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The advent of Bitcoin and blockchain technology has made government taxation obsolete, given how difficult cryptocurrency can be to identify and trace.
Throughout modern history, governments have survived through taxation, or the involuntary acquisition of the product of their citizens’ labor. The advent of government-controlled money made this process vastly simpler.
However, with the rise of Bitcoin and other cryptocurrencies based on blockchain technology, state power to tax income is slipping, and may at some point become a thing of the past entirely.
At its root, taxation is based on compliance of the taxed. Now by no means does that mean that citizens would pay taxes if they could choose otherwise, but rather that they do so rather than face repercussions.
It would be logistically impossible for a governing body to collect funds from the entire citizenry without any meaningful compliance from the taxed. As it stands in the United States, the current taxation system is broken and ineffective.
With the likelihood of an audit very small for the average citizen, many are able to cut corners on reporting income with very few consequences.
The advent of blockchain technology further complicates tax collection. Cryptocurrency is extremely impractical to trace.
To begin with, while all Bitcoin transactions are public and viewable by anyone, the ownership or control over wallets and addresses are not. Simply use different addresses, and financial investigation is effectively obfuscated from a superficial investigation.
Employ a VPN for extra privacy, and use a coin-mixing service to thoroughly mix up which transactions represent legitimate economic activity and which were simply diversionary nonsense.
To take it a step further, use alternative cryptocurrencies like Dash (which has its own mixed “darksend” feature) or Monero (which, among many other features, uses ring signatures to hide legitimate cryptographic signatures amongst a host of decoys).
For extra fun, use all of the above to weave an intricate puzzle nearly impossible to decipher, and absolutely not worth the trouble for all but the biggest targets.
Finally, the very definition of income is fast becoming a moving target. To begin with, a new cryptocurrency can be minted almost instantly, rendering obsolete and inapplicable all laws that specifically name a particular cryptocurrency.
Even if all cryptocurrency were to be legally classified as taxable income, blockchain-based crypto-tokens could narrowly escape the definition of currency by semantics, and yet still be a viable form of trade.
If all else fails, determined tax evaders can simply adopt a gifting economy, using a blockchain system to keep track of who had given what to whom. Which, after all, is all money really is, stripped to its base elements.
A new age is upon us, thanks to technology. Governments, once able to control currency and ensure they were able to claim a portion of their citizenry’s income as their own, will soon lose this power.
Thanks to cryptocurrency, we may see the end of taxation.
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