Crypto-currency in America: Walking on Thin Ice

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

Tightening the Noose on Crypto-currency

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

Crypto-currency America: states and relations

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

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

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

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

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