Author Topic: Dan Larimer - Your thoughts on what's happening to Bitcoin right now  (Read 18895 times)

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Offline lakerta06

I just want to add my two bits on the tax issue, with a real world example.

Disclaimer: I am not a tax expert.


Any gamer here knows or heard about diablo3 and its in game market I think. And it also had the real money option. You could buy/sell game items for real money or in game gold.

There were lots of bots, scanning the market and placing buy/sell orders for in game gold. With the aim of increasing their total in game gold, so they can sell it for real money.

To my knowledge, there is not a case of taxation for "in game gold/in game item" trades. So why should BitAsset/BTSX trades be taxable? (Unless BTSX counts as "money")

Then again, I am no tax expert.

Offline tonyk

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Interesting. Maybe I am just pessimistic, but I find it hard to believe the IRS will look at BitAssets in this way.

But let us assume BitAssets on a blockchain are all just different representations of a variable amount of BTSX. Can you people lucky enough to have in-house tax experts answer the following question: how would capital gains taxes work when you actually convert to fiat or real goods/services outside of the blockchain? If I buy x BTSX at price p1, do some shorting, trade for some BitAssets, then later trade back to BTSX, and now I have y BTSX at price p2 and I want to convert z of the y BTSX into dollars, how do I figure out my cost basis (I imagine it depends on the exact history of trades I have done)? Also, that means I have to now worry about a cost basis of BitUSD as well correct? So I buy BTSX at price p1, it appreciates in value to price p2, now I convert all of it at price p2 to BitUSD. Under the assumptions you are all making, that conversion would not be a taxable event. But if I later spend that BitUSD on goods/services, that is a taxable event and I would have to pay some capital gains taxes since I obtained that BitUSD with far less value than its nominal value, correct? Honestly, this all sounds more confusing than just treating the BitAsset trades as taxable events.
I had (and kind of still do have) similar understanding as you. Their interpretation makes as much sense as ours, though... and theirs results, in most cases, in less taxes (at least in the short run, aka while we are alive), so I am fine with it.  :)
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline arhag

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Interesting. Maybe I am just pessimistic, but I find it hard to believe the IRS will look at BitAssets in this way.

But let us assume BitAssets on a blockchain are all just different representations of a variable amount of BTSX. Can you people lucky enough to have in-house tax experts answer the following question: how would capital gains taxes work when you actually convert to fiat or real goods/services outside of the blockchain? If I buy x BTSX at price p1, do some shorting, trade for some BitAssets, then later trade back to BTSX, and now I have y BTSX at price p2 and I want to convert z of the y BTSX into dollars, how do I figure out my cost basis (I imagine it depends on the exact history of trades I have done)? Also, that means I have to now worry about a cost basis of BitUSD as well correct? So I buy BTSX at price p1, it appreciates in value to price p2, now I convert all of it at price p2 to BitUSD. Under the assumptions you are all making, that conversion would not be a taxable event. But if I later spend that BitUSD on goods/services, that is a taxable event and I would have to pay some capital gains taxes since I obtained that BitUSD with far less value than its nominal value, correct? Honestly, this all sounds more confusing than just treating the BitAsset trades as taxable events.

Offline oldman

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This is my grandfather's hatchet.

My father replaced the handle and I replaced the blade.

Is this my grandfather's hatchet?

Offline tonyk

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Hmm... my in house tax expert, seems to agree with you and my more conservative reading of the law seems incorrect...'the taxable event is indeed the conversion to cash it seems'... Good news generally!

Different metaphors are useful at different times. 
The "shares in a company" metaphor is great for explaining what's wrong with first generation crypto.

But reverting to the "coin that contains an exchange that allows you to customize the coin's performance" metaphor is easier to explain to the tax man.  It's just a tunable asset that you buy, hold, tune, hold, tune, hold and sell.  A black box that you buy and sell from the tax perspective.  Who cares whether the inner workings of a "smart coin" are driven by a full featured market simulation or a bunch of monkeys hammering away on keyboards?  Most people don't know or care how most things they use every day actually work.  They don't have a need to know.

Isn't that exactly what you got when you bought Apple and held it while Steve Jobs came and went and came again?  The shares you owned had variable performance as the internal workings of the company were reconfigured behind the scenes.  You paid taxes on the integral growth over time based on change in value.  So we should view the internal exchange as simply changing the settings on what mix of external assets you want your BTSX to mimic. 

Thus, for tax purposes and marketing to certain demographics, the "BTSX Smart Coin" metaphor may be more useful than the unmanned company metaphor.

