves are on the hook for preventing money laundering transactions to get that far. But since anyone can place a transaction into the pool, this is not applicable.
So in short you're saying that yes actually everyone has to follow AML and KYC laws. You can't just wave a magic "it's math!" wand and pretend that laws don't apply to you.
Cryptocurrencies are not "clever" for avoiding laws.
Brokers have previously been parties that take custody of customer funds. This legislation potentially expands that to anyone who publishes code that users can use themselves to effect trades, for example, a startup that has deployed a smart contract.
The willful stupidity that a lot of posters on here need to engage in to get some crypto bashing points is amazing.
Ironically, this will not hurt crypto at all. It will only hurt US companies by driving them out. US residents will still be able to access and use smart contracts supplied by foreign startups unless the government makes crypto completely illegal.
Or as it is otherwise known, abide by the same KYC rules as banks.
I'd guess the vague wording is to allow regulators and the judiciary to respond flexibly to changing practices. It might be broad but it isn't poor lawmaking: it does exactly as it intends to. Even using brokerage as an analogy makes sense to respond to a system in which by design almost everyone of significance is a middleman of some kind.
Fundamentally this is what will allow bitcoin to thrive: this is part of the process of becoming legitimised. It isn't what the crypto-libertarians hoped for, but what they hoped for in the beginning was endless deflation, untaxable income and speculative gains. It wasn't good for anyone but them.
This is a step to something better, namely a new financial system in which upstarts are able to enter quickly and on technical merit alone. That is worth a lot, and won't happen without bitcoin entering the regulated mainstream.
The fact that the government routinely threatens to "throw the book" at people, using various "vaguely worded" laws, to get them to plead guilty to crimes they may or may not have committed (without their time in court) is a prime reason why those laws are bad.
> We believe you had drugs on you, even though we couldn't find them. We also see you play World of Warcraft and that you're used the in game auction house to sell your items for in game money to other players. If you don't please guilty to the drug charge, we're going to hit you with 1,000+ counts of of violations of the IBCSP (or whatever this law is called); you'd be looking at 1,000 years in prison and a 1,000,0000$ fine, minimum.
The US government _does_ things like that. And, as such (because they have shown they cannot be trusted to act in the spirit of the law), we need to limit what powers we give them. I find it astonishing that anyone doesn't realize this.
Bitcoin already is regulated - piling on as much regulation as possible isn't what's going to make it more main stream. This bill allows the request to treat miners as brokers, which is absurd considering that not all miners operate in the U.S. Any miner that does operate in the U.S. will hash locally and send verified blocks from international nodes, so it won't work anyways.
Upstarts are able to enter quickly based on technical merit alone RIGHT NOW. How does adding regulation simplify that for them? It doesn't - it makes it far more restrictive. You must be on crack to believe these provisions "help" crypto assets. This bill goes against the design philosophy of peer-to-peer transactions.
If the point is that in crypto 3rd party payment processing and money transfers (for example) should be regulated differently than in the other parts of the financial system, let's make it.
I don't think "design philosophy" will be enough, though. The points to make might be more like: is the regulation in normal finance fit for purpose? Should there be an electronic version of cash within some limits and could that be partly done with crypto (same discussion as with CBDC at the moment). Should there be a difference between an individual miner and an industrial one?
Failing financial systems can have huge social and policy implications so technical merit is but one consideration.
> This bill goes against the design philosophy of peer-to-peer transactions.
Yes: because that design philosophy is counter to that of consumer friendly, regulated markets. What will make bitcoin mass market is the ability of regular investors to get involved with the kind of safety net regulations require. The alternative being that bitcoin maintains its already shady reputation as something for money laundering and buying drugs (crack, perhaps?) online. Cleaning up that reputation and its causes is the job of regulation, and it will work.
However, a far larger portion of illicit drug transactions are for cash dollars than for bitcoin; estimates are 2-5% illicit transactions globally in fiat currencies, and about 0.34% illicit in bitcoin in 2020 (a rate that's fallen significantly since 2019 as we see more mainstream early adoption if bitcoin [1].
This proposed regulation doesn't address the problems you evoke, and its an attack on fundamental human rights such as privacy.
> However, a far larger portion of illicit drug transactions are for cash dollars than for bitcoin
The regulatory system, and people who are ok with deferring to it in its existing incarnation (i.e. the revolving door between people within TBTF bailouts-every-day with "open" "market" operations banks [where these cash dollars inevitably end up] and the people who "look" after them system), are fine with this because slaps on the wrists and fines are considered the cost of doing business and there can't be anyway possible to live and exchange value without them being involved under the guise of "protection" or "else" racket.
