Tax Evation
The first problem with Bitcoin is the high potential for tax evasion. The United States government collects income tax. Under Federal law it does not matter whether that income is in United States legal tender or an alternative currency. USD, Ithaca HOURS, and, in theory, Bartering are all taxable.
The problem with Bitcoin is that there is no clear mapping from coins to user. Coins are mapped to addresses and only the user knows what addresses they own. The United States government would have to hack into a person's account(s) in order to find out if he or she was being honest about his or her Bitcoin income.
The United States Government is also incapable of implementing sale taxes in Bitcoin because there is no way for addresses to be mapped to nationality. Consequentially, there is no way to know how much each transaction should be taxed and where the tax should be sent.
Haven for Black Markets
One of the worst foreseeable consequences of making Bitcoin legal is the fact that Bitcoin economies are the perfect haven for black markets.
Bitcoin has two properties that make it perfect for black market dealing. First, users are anonymous. An item can be sold and purchased without each party knowing from where it comes. As a result seller of contraband can sell their products to customer without fear of the buyers being able identify them to police.
Second seller of contraband can change their addresses each time they made a transaction. This would make it extra difficult to find out how many people were selling a type of contraband.
Haven for Money Laundering
If a person wished to lander their money all they would need is two Bitcoin accounts. Account A would exchange laundered USD and receive Bitcoins. Then Account A would sell those coins to Account B under a different address. Then Account B would exchange the Bitcoins for legitimate USD. So long as Account A is remained hidden from the police, Account B and its user look perfectly legitimate.
Unlike tradition money laundering, the lack of a physical and bank interaction makes back tracing the money that much more difficult. Worst yet the launderers could keep changing the addresses of both accounts to make the transactions look less conspicuous.
The Bottome Line
If Bitcoin were to become viable it would provide an alternative way of exchanging goods. However Bitcoin by its very nature would work well, if not best, in the world of illicit behavior. It could provide criminal with the anonymity that they desire. For these reasons we believe that it is the United States best interest to either modify of Bitcoin economies or to make them outright illegal.
FAQs
In many countries, it isn't illegal; however, the countries that have made it illegal do so for many reasons. Volatility is one of the most often cited reasons, as is energy use, concerns over destabilization, or the ease with which criminal activities can be financed and conducted using them.
Why is Bitcoin illegal? ›
In many countries, it isn't illegal; however, the countries that have made it illegal do so for many reasons. Volatility is one of the most often cited reasons, as is energy use, concerns over destabilization, or the ease with which criminal activities can be financed and conducted using them.
Could the government make Bitcoin illegal? ›
Although there is nothing that can stop a government or central bank from banning Bitcoin (& a few have already done so), most would not go that far for two reasons: The Streisand effect. A ban on Bitcoin is difficult to enforce.
What are the problems with Bitcoin? ›
Bitcoins Are Not Widely Accepted
Bitcoins are still only accepted by a very small group of online merchants. This makes it unfeasible to completely rely on Bitcoins as a currency. There is also a possibility that governments might force merchants to not use Bitcoins to ensure that users' transactions can be tracked.
What is the controversy with Bitcoin? ›
Since its creation, bitcoin has been accused of being the currency of choice on the dark web for illegal payments that leave no trace. It is notably the currency that hackers generally demand to be paid in during ransomware attacks.
Is owning Bitcoin legal? ›
As decentralized currencies, crypto is not and will likely never become banned in the U.S. Currently, the sale and purchase of cryptocurrency is legal in all 50 states.
Why did China ban crypto? ›
The People's Bank of China argues that its ban on cryptocurrencies is to curtail financial crime and prevent economic instability. However, China's cryptocurrency ban comes amid fears that cryptocurrencies were facilitating capital flight from its markets, bypassing conventional restrictions.
Why do governments hate Bitcoin? ›
Governments are concerned about the impact of a cryptocurrency crash on investor confidence and the broader economy. Tax Evasion and Revenue Loss: Bitcoin transactions can be difficult to track and regulate, making it easier for individuals to evade taxes and conceal their income and wealth.
Could Bitcoin get shut down? ›
As Bitcoin is decentralised, the network as such cannot be shut down by one government. However, governments have attempted to ban cryptocurrencies before, or at least to restrict their use in their respective jurisdiction. Governments could still try to jointly ban Bitcoin.
Can the government see my Bitcoin? ›
Yes, Bitcoin and other cryptocurrencies can be traced. Transactions are recorded on a public ledger, making them accessible to anyone, including government agencies. Centralized exchanges provide customer data, such as wallet addresses and personal information, to the IRS.
Who Owns the Most Bitcoins? Satoshi Nakamoto, the pseudonymous creator of Bitcoin, is believed to own the most bitcoins, with estimates suggesting over 1 million BTC mined in the early days of the network.
Is Bitcoin real money? ›
Bitcoin (BTC) is a cryptocurrency (a virtual currency) designed to act as money and a form of payment outside the control of any one person, group, or entity. This removes the need for trusted third-party involvement (e.g., a mint or bank) in financial transactions.
Why is Bitcoin not as good as money? ›
For example, in the U.S., the Federal Reserve can print new money and increase cash supply when they feel it would benefit the economy. But because cryptocurrencies are not controlled by the government, their supplies may vary. For example, bitcoin has a finite supply, meaning only a limited amount will ever exist.
Why is Bitcoin a threat to government? ›
Among other things, Bitcoin may enable the citizens of a country to undermine government authority by circumventing capital controls imposed by it. It also facilitates nefarious activities by helping criminals evade detection.
Why Bitcoin is too risky? ›
Unlike most traditional currencies, such as the U.S. dollar, the value of a cryptocurrency is not tied to promises by a government or a central bank. If you store your cryptocurrency online, you don't have the same protections as a bank account.
Will digital currency replace cash? ›
Will a U.S. CBDC replace cash or paper currency? The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.
Is Bitcoin legal or illegal in the US? ›
As of March 2024, bitcoin was legal in the U.S., Japan, the U.K., and most other developed countries. In general, it is necessary to look at laws in specific countries. In the U.S., the IRS considers bitcoin and other cryptocurrencies property, issuing appropriate tax treatment guidelines for taxpayers.
Why can't Bitcoin be stolen? ›
The concepts behind blockchain technology make it nearly impossible to hack into a blockchain. However, there are weaknesses outside of the blockchain that create opportunities for thieves. Hackers can gain access to cryptocurrency owners' cryptocurrency wallets and exchange accounts to steal crypto.