A sand bag can be sold as a water dam component, a road de-icer, or a cat porta-potty.
You just have to know how to describe it appropriately for each potential customer.   :)

Profound Insight Alert.

You can change metaphors by simply changing skins on your wallet!

We already have "simple" and "advanced" skins for the current client.
Now imagine one with nothing but smart coin dials that control your asset mix, automating all the buy/sell details for you.

"Why, my wallet contains a bunch of smart coins that collectively track a basket of currencies I specified by clicking on a pie chart." 

Suppose that particular skin is what you used exclusively.
What tax report would you expect it to spit out?

2030:  I am still holding those same BTSX, I bought/recieved in 2014?
« Last Edit: September 26, 2014, 04:27:13 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Stan

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Hmm... my in house tax expert, seems to agree with you and my more conservative reading of the law seems incorrect...'the taxable event is indeed the conversion to cash it seems'... Good news generally!

Different metaphors are useful at different times. 
The "shares in a company" metaphor is great for explaining what's wrong with first generation crypto.

But reverting to the "coin that contains an exchange that allows you to customize the coin's performance" metaphor is easier to explain to the tax man.  It's just a tunable asset that you buy, hold, tune, hold, tune, hold and sell.  A black box that you buy and sell from the tax perspective.  Who cares whether the inner workings of a "smart coin" are driven by a full featured market simulation or a bunch of monkeys hammering away on keyboards?  Most people don't know or care how most things they use every day actually work.  They don't have a need to know.

Isn't that exactly what you got when you bought Apple and held it while Steve Jobs came and went and came again?  The shares you owned had variable performance as the internal workings of the company were reconfigured behind the scenes.  You paid taxes on the integral growth over time based on change in value.  So we should view the internal exchange as simply changing the settings on what mix of external assets you want your BTSX to mimic. 

Thus, for tax purposes and marketing to certain demographics, the "BTSX Smart Coin" metaphor may be more useful than the unmanned company metaphor.

A sand bag can be sold as a water dam component, a road de-icer, or a cat porta-potty.
You just have to know how to describe it appropriately for each potential customer.   :)

Profound Insight Alert.

You can change metaphors by simply changing skins on your wallet!

We already have "simple" and "advanced" skins for the current client.
Now imagine one with nothing but smart coin dials that control your asset mix, automating all the buy/sell details for you.

"Why, my wallet contains a bunch of smart coins that collectively track a basket of currencies I specified by clicking on a pie chart." 

Suppose that particular skin is what you used exclusively.
What tax report would you expect it to spit out?




« Last Edit: September 26, 2014, 04:12:09 am by Stan »
Anything said on these forums does not constitute an intent to create a legal obligation or contract of any kind.   These are merely my opinions which I reserve the right to change at any time.

Offline donkeypong

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Hmm... my in house tax expert, seems to agree with you and my more conservative reading of the law seems incorrect...'the taxable event is indeed the conversion to cash it seems'... Good news generally!

Isn't it nice to have an in-house accountant? My brain turns off whenever I have to think about taxes, so I went ahead and married an expert.

Offline tonyk

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Hmm... my in house tax expert, seems to agree with you and my more conservative reading of the law seems incorrect...'the taxable event is indeed the conversion to cash it seems'... Good news generally!

Different metaphors are useful at different times. 
The "shares in a company" metaphor is great for explaining what's wrong with first generation crypto.

But reverting to the "coin that contains an exchange that allows you to customize the coin's performance" metaphor is easier to explain to the tax man.  It's just a tunable asset that you buy, hold, tune, hold, tune, hold and sell.  A black box that you buy and sell from the tax perspective.

Isn't that exactly what you got when you bought Apple and held it while Steve Jobs came and went and came again?  The shares you owned had variable performance.  You paid taxes on the integral growth over time based on change in value.  So we should view the internal exchange as simply changing the settings on what mix of external assets you want your BTSX to mimic. 

Thus, for tax purposes and marketing to certain demographics, the "BTSX Smart Coin" metaphor may be more useful than the unmanned company metaphor.

A sand bag can be sold as a water dam component, a road de-icer, or a cat porta-potty.
You just have to know how to describe it appropriately for each potential customer.   :)

I like your thinking...
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Stan

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Hmm... my in house tax expert, seems to agree with you and my more conservative reading of the law seems incorrect...'the taxable event is indeed the conversion to cash it seems'... Good news generally!

