In tin hat mode, its possible that the subpoena is actually being driven by the justice department not the IRS. As you point out there are a number of less invasive ways of insuring tax compliance but there are not better ways for unwrapping large number of bitcoin transactions involved in ransomware or other extortion or criminal activity. We saw from the MtGox fiasco that when their entire transaction record for all clients was analyzed it identified not only internal corruption but a variety of schemes being used to manipulate or defraud.
Let's assume that Justice has the full transaction records for one or more of the non-US exchanges, by adding all of your records to the mix it would give them the visibility they need to unwind a lot of stuff.
As I understand it, when you make the motion to quash you can compel them to tell you exactly how they were going to use the data. Don't let them be evasive on that point.
I used bitcoin quite heavily in 2016 through the 'shift' card that coinbase offers, and I think I'm going to hold off on further use in general until tax stuff is more clear / straightforward - I've made an effort to pay the bitcoin taxes correctly in previous years, but not personally being an accountant, had to hire one to check all the stuff (I'm not super rich, so this is a little bit annoying). The point of this comment is that I think it is a good thing coinbase is trying to standardize some reporting method - I also agree with the '1099 for each cup of coffee bought with bitcoin' seems a little bit much...
It looks like, despite the shiny front and claims, they are still not a solid, trustworthy company, even though they play with a lot of others' money. In particular, the mechanics of their transactions are not obvious (e.g. long wait times), and their customer service is subpar, making some customers feel scammed, with no recourse.
People like to hate on Coinbase because they took a stance on the block size debate in the past that was at odds with powerful people in the Bitcoin world who also happened to control the main forums for discussing Bitcoin. I think most of the "problems" people have are just a thinly veiled attempt at a smear campaign. At this point they are the the standard in Bitcoin for what a trustworthy and ethical company should be. They have got to hold the record for longest period in Business w/o losing massive amounts of customer funds to fraud or theft.
There is a pro-blockstream agenda on reddit, and bitcointalk (theymos owns both). coin dance shows what % of users are running whatever fork, shows volume , transactions, node counts, etc. etc.
Why does that matter? You can see the truth (data) for yourself rather than what people are saying/censoring.
Given that Bitcoin isn’t the future of money — it’s either a Ponzi scheme or a pyramid scheme https://www.washingtonpost.com/news/wonk/wp/2015/06/08/bitco... it's somewhat hard to be "trustworthy" and "ethical". Are you rating the competing mob families on the trustworthy and ethical scale too?
That article does a good job of explaining the problem with an inherently deflationary currency. It does not explain why the author claims that Bitcoin is not a curreny. Neither does it explain why the author claims that Bitcoin is a Ponzi - or pyramid - scheme. The fact that the author feels that the two are interchangeable demonstrates a lack of understanding of what those schemes actually are.
A pyramid scheme involves selling a product - something like knives or energy drink. But the actual thing which is sold are licenses to sell the product. Each licensee passes some of their profits up to their licensor who is the licensee of someone else and passes along part of that and so on. Eventually the last round of licensees are stuck with product that they can't sell and the upstream licensors are getting rich from the "pyramid" of downstream licensor/licensees recruited into the scheme.
Well, there are no Bitcoin licenses - anyone can mine it, hoarde it, spend it, etc. So it is not a pyramid scheme (or multi-level marketing scheme). The value of Bitcoin will not collapse if everyone in the world is using it.
A ponzi scheme is quite different. You pretend to invest an initial investor's money. The returns to that investor are paid out of money coming in from later investors. There is no opaque "fund" making "investments" when it comes to Bitcoin.
So what makes something a currency? It is:
* Medium of exchange - 100s of 1000s of merchants accept Bitcoin for payment
* A store of value - Bitcoin has had a nonzero value for 5-10 years now so it can be reliably used for savings
* Unit of account - This is where things get fuzzy. Things tend to be denominated in US dollars or Euros with Bitcoin converted at the spot price when a transaction occurs. There is no reason why Bitcoin can't be used as a unit of account, but it still has a ways to go before it is popular enough that it is actually used that way.
