Posts tagged with: Ven

bitcoin“For federal tax purposes, virtual currency is treated as property.”

With those ten words, the IRS has made it more difficult — if not impossible — for bitcoin and other virtual currencies from gaining widespread, mainstream acceptance as a currency for commercial transactions. Because they are now treated as property, virtual currencies are considered, like stocks, bonds, and other investment property, as capital assets and will be subject to capital gains tax.

But why does this hinder bitcoins use a currency? The answer is fungibility: Bitcoins are no longer completely fungible.

Joe has done us all a real service in putting together his three part (1, 2, 3) primer on Bitcoin (full PDF here).

I am curious, though, what the justification is for referring to Bitcoin as a “commodity” currency. Consider this from Izabella Kaminska at the FT Alphaville blog:

For those who insist that the term “fiat” refers exclusively to government-issued fiat currency, it’s perhaps better to interpret our use in the evolutionary sense.

Meaning that Bitcoin (and other virtual currencies) represent not commodity money, not managed money, nor even old fashioned government-issued fiat money, but a whole new type of super fiat that is rendered valuable by the issuing crowd (made up of independent entities) rather than the state.

The idea is that Bitcoin isn’t “declared” to be valuable by the state, but that it is “declared” to be valuable by common consent of the community of Bitcoin users. Consider this a kind of communal rather than governmental fiat.

This is why I wondered earlier about Bitcoin as “merely fiat money without the pretensions.”

But then again, isn’t this kind of communal agreement or declaration of value what money has always really been? Isn’t that, as Joe relates, what we learn from the example of the rai of Yap? (Their real innovation seems to be that they anticipated something like the “virtualization” of money exchange.)

Here again I’ll invoke the insight of Richard Whately: “It is not that pearls fetch a high price because men have dived for them; but on the contrary, men dive for them because they fetch a high price.” People are mining Bitcoins because they fetch a high price…at least for now.

Blog author: jballor
posted by on Thursday, April 11, 2013

Bitcoin-coinsWe’ve had some intriguing discussion about Bitcoin at the Acton Institute offices today. It is certainly a phenomenon worth greater attention, and something of significant cultural, social and economic import. But I’m not buying Bitcoin, at least not yet.

My initial skepticism is in part due to my lack of familiarity with the details of the currency and its formation. I certainly need to learn more.

But also in large part my skepticism is due to my doubt about the productiveness of the effort that generates the currency. Is it merely fiat money without the pretensions? Is it the logic of subjective value-theory brought to the final conclusion? I worry that the computing power expended to mine BitCoins is vacuous and parasitic at its core. It does not represent a good or service that has been provided for or contributed to anyone.

A Bitcoin has value simply because people have decided it has value. People “mine” Bitcoins because, as Whately would note, “they fetch a high price.”

But what does a Bitcoin block represent in terms of actual human utility? I worry too that this is a system that relies parasitically on real-world resources, e.g. coal which provides a large part of the electricity, which is used to run computers so that they can then in turn “mine” something entirely virtual.

What is Bitcoin teaching us, really?

If you’ve had experience with Bitcoin or thoughts about the phenomenon, please share them in the comments below.