How cryptocurrency transactions represent voluntary taxation system
Travis Patron, a digital money researcher, explained why bitcoin may facilitate a taxation environment subversive to national governments and that cryptocurrency is already taxed by default, in an article titled, “Why Bitcoin Creates a Voluntary Tax System”, published on CoinDesk.
He questions that although many jurisdictions have already declared digital currency transactions to be taxable under current legal frameworks, yet how can the state lay claim to the right to tax that which they do not issue and cannot control?
Many government agencies have already cued in to the potential of bitcoin and cryptocurrencies to avoid tax. However, it would appear they misjudge this rising threat looming over their precious tax coffers, he said.
In 2013, the Financial Crimes Enforcement Network in the United States (FINCEN) issued guidance on cryptocurrency taxation, making a false distinction between real currency and virtual currency.
“In contrast to real currency, ‘virtual’ currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency”, states FINCEN. “Virtual currency does not have legal tender status in any jurisdiction.”
What these agencies fail to realize, he adds, is that cryptocurrency is not virtual in any sense of the word. Indeed it is as real, and perhaps even more real, than traditional fleeting fiat currencies. Bitcoin and cryptocurrency offer a near-perfect alternative to traditional tax havens which are being tightly controlled by the new laws associated with the Foreign Account Tax Compliance Act (FATCA).
While explaining that cryptocurrency is already taxed by default, he said that every transaction you send with bitcoin or any other cryptocurrency is taxed by default. In the digital currency space, the taxation represents the transaction fee which the user decides to attach to each payment.
This user can decide to attach a large fee or no fee at all. In doing so, the miners of the network will prefer the transactions with a larger fee attached, and will work to confirm these payments sooner than those with smaller fees. This transactions queue represents a voluntary, pay-for-performance taxation structure where the performance derived from the system is dependent upon how much taxation they pay.
When we come to understand the systemic resilience to judicial intervention, it becomes quite clear that cryptocurrency taxation will remain a voluntary, pay-for-performance function of the network itself. No longer will taxation be enforced through coercion, but become a voluntary act towards increased system performance.
He concluded stating, “Make no mistake, in a crypto-anarchist jurisdiction where there is no means to confiscate or control property on behalf of another individual, the need for the state will cease to exist.
Mass taxation on digital currency is not feasible through judicial enforcement while individual enforcement is bound to prove ineffective. You, or anyone motivated to retain their net worth, will find a subversively lucrative tax haven in the realm of cryptocurrency.”