The Washington Post article places a lot of emphasis on the greater fool aspect of buying/selling/hoarding Bitcoin. This applies to all investments, and especially to stocks. Are you going to claim that the stock market is also a Ponzi scheme or a pyramid scheme?
I'll never understand the people who are rabidly anti-Bitcoin. Can anyone enlighten me? Are they threatened by an alternative to traditional fiat currency, or have they just read so much propaganda (like that WaPo article) that they're completely committed to it now?
My theory: many of those people have heard about Bitcoin early enough that they would've made some money on it by now. Psychological self defense finds a rationalization not to feel guilty about it.
Of course there's completely no reason to feel bad, it's a risky bet and one could just as well think about what fantastic sports bets he could have done in the past years.
Plus, without thorough technical understanding, quite a lot of trust is involved in believing that it can actually work.
1) The Bitcoin community day-trades a volatile security while singing its praises in public. It's not clear why Bitcoin advocates should be seen as any more credible than their counterparts on Wall Street, whose characteristic activity is exactly the same.
2) "It won't be possible for the government to enforce taxes or seize assets" is not a selling point outside the criminal, libertarian, and anarchist communities. Most people seem to feel that the rule of law is too weak in the financial realm, not too strong. HSBC's money laundering for the cartels, for example, is generally considered a bad thing. Billionaires minimizing their taxes through tricky schemes are seen as villainous, not smart, by a simple (though not electoral) majority in the US.
3) Inflation is not a problem Americans have or have had since, like, the Carter administration. Given how leveraged most households are, we'd probably like some more of it. "Inherently deflationary" and "no central bank" are not compelling arguments, and just further the anarchist/libertarian branding.
Its their desire to impede the eventual massive reduction in tax revenue due to "evasion". Without enough tax revenue, they wont have free money anymore.
Harsh yes but sometime you just have to call it the way you see it.
I am mad at the hype leveled at Bitcoin because ordinary people lose so much money with it. Not just because of the inherently fraudulent nature of Bitcoin but because you put something that can be very easily exchanged into money on insecure computers. Every computer is insecure, mind you but people don't really know (or care!) what they are in for until they are hit.
No offense but you seem to only have a surface understanding of Bitcoin.
I'm not sure what you mean by ordinary people lose a lot of money with it but ordinary people have surly lost more money in the stock market than they have in Bitcoin. Saying Bitcoin is inherently fraudulent is simply false.
On the topic of computer security. If you are serious about your Bitcoin's security there have been secure hardware wallets available for several years now that are easy to use and eliminate the chance of theft from hacking. They have come down in price to the point where they are very affordable.
The Ledger Nano S for example is $50. It's also super easy to use and never exposes your private key to your computer so it can't be stolen even if your computer is infested with Bitcoin stealing malware. Trezor and Keepkey are similar devices.
fwiw, Coinbase wouldn't be the first financial institution to challenge a John Doe Summons. The IRS issued one to UBS in 2008 (https://www.justice.gov/archive/tax/txdv08584.htm). UBS claimed it couldn't comply with the summons without breaking Swiss bank secrecy law, and the Dept of Justice ultimately came to an agreement directly with the Swiss government (under an existing tax treaty) to get the records it was seeking. Simultaneously, the IRS set up a voluntary disclosure program for Americans to pay a penalty on back taxes and avoid criminal prosecution. The amount of back taxes owed on bitcoin capital gains is probably less than the amount being sheltered by the Swiss in 2008, but it's not nothing.
These IRS witch hunts do little but inspire FUD about bitcoin, thus hampering widespread acceptance, and keeping the US financial system in a bygone era.
Also, is there any idea about how much money the IRS could possibly recover through bitcoin? Is bitcoin even a significant source of loss for the IRS as compared to say, cash?