Robin Hanson would probably call this phenomenon a form of "Elite Tax" on society. [0]
How can anyone enter the market quickly with an app that takes crypto as payment, if you have to register as a broker and meet KYC standards? Suppose you want to sell character costumes or start a subscription podcast in crypto, rather than paying royalties to Apple or having payment processing through Visa. Are you going to demand ID verification from all your listeners? It basically makes it so onerous to a startup that no innovation can happen
> Can you give example of a cryptocurrency startup which innovated anything useful?
This is a trap I've seen many technical folks on HN fall into - they define "useful" along the lines of "beneficial", or "productive", or "worthwhile", rather than simply "is used". Think of casino tokens. They have no intrinsic value, and can only be used within very limited set of environments, so you could think of them as useless in the strict sense. But that doesn't stop large numbers of people using large numbers of them on a regular basis, and the operators make hundreds of billions a year from the people using them, so they are "useful" in the sense of "being used" to serve a strong human desire (just not to make the world a better place).
As opposed to defining “useful” along the lines of “generating profit”.
So, sure, cryptocurrency startups can innovate a new way of making money. But it doesn’t make them useful. One could argue it doesn’t even make them not harmful.
I would also prefer "useful", as in "capable of being put to use", to apply to uses with net positive outcomes for society - I was just trying to make the point that, unfortunately, many others don't.
It also doesn't follow that we should impose onerous restrictions on everything related to a technology just because some people misuse it. eg we don't require documentation of the source of footage from websites who show videos made by hobbyists who fly drones, even though 99% of global drone sales by the dollar are used by governments or terrorist groups to kill people. And we don't punish the hobbyist or the website that shows their videos, or the website that links to that. Down that road lies total information control and state terror.
I hate to break this to you, but state terror is already perpetrated by western states against their own people and the world. Those drones are a good example. Then there is Guantanamo bay, the militarisation of police, disproportionate prison sentences.. the list goes on.
I'm reticent to get into this because it involves value judgments about what's "useful". Are in-game skin purchases useful? Not really. Should we prevent then from being sold because they don't match your definition of usefulness?
To my thinking, provably fair casino games are a useful innovation that sprang from cryptocurrency. Decentralized poker is another. If you find the entire global gaming industry useless, then I guess those are also useless innovations. Again, that's a value judgment.
I don't think it's fair to conflate the people/businesses trying to profit from the crypto speculation craze, pyramid shemes or shitcoins, with e.g. businesses that want to accept crypto to avoid paying a % of their income to Visa. Yet that's what this law would do.
Of course the skins are useful: they provide entertainment. Unless you’re trying to exploit your customers; most countries don’t care, but eg China does have laws to prevent kids from being exploited by game companies.
Very good point about the provably fair casino games. I didn’t even know they exist. However note that casinos are regulated too - you can’t eg serve minors.
It's basically the same with the GDPR, it talks more about principles than companies or technologies to be able to adapt to a fast changing field - which I appreciate as a citizen but as an implementor I prefer the checklists of PCIDSS which are not vague.
Is it really a privacy disaster? Blockchain is already a privacy disaster as all of your transactions are on a public ledger.
It just puts a nail in the coffin of the idea that blockchain is going to be some libertarian dream of freedom from regulation and a magic bullet for getting around rules. Of course this was coming.
The most booming business in crypto is the new category of organized crime.
There are a lot of positive or interesting aspects to crypto, but the prevalence of tax evasion, money laundering and grifts of varying scale dominates the conversation. Regulation is inevitable.
While the language is still evolving, the proposal would seek to expand the definition of “broker” under section 6045(c)(1) of the Internal Revenue Code of 1986 to include anyone who is “responsible for and regularly providing any service effectuating transfers of digital assets” on behalf of another person. These newly defined brokers would be required to comply with IRS reporting requirements for brokers, including filing form 1099s with the IRS. That means they would have to collect user data, including users’ names and addresses.
The broad, confusing language leaves open a door for almost any entity within the cryptocurrency ecosystem to be considered a “broker”—including software developers and cryptocurrency startups that aren’t custodying or controlling assets on behalf of their users. It could even potentially implicate miners, those who confirm and verify blockchain transactions. The mandate to collect names, addresses, and transactions of customers means almost every company even tangentially related to cryptocurrency may suddenly be forced to surveil their users.