Crypto-currency in America: Walking on Thin Ice

Last year was the year of thecrypto-currency. "Virtual" P2P (peer to peer) currencies such asBitcoin, Litecoin, and the meme-inspired, Dogecoin surged into popularity inthe span of just one year. Last year has also seen the dramatic rise, andsubsequent notoriety, of Bitcoin. From just US$15 at January 2013, the value ofa single bitcoin surged past the US$1000 mark by November 2013. It was aphenomenal rise that few people had ever imagined for a financial entity thatis freely unregulated and not backed by a government or any other hard assetsuch as gold.

Tightening the Noose on Crypto-currency

While Bitcoin is the darling of libertarians, Silk Roaddrug dealers, and internet nerds, it's anonymous "virtual" nature(along with other crypto-currencies) has earned it the ire of governments andthe disdain of economists worldwide. Nobel Prize winner Paul Krugman of the NewYork Times even went so far as to call it "evil." Russia and China banned it outright from theirshores, while other governments have issued warnings against using crypto-currenciesfor transactions.

Crypto-currency America: statesand relations

But why the animosity? First off, the Feds don't like it when people do thingsthat make them invisible to the tax radar. Crypto-currencies have no governingbodies and are all completely anonymous, so there's no way that the IRS canfigure out who's earning how much. Just recently, the IRS has released IRSNotice 2014-21, amemorandum that states that the bureau recognizes crypto-currencies as assetsand should be taxed as such, and that all wages paid in virtual currencies mustbe taxable to the person who received them. The same goes for income paid invirtual currencies through the sale of goods. The state of crypto-currency inthe USis complex, and is currently mired in legal hoopla.

And the recent state of setbacks for Bitcoin even encourages the US governmentto get more involved in the crypto-currency movement. Mt. Gox,unarguably the largest bitcoin exchange on the internet, was recently hackedearlier this year. A total of nearly US$460 million of bitcoins was siphonedoff due to a glitch that went undetected for the past couple of years. It was ahuge blow to the bitcoin community. Literally overnight, Bitcoin's valueplummeted down by at least half of its original value. It now stands somewherearound US$440 per bitcoin (from the high US$900-US$1000 range at the beginningof the year).

Despite these very public setbacks, the fact still remains that people wantminimal government intervention when it comes to financial matters. Smallestablishments, from neighborhood cafes to sidewalk lemonade stalls, havestarted to embrace the advantages of Bitcoin. While there is a slim possibilitythat Bitcoin may be dissolved in use if problems such as the Mt. Gox fiascowill continue, people will still manage to find their own ways of making theirown crypto-currencies. In fact, the native American tribe Oglala Lakota Nation,has officially formed and adopted their own virtual currency called theMazaCoin. This is something that could radically reshape tribal economies.

With the numerous advantages that crypto-currencies offer the consumer, thereis little doubt that there is little government can do to stem their everincreasing use.

Follow us on Facebook