Different metaphors are useful at different times. 
The "shares in a company" metaphor is great for explaining what's wrong with first generation crypto.

But reverting to the "coin that contains an exchange that allows you to customize the coin's performance" metaphor is easier to explain to the tax man.  It's just a tunable asset that you buy, hold, tune, hold, tune, hold and sell.  A black box that you buy and sell from the tax perspective.  Who cares whether the inner workings of a "smart coin" are driven by a full featured market simulation or a bunch of monkeys hammering away on keyboards?  Most people don't know or care how most things they use every day actually work.  They don't have a need to know.

Isn't that exactly what you got when you bought Apple and held it while Steve Jobs came and went and came again?  The shares you owned had variable performance as the internal workings of the company were reconfigured behind the scenes.  You paid taxes on the integral growth over time based on change in value.  So we should view the internal exchange as simply changing the settings on what mix of external assets you want your BTSX to mimic. 

Thus, for tax purposes and marketing to certain demographics, the "BTSX Smart Coin" metaphor may be more useful than the unmanned company metaphor.

A sand bag can be sold as a water dam component, a road de-icer, or a cat porta-potty.
You just have to know how to describe it appropriately for each potential customer.   :)

« Last Edit: September 26, 2014, 03:49:54 am by Stan »
Anything said on these forums does not constitute an intent to create a legal obligation or contract of any kind.   These are merely my opinions which I reserve the right to change at any time.

Offline tonyk

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Hmm... my in house tax expert, seems to agree with you and my more conservative reading of the law seems incorrect...'the taxable event is indeed the conversion to cash it seems'... Good news generally!
« Last Edit: September 26, 2014, 03:07:52 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline donkeypong

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There needs to be a way for the average joe to be able to earn coins without having to use an exchange. POW has clearly failed here and bitshares-x is even worse in this regard. Safecoin seems to me, the next best thing in terms of giving everyone a chance to earn coin without needing to buy it.


https://www.youtube.com/watch?v=qpyT6VpdBMQ&list=UUhDck5R_C9i6XTrS66tbwOw
http://maidsafe.net/SystemDocs/user_perspective/farmers.html

I think that's exactly what you're going to see here pretty soon. Remember, BTSX is still in beta. I'd say it's already better in most regards.

Offline hamiltino

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There needs to be a way for the average joe to be able to earn coins without having to use an exchange. POW has clearly failed here and bitshares-x is even worse in this regard. Safecoin seems to me, the next best thing in terms of giving everyone a chance to earn coin without needing to buy in.


https://www.youtube.com/watch?v=qpyT6VpdBMQ&list=UUhDck5R_C9i6XTrS66tbwOw
http://maidsafe.net/SystemDocs/user_perspective/farmers.html
« Last Edit: September 26, 2014, 02:16:46 am by hamiltino »

Offline tonyk

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What about the wash rule? How does that compete with 1031? Or are loses a whole different bag?

The US Tax rules  system is far more complicated than BTSX... if you really want some questions answered, maybe I and the real world tax expert (aka ToniK ) can try to answer some of them for you in Vegas, for free of course....  ;)

Looking forward to it :) .

http://www.irs.gov/publications/p550/ch04.html#en_US_2013_publink100010601

And here's the kicker:
Code: [Select]
If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.

I do not know exactly what you mean (one of the reasons I think those things are better discussed in person, as opposed to on forums). But in most cases you will be better off, if your losses are reducing your capital gains in the same year, as opposed to being added to the bases of newly acquired assets.

[edit] For corner cases the rule might be beneficial. I think I agree.
« Last Edit: September 25, 2014, 04:36:34 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Riverhead

What about the wash rule? How does that compete with 1031? Or are loses a whole different bag?

The US Tax rules  system is far more complicated than BTSX... if you really want some questions answered, maybe I and the real world tax expert (aka ToniK ) can try to answer some of them for you in Vegas, for free of course....  ;)

Looking forward to it :) .

http://www.irs.gov/publications/p550/ch04.html#en_US_2013_publink100010601

And here's the kicker:
Code: [Select]
If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.

« Last Edit: September 25, 2014, 04:03:05 am by Riverhead »

Offline tonyk

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What about the wash rule? How does that compete with 1031? Or are loses a whole different bag?

The US Tax rules  system is far more complicated than BTSX... if you really want some questions answered, maybe I and the real world tax expert (aka ToniK ) can try to answer some of them for you in Vegas, for free of course, and without the need to say 'that this is not tax advice'....  ;)
« Last Edit: September 25, 2014, 03:59:19 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.