But what happens when we can no longer be taxed?
Initially used to buy illicit good and services on the black market, cryptocurrencies are quickly becoming adopted by a number of services and retailers. As more financial systems begin accepting payments using cryptocurrencies, the cryptomarkets become increasingly recognised as a reliable and trusted store of value. Cryptocurrencies are still taking baby steps and new ideas and developments are happening every day. Some coins are moving towards increasing transaction times such as Litecoin, others work towards increasing anonymity like Monero. Dash is a coin where users will soon be able to withdraw and deposit with zero fees. This rapidly evolving market has been coined the second great gold rush. However, I believe it is not a rush to make gold or money- but a rush for innovation.
With hundreds of new ICO’s (initial coin offerings) starting in this year alone, each new and existing coin sprints towards delivering something innovative- something that will set it apart from the herd. The winners of this race will be the coins which provide anonymity, instant transactions and zero fees. In the future, the winners will be the coins that are the easiest to use for the average Joe - who will have absolutely no understanding of the underlying technology. You see Joe doesn’t care about the technology behind the currency. Joe just wants to buy things. Joe wants to be able to buy his coffee without the government knowing. Joe knows that if the government knows he is buying coffee, he will be taxed on the purchase of this coffee. Joe is also a millennial and knows only a world of instant gratification. When he pays, Joe doesn’t want to stand around watching the barista standing beside the coffee machine waiting for a three-minute transaction confirmation. Finally, When Joe actually purchases his coffee- he wants to pay exactly $3.00, not $3.05 because of transaction fees- which annoys Joe because Joe totally forgot about the $00.5 transaction fee.
With the increasing levels of innovation across Cryptocurrencies, the average Joe will eventually get what he wants. Eventually, a coin will innovate to this ideal scenario and become widely adopted. Eventually, there will be a coin that it is a hybrid of anonymity, instant transactions and no fees. This sounds amazing. What could possibly be wrong with this scenario? The big banks- who have been charging extortionate transaction fees on the use of debit and credit cards will lose out and Joe is smiling because he now has more money in his pocket and is drinking a fresh cup of coffee. Joe will also be paying less tax to the government because of anonymity and he couldn’t care less because Joe hates the government. It's happy days in crypto land and Joe thanks, Natoshi Sakamoto or whatever that guy’s name was for making this amazing chain-block technology thing.
However, there is a problem with this scenario, otherwise what would be the point of writing this article. Instant transaction times and zeros fees are fantastic ideas with very little consequence. However, I know this argument isn’t going to go down very well with the community but the government kind of needs to be able to tax Joe.
Anarchists, Libertarians and politics aside, humans have been paying taxes in one form or another since we were hanging around in caves hunting mammoths. The hunters and gatherers cared for the old, the sick and vulnerable with spoils of their hunt. When humans learned how to farm, serfs provided a portion of each harvest to their lord to be distributed in winter or famine. When we started mining physical assets such as gold and silver, a fragment of each was paid to the king. Paper receipts were handed out due to gold and silver immobility and these paper receipts became cash. Finally, after the development of the internet, we now store our value in online and now trade mostly with plastic cards whilst the government continues to tax us at every contact between seller and buyer. At every stage, it was easy for leaders and governments to keep track of Joe’s money and tax him at every evolution of our currency. We couldn’t hide it. With the development of the Block chain technology, now we can. Putting the intricate details aside, the fundamental idea behind block chain is that it cannot be interfered with by outside parties. Even a supercomputer with more power and energy than the sun could not decrypt the block chain. It’s an incredible feat of technology. It allows for currencies to be developed on the block chain and provides an unimaginable amount of anonymity for its user base. How is any agency able to tax a person utilising said currency? In the future, they won’t. When a coin innovates to include rapid payments, zero fees and high anonymity, no one will be able to place a tax on the currency’s usage. On paper, it sounds fantastic, but what would be the consequence of an entire society utilising a currency which cannot be taxed or monitored?
As human beings we love simplifying problems, ideas and issues- many of which we can never fully understand. We truthfully just don’t have the time to fully analyse and understand every external stimulus which we come into contact with. Instead of attempting to rationalise every single particular idea, we instead place them into clearly identifiable categories that we can point to and say “Bad things” or “Good things”. For example, a liberal might place Donald Trump and Republicans into a similar category where they can point to and say “bad things”. Similarly a conservative might point to Hillary Clinton and Democrats and do the same. It’s unfortunate because whether you are on one side or the other, there are obviously good and bad things about Donald Trump, Hillary Clinton, Republicans and Democrats. But categorising things is easier. Our lives are time-limited and our time is precious. It is more efficient for the human brain to categorize. People naturally place taxes into a “bad things” category and more often than not, we think of taxes as something we are losing and rarely taxes as something society is gaining. The point is- no one likes paying taxes. However, the rapidly escalating pursuit of an economic system which will be completely indecipherable to the taxman would lead to a dystopian nightmare, rather than a utopian paradise. When we chose “I’m not paying taxes because screw the government” we will only be screwing ourselves- but we won’t be screwing ourselves immediately. Instead, a lack of government services due to no taxes being paid will screw us at the time when we are at our most vulnerable. Only when an emergency hits us will we recoil in horror upon realising that there are no services to support us when we are old or sick. One of the fundamental beliefs of the community is that we are the vanguard of this new form of currency and its innovation and utilisation. Many have flocked here to escape the corrupt practices and extortionate fees of governments and banks. Many of the new coin users are not from first world countries, but third world countries. Within our rapidly growing community, people place government and taxes into the category of “bad things”. The truth is that if Cryptocurrencies indeed become widely adopted and are truly anonymous, the government will undoubtedly struggle to enforce the payment of taxes. Far from a world of balance, the divide between the rich and poor will become even more polarised. Unfortunately, the current feelings around the payment of taxes are not helped by the fact they are often misappropriated- either for war, or bailing out incompetent banks. We hear a lot more about our taxes paying for something we don’t agree with such as bailing out banks who gambled with our pensions or paying for wars our young men go to die in. We rarely talk about our taxes providing the life-changing services provided by the police, health care professionals, utility and finance.
At this moment in time, many investors convert their Cryptocurrencies back to their bank accounts into fiat currency and it is at this point where capital tax is paid on any profits, but over time I believe this will happen less and less. Only when transaction times are reduced and crypto becomes more widely accepted will we see fewer transfers from crypto into fiat. It will take time. People will continue to purchase property and cars using fiat currency. I believe when these things are able to be purchased using crypto currency is when the government will eventually wake up.
At this time the Crypto baby is cute and cuddly, but all babies grow up. It will be up to us- the vanguard of this economic powerhouse to ensure it doesn’t mature into a monster. History will look back in time in the same way we looked back at the gold rush. Hopefully, we can leave a better impression.
Next: 2: Safeguarding the future.
