• Hi Guest: Welcome to TRIBE, the online home of TRIBE MAGAZINE. If you'd like to post here, or reply to existing posts on TRIBE, you first have to register. Join us!

Bitcoins soaring

alexd

Administrator
Staff member
Bitcoins not tax exempt says Canada Revenue Agency

Just in time for tax season, the Canada Revenue Agency says the users of Bitcoins will have to pay tax on transactions in the upstart digital currency.

BitCoins are a fringe online currency that entered the mainstream this year after speculators rushed in and caused their value to more than quadruple in value. Originally designed as a virtual currency alternative to conventional money, the cash value of a BitCoin jumped from under $50 US to above $250 and back earlier this month, as speculators flooded the market after awareness of them grew.

Price swings like that mean some BitCoin buyers and sellers likely made or lost a lot of money, which raises the question of how that will be handled come tax time.

The issue is not just academic. Saskatoon realtor Paul Chavady said he has listed a house priced in BitCoins, and has found clients willing to pay his fees in the electronic currency.

"When you sell [the BitCoins], they will deposit that in your account," said Chavady. "As soon as it turns into Canadian dollars, it's back in the eyes of the CRA and everybody else. If you get a big deposit of $10,000, or $100,000, [CRA is] going to say, 'Hey, where did that come from?'"

Indeed, the tax man has already thought of that.

The CRA told the CBC there are two separate tax rules that apply to the electronic currency, depending on whether they are used as money to buy things or if they were merely bought and sold for speculative purposes.

"Barter transaction rules apply where BitCoins are used to purchase goods or services," Canada Revenue Agency spokesman Philippe Brideau said in an email.

Barter is the exchange of one good for another good without the use of cash, such as when a farmer who grows vegetables trades with another who raises chickens. Many Canadians don't realize such exchanges are taxable, but they are.

Paragraph 3 of the CRA's Interpretation Bulletin IT-490 clearly states that in a barter transaction between arm’s-length persons, "we generally consider that the value of whatever is received is at least equal to the value of whatever is given up."

In the above example, that means whatever you've received in exchange for your $1 worth of vegetables must be documented as a taxable gain of at least $1 somewhere.


When it comes to trading BitCoins for profit, the tax man says there are tax implications there, too.

"When BitCoins are bought or sold like a commodity, any resulting gains or losses could be income or capital for the taxpayer depending on the specific facts," ruled the CRA.

That section is covered in paragraphs nine through 32 of the CRA's section IT-479R, Transactions in Securities, "which provide general comments for purposes of determining whether transactions are income or capital in nature."

Regina currency trader Jeff Cliff already had that figured out. He's been trading BitCoins for three years and said he claims them on his taxes by converting it to the Canadian dollar equivalent. But, Cliff said, it is an honour system.

"It's fairly anonymous system," he said. "I'm not so much into the privacy side of it, so that's why I claim it."

Some advocates of the electronic currency, which only exists as unique codes in complex crytpographic algorithms, have said one of its advantages is that it can be traded and moved across national boundaries without governments being aware.

But as the CRA statement shows, governments are starting to pay attention.

Revenue Canada says BitCoins aren't tax exempt - Business - CBC News
 
Alex D. from TRIBE on Utility Room
tribe cannabis accessories silver grinders

Bernnie Federko

TRIBE Member
Interesting bit about the bust: They are saying the break in the case came from a mail inspection/intercept and not from a technical "cracking" of the underlying data flow process. Seems like they "got lucky", but who knows...
 

wickedken

TRIBE Member
I think one of the Snowden revelations was a program that used NSA and DEA intercepts to feed information to other agencies with the proviso that that information could not be used in any lawful manner. The other agency had to find something else to make their case, but at least they had a starting point. So, who knows...
 

wickedken

TRIBE Member
On another note, it is interesting how BC are being assessed a value, as that means the feds implicitly recognizes that BC in fact have some sort of value.
 

Bernnie Federko

TRIBE Member
I think one of the Snowden revelations was a program that used NSA and DEA intercepts to feed information to other agencies with the proviso that that information could not be used in any lawful manner. The other agency had to find something else to make their case, but at least they had a starting point. So, who knows...