I'd say one advantage of bitcoin is the lack of reporting requirements if you wanted to move money without letting the IRS know. So I could see how bitcoin could be a loss for the IRS.
Right, but the IRS has already classified bitcoin and provided guidance as to reporting requirements [1]. This situation isn't much different to cash wages. You can in theory not report any of it, but then you're breaking essentially the same law.
My question is: don't losses from unreported cash wages vastly outnumber losses from unreported virtual currencies and isn't that likely to remain the case for the forseeable future?
With this sort of action, is the IRS signaling a belief that virtual currencies will replace cash for average citizens in the near future?
I'm not sure there is the massive "losses from unreported cash wages" you seem to imply there is.
There's two main forms of "cash wages" in the US. One being wait staff, the other being "under the counter pay" to workers, generally labor intensive. Wait staff who regularly under report their tips are easily identified by the IRS. In the second case, these generally aren't well paid jobs (thus wouldn't generate much, if any, tax revenue).
There's underreporting and tax evasion in almost any business which can be conducted on a cash basis. I know of a heating air-conditioning contractor (now deceased I believe) who regularly got customers to write checks directly out to him and take those to a check cashing business. He was very clear he was doing this to evade taxes.
They aren't implying there are massive losses. They implied that the losses from cash, whatever they are, would massively outnumber the losses from cryptocurrencies. (And thus that cryptocurrency-focused reforms are missing the point.)
The IRS regularly busted people for this when I waited tables back in the 90s, so I can't imagine that it got harder for them to do so now with more advanced technology.
Agreed. But from what I recall having worked in restaurants, etc, the IRS does take steps to encourage reporting of any cash wages by pressuring employers to notify their employees of that obligation.
So it must be considered a signifcant source of taxable income to them.
But of course thats just one example of possible cash income...
Bitcoin is a technology defined by its community. That's why they made a public comment about a pending legal issue - to defend their reputation within that community. A community that, for instance, leads a HN discussion to be >50% arguments about whether government of any type is a bad idea. They'd get even more customers of they refused to comply with any subpoena, but then they'd be unable to interface with modern banking.
Good point. Coinbase by nature has to walk a line between two communities very much at odds with each other.
There is an onus on the bitcoin community to get more people to accept bitcoin directly as payment. Companies like coinbase could help that process along in theory, but they'll have to keep walking this line while they grow.
> They'd get even more customers of they refused to comply with any subpoena.
Dubious. They might capture more of an existing niche market. Coinbase is aiming to expand the market significantly to people don't see Bitcoin's murkiness as a feature. That is, the rest of us.
This is a good move for Coinbase, i'm glad they are defending their users. They are right that it is overly broad. I don't see how IP addresses and customer support transcripts are a matter for the IRS.
IP addresses could help them identify people trying to get away with smurfing by setting up multiple accounts [see: http://www.investopedia.com/terms/s/smurf.asp], and customer support for banking is typically about reconciliation -- if coinbase has any mutable records in their databases (likely) that'd be the only place to find the original information -- if they don't get it in the first court order they won't have a super good reason to ask for it later (a judge will ask them why they think the new order is needed, and if they suspect the information supplied to be false -- if they ask for it immediately it can be used to create a more detailed picture of how certain accounts developed).
Not saying the order is justified, merely that the people asking for it want it for actual reasons.
At the end of the day unless you exclusively use Coinbase to handle your Bitcoin business they can't possibly know the correct cost basis for all your transactions. Kind of like if you transferred stocks from one brokerage to another. You are always going to have to do some amount of work.
> For tax purposes, gains on property do not have a de minimis exemption like currency. This would mean that even the sale of a small amount of digital currency (say to purchase a cup of coffee) would generate a 1099 form.
Does that mean you could write a program that created virtual currencies and transactions between them (along with their required 1099 forms) in order to troll the IRS by submitting TBs of data?
