Monday, April 29, 2013

Canadian Government To Tax Bitcoins

The Canada Revenue Agency has issued a statement in which it made very clear that it thinks Bitcoin transactions are taxable, reports Tech Week Europe.

Although steps can be taken to make tracking of bitcoins very difficult, for the most part they far from provide the anonymity that most believe.

From New Bitcoin World:
 Take for example Bitcoin's most advertised feature, its supposed anonymity. Everyone from the mainstream media to Wikileaks to the now-disbanded hacker collective LulzSec has trumpeted Bitcoin as "anonymous." But the truth is that researchers have long since proven it's anything but, since every bitcoin transaction appears on a public ledger distributed to everyone in the network (called the "block chain"), tracking bitcoins back to individuals is often trivial.
Efforts are being made to create software to make tracking more difficult, however, in the eyes of government this will be viewed as a further step toward making bitcoins a money laundering machine. From NBW:

 . Developed by cryptographers at Johns Hopkins University, Zerocoin is being proposed as a kind of "plugin" for Bitcoin clients that promises true anonymity by essentially giving the Bitcoin network its own built-in money laundering system[...]

1 comment:

  1. Hats off to the cryptographers at John Hopkins University. However, I am afraid Zerocoin is not going to be plugged in to Bitcoin. Ever.

    Firstly, while I have no reason to doubt that Zerocoin is sound, it is more heavy-weight cryptographically -- more difficult to understand than Bitcoin. I suspect that even the Bitcoin community will have a knee-jerk disgust of things they don't understand.

    Secondly, Zerocoin requires a trusted set-up procedure. If the participants are corrupt (or corrupted), then the anonymity is lost forever. The requirement of trust, even for a once-in-the-lifetime-of-Bitcoin event, runs counter to the very philosophy of Bitcoin.

    Thirdly, the incorporation of Zerocoin with Bitcoin would require larger blocks that take longer to verify. This is going to get a lot of pushback from the miners because they prefer shorter, easily verified blocks. Over time, this will even out because the cost of a larger block is offset by the transaction fees. However, as long as miners mine for the block reward and not for the fees, they do not stand to lose anything by rejecting blocks or specific transactions if that gives them an edge in finding the next block first.

    My guess is the following will happen: the researchers publish their code and launch an alternate Bitcoin to "prove" it works. The ongoing efforts to incorporate Zerocoin in Bitcoin will fail. The stand-alone Zerocoin will thrive. However, it will never overtake Bitcoin in popularity as Bitcoin enjoys the network effect. Moreover, most people believe Bitcoin is anonymous already or at least sufficiently anonymous. They will not understand the advantages Zerocoin has over Bitcoin, and will be discouraged from learning as the mechanics are much more complicated than those of Bitcoin.