NSA: "hey, since we're recording and searching all online traffic, here's some intel on Mr X which you'll agree is pretty nifty. Now watch what he does, and when he does something illegal, bust him for it. Protip: Manufacture a reason for putting him under surveillance. Also, this conversation we're having never happened." <Touches Nose>

FBI: "Thanks, Brah"

<End Scene>
 
tribe cannabis accessories silver grinders

Bacchus

TRIBE Promoter
i read somewhere today that the FBI now owns 5% of bitcoins (from the bust)

they'll be auctioning them off after the case, apparently.
 

Bernnie Federko

TRIBE Member
Buttcoins.gif
 
tribe cannabis accessories silver grinders

EltrikSoulCntlr

TRIBE Member
NSA: "hey, since we're recording and searching all online traffic, here's some intel on Mr X which you'll agree is pretty nifty. Now watch what he does, and when he does something illegal, bust him for it. Protip: Manufacture a reason for putting him under surveillance. Also, this conversation we're having never happened." <Touches Nose>

FBI: "Thanks, Brah"

<End Scene>

That's is correct.

Exclusive: U.S. directs agents to cover up program used to investigate Americans | Reuters
 

mute79

TRIBE Member
Regardless of whether bitcoins can survive as an internet currency or not, the author of that article doesn't really know what he is talking about.

In the way that he clearly doesn't really understand bitcoins, how they work, or why people use them. For example, he doesn't seem to get that bitcoins are divisible to 100 million parts, which really changes the whole concept of "volume". That alone kills a siginificant chunk of his argument. He also doesn't seem to get an important value of the currency; bitcoins are untraceable and can be used to buy illegal things. Bitcoins have been in use for years, but he is ignoring the history and only basing his theories on the last few months. Additionally, he is trying to predict what will happen based on an understanding of classic (non-digital) currency, when in reality bitcoins are a fairly novel and untested concept.

I agree with the author with respect to a limited supply of currency. People will hoard the money until the currency collapses, it is already happening. The hype for the currency has resulted in a bounce to $1,000 after a drop to $800 following the ban of bitcoins in China. The same phenomenon appears with deflation (i.e. people will hoard the money because tomorrow you will be able to buy more with it), and deflation almost wiped out the US economy entirely during the dirty 30s.

There is no rhyme or reason to value bitcoins at any $ price, as bitcoins are not backed by anything. Bitcoins have become a commodity like Gold or Silver. At least with Gold or Silver there is some manufacturing value whereas with bitcoins there is absolutely nothing except the whatever value they happen to be trading at. This is ridiculously scary, and buying some bitcoins at $1,000 is just ludicrous.
 

acheron

TRIBE Member
I think bitcoin becoming a commodity was kind of the point. You can't build value without scarcity. There was always meant to be a limited supply with a trickle of new bitcoins being "mined".

Gold and silver have manufacturing value but that value is tempered by the whims of the market. Bitcoins have a value outside of their monetary worth as well, which is that perception that they are untraceable.

They are very trendy at the moment but no one is forcing anyone to get into the game. I see Bitcoin as a global experiment in a new kind of currency. The whole thing will disappear as soon as someone figures out how to publicly "out" Bitcoin owners without needing the owners to admit it. Until then, they will continue to be traded widely.
 

mute79

TRIBE Member
From what I'm seeing right now, people are buying bitcoin simply because the price is going up. Which is the worst reason to buy anything, let alone an experimental currency.

As for the point in it being of fixed supply, it is this fact that will continue to raise the value of bitcoin (because people will grow more eager to hoard them and not spend them) until it collapses entirely because there are no bitcoins in circulation. This has happened before, namely after the '29 stock market crash when the dollar was pegged to gold and people were hoarding gold until a 1933 US government act (Executive Order 6102 - Wikipedia, the free encyclopedia) criminilized hoarding of gold.

The stated reason for the order was that hard times had caused "hoarding" of gold, stalling economic growth and making the depression worse.[1] The New York Times, on April 6, 1933 p. 16, wrote under the headline "Hoarding of Gold", "The Executive Order issued by the President yesterday amplifies and particularizes his earlier warnings against hoarding. On March 6, taking advantage of a wartime statute that had not been repealed, he issued Presidential Proclamation 2039 that forbade the hoarding 'of gold or silver coin or bullion or currency,' under penalty of $10,000 and/or up to five to ten years imprisonment.
 

Bass-Invader

TRIBE Member
Why are bitcoins untraceable?

As I understand it, all transactions that take place are stored in the block chain which is public domain. Could you not use the blockchain to trace the flow of coins from, or into a particular wallet?