They talk about having "invested" in the tremendous waste of time and effort that is "compliance", simply to enforce ridiculous jurisdictional fiefdoms' opinions about who you can or can't send your money to.
Imagine a world where this terrible waste weren't mandated by the men with guns. Imagine a world where cryptocurrency executives didn't try to spin this huge coerced waste as a positive.
This is the reason cryptocurrency was invented. Shapeshift is the right direction. Coinbase is the wrong one.
And when I start getting paid in Dogecoin, I'm sure Shapeshift will be very useful. Right now, I'm paid in government controlled currency, and I don't see why efforts to get people to trade it for cryptocurrency shouldn't be applauded by cryptocurrency enthusiasts.
Offtopic, but why would a CEO make an important (for his company and customers) post like this on medium.com? Why isn't this hosted on blog.coinbase.com or something? I know that Medium is a popular platform these days, but I think it weakens the branding of any company or individual to be posting there.
I was actually interviewed for a radio program the other week that is targeted toward federal employees in the DC area. I was being asked questions about a post I wrote on Medium.
The first question was, what is Medium?
I had to explain that it was just this open-to-anybody blogging platform, and not a personal site of mine. Outside of the tech sphere, it's not so recognizable.
Seriously? As a user of their service I'm glad to see them offload an extraneous expense to someplace that's better equipped for the service provided.
After evaluating this situation further, I felt further comfort in knowing there's an added level of authenticity to the post. They could have signed it with a GPG key which would've been nice, but not only would their core site have needed to have been comprised but also their medium account in order to deliver this news. Should this have been a security incident I would have been comforted by these additional ID confirmations.
Even a custom domain on Medium would bring it clearly under their brand (e.g. if this submission didn't have many comments I wouldn't have clicked it, since the title and medium.com signals "low-effort article by someone trying to make some political point", not "company blog"), while from a technical perspective also giving them the option to move later to a different platform without breaking their URLs.
Most companies don't regard brand-building and SEO as an extraneous expense. I'm sure Coinbase has spent their share of money on promotion. I'm also sure they could host a blog, or have someone else do it for them (does Medium have a self-hosted or custom domain option?)
Of course mishandling the IRS would be worse, but I wasn't comparing the brand damage of the two actions (though you
seem to contradict yourself by saying "doesn't weaken" and then "a lot more fatal"). I was making a general claim that hosting important information or communication about your company off-domain weakens the brand of the company. I could imagine a worst-case scenario where putting great content on Medium actually harms your SEO, and you end up with Medium outranking your business in search results that you would really want going to your domain.
tldr; CEO: "Coinbase and the IRS have (I believe) a shared goal to ensure all U.S. customers pay their taxes. I believe a good option would be to use the same third party reporting mechanism that brokerage firms like Fidelity and Charles Schwab use today: the 1099-B form. We’d ideally like to see that structure applied evenly to all companies in the industry, but even if we’re required to go first, we’re ready to implement 1099-B reporting.
With this potential solution, Coinbase (and other virtual currency exchanges) would issue a 1099-B at the end of the year to all U.S. customers, and send a copy to the IRS. This would make it easy for users of virtual currency to pay their taxes without violating their privacy."
In tin hat mode, its possible that the subpoena is actually being driven by the justice department not the IRS. As you point out there are a number of less invasive ways of insuring tax compliance but there are not better ways for unwrapping large number of bitcoin transactions involved in ransomware or other extortion or criminal activity. We saw from the MtGox fiasco that when their entire transaction record for all clients was analyzed it identified not only internal corruption but a variety of schemes being used to manipulate or defraud.
Let's assume that Justice has the full transaction records for one or more of the non-US exchanges, by adding all of your records to the mix it would give them the visibility they need to unwind a lot of stuff.
As I understand it, when you make the motion to quash you can compel them to tell you exactly how they were going to use the data. Don't let them be evasive on that point.