With the souring moods of corrupt Orwellian superpowers and fresh competition, where does this leave Bitcoin?
BY DAVID SEAMAN
Recently the IRS put an unwelcome (maybe) burden in Bitcoin’s wallet. As CNN Money reported, “The United States’ new Bitcoin tax rules just made casual, everyday use a complicated bookkeeping headache. The Internal Revenue Service’s notice last week will force the average Bitcoin user to keep a strict record of every purchase made all year long—then perform difficult calculations to account for the changing value of a bitcoin.”
Since then, rumors have been swirling in China that their central banking authorities will soon issue—or already have issued, I suppose is the rumor—some kind of outright ban on Bitcoin usage.
Then there’s Russia, which between its newfound regressive anti-gay stances and nation annexing adventures hasn’t found much time to scaremonger its population in regard to cryptocurrency use, but they still aren’t fond of it. So that makes three out of three superpowers where Bitcoin may be outstaying its welcome. The price of Bitcoin has taken a critical dive below $500 per coin in the wake of the IRS and China news. With the souring moods of corrupt Orwellian superpowers and fresh competition from a slew of competing new cryptocurrencies, where does this leave Bitcoin? I believe one of these three outcomes may occur:
1) The eventual collapse or death of the Bitcoin economy.
As consumer adoption fails to kick into higher gear, mainly due to the burdensome IRS requirements, venture capital firms lose interest in funding the next great Bitcoin business, merchants lose interest in accepting Bitcoin on their sites and in their stores, the media thus loses interest in covering it, and there you go, Bitcoin is dead.
Or somewhere along the same lines as Magic: The Gathering. Not quite dead, but definitely not mainstream.
2) Truly meteoric growth as more users begin to adopt it.
Some already believe the IRS requirements can easily be satisfied with attentive reporting software, and others believe the IRS classification is a blessing in disguise: if the government’s highest tax authority believes Bitcoin is simple property (like a bookcase, TV, or arcade token), it does away with any pretext for other agencies to regulate Bitcoin as one would a state-issued foreign currency. This is potentially huge. The business side regulatory requirements for trading and exchanging foreign currencies are considerable, but not so for trading/exchanging bookcases, TVs, or—as the case may be—Bitcoins.
With the big regulatory and taxation questions now out of the way, consumers in the U.S. could soon find Bitcoin’s efficiency and nearly free cost structure just too tempting to resist. And businesses could find their transaction cost savings to be significant enough to integrate Bitcoin into every area of their business. If Bitcoin takes off, it could happen very quickly—especially in this era of social media. If everyone realizes Bitcoin makes plastic obsolete, it becomes reality.
3) Bitcoin explodes into a thousand pieces and something truly amazing emerges.
We are already seeing the earliest signs of this one, actually.
Litecoin, Dogecoin, Auroracoin, Quark—over 150 new alternative cryptocurrencies, called “alt coins,” have launched since Bitcoin itself. Some are short-lived novelties and near clones of Bitcoin, others are marketing driven, and yet others test out refinements and improvements of Bitcoin’s original ideas.
One of my favorites is Vertcoin because its algorithm and community are focused heavily around something called “ASIC resistance.” ASICs are specially designed chips that mine far faster than store-bought GPUs (graphics cards) or CPUs (the main chip on a consumer-grade laptop or desktop), and by “resisting” the development of new ASIC sets, it is believed the mining network can be kept more decentralized over time—keeping the coin and its public ledger in the hands of more individuals, rather than server farms.
Other coins, such as Dogecoin, carve out a niche primarily by offering great community—a fun, carefree environment where tipping and economic experimentation are wildly encouraged. Reddit CEO Yishan Wong recently had good things to say about this coin, precisely because its lighthearted culture is the antithesis of the super serious libertarian intellectual stereotype that has come to dominate Bitcoin lately. (Although if treating your coin as an investment, super serious intellectuals might be just what is needed!)
One way or another, I don’t see digital currency going away. Yesterday I bought some gigs on Fiverr, and since I was logged into my Coinbase account, paying with Bitcoin was literally a one click process. Seeing as the one click checkout has been the fabled dream of e-commerce for years, and seeing as I wouldn’t have made these impulse buys if I’d had to enter in a credit card number