Does the 'untraceable' label just refer to the ability to associate a particular person to a particular wallet (rather than the transactions that concern a particular wallet?)
 
tribe cannabis accessories silver grinders

acheron

TRIBE Member
in the sense that unless you make yourself obvious it is possible to conceal who is transacting and for what. You can split a transaction into hundreds of microtransactions from different wallets, etc... Apparently bitcoin is very popular with the drug trade for this reason.
 

Bass-Invader

TRIBE Member
It appears that it's between the last two posts.

Bitcoin per-se does leave all transactions in the blockchain, and through analysis of the blockchain you can, indeed trace all transactions between wallets. The analysis reported in Forbes sounds complex, but only because tracing tools aren't mature - otherwise the methods are not extremely difficult to encode in a computer program that could allow law enforcement to precisely trace transactions with a bit of starting info.

Basically in the usual case of an ordinary bitcoin user, transferring bitcoins to another user, that can be traced through the blockchain, even if divided into multiple wallets per user.

On the other hand, there are services out there dedicated to disjointing transactions in the blockchain:
That conclusion holds–at least in part–with the privacy claims of the Dread Pirate Roberts, the pseudonymous administrator of the Silk Road who I interviewed for a story published last month. “We employ an internal tumbler for when vendors withdraw their payments, and a more general mix for all deposits and withdrawals,” he told me when I asked about tracing Silk Road transactions in the blockchain. “This makes it impossible to link your deposits and withdrawals and makes it really hard to even tell that your withdrawals came from Silk Road.”

In this case Silk Road maintains the incoming wallet accounts which are used for all payments made by people who buy stuff using Silk Road (including legal transactions.) Tracking of which incoming payments belong to which sellers is done by Silk Road - off the blockchain. When the seller wants to retrieve his money, Silk Road makes the payment from the pool of money in its wallet accounts. Presumably Silk Road would then erase any records that associate the incoming payment to the withdrawal by the buyer. Doing this would in effect disjoint the information in the blockchain leading from the buyer's wallet to the sellers.

Law enforcement could theoretically take control of Silk Road's servers and fill the blockchain gaps with any info used by the tumbler. But they would only be able to completely trace any transactions for which Silk Road has not yet deleted the records for.

Interesting.

Follow The Bitcoins: How We Got Busted Buying Drugs On Silk Road's Black Market - Forbes
 

g0nz0

TRIBE Member
Bitcoin plummets as China's largest exchange blocks new deposits | Technology | theguardian.com

The price of bitcoin has plummeted following an announcement from China's largest bitcoin exchange that it would no longer be accepting new yuan deposits.

BTC China said that due to action by a third-party payment provider, YeePay, it could no longer accept deposits in the Chinese currency, although it would still be able to process withdrawals. BTC's chief executive, Bobby Lee, said that YeePay gave notice on Wednesday morning Shanghai time that it would no longer provide services.

Lee blamed government regulation for the decision. China's central bank warned in early December that bitcoin was not legally protected and had no "real meaning", and barred financial institutions from using the currency.

On Tuesday, the central bank extended that ban to payment companies like YeePay, and gave them until Chinese New Year, which begins on 31 January, to comply.

At publication time, the value of one bitcoin on BTC China stands at ¥2,630 (£266.02), down from a high of ¥7,395 (£741.70) in late November. Bitcoin has dropped against other currencies in the same period, falling from £750 to £300 in the UK and from $1242 to $480 in the US.

On 18 November, BTC China raised $5m in a funding round from institutional investors Lightspeed. Until then, it had been self-funded by its three co-founders, who opened the site in June 2011.

Bitcoin remains legal to use in China, and the central bank is standing by an announcement that individuals are free to trade it at their own risk. But without third party payment providers, new purchases of the currency are virtually impossible.

That raises doubts about the future of bitcoin. The large boom in value that the currency has seen this autumn is widely thought to be a result of Chinese users adopting it. As Chinese support has since waned, so too has the price.

Bitcoin's supporters have consistently argued that the currency is impossible to fully ban, since it exists as a decentralised network of transactions. But if it can be rendered useless to merchants and customers, an actual ban may be unnecessary.
 

acheron

TRIBE Member
I read somewhere that bitcoin mining is now costing somewhere around three times the value of the bitcoins extracted in terms of the cost of the electricity required for the CPUs, to say nothing of the carbon footprint involved.
 
tribe cannabis accessories silver grinders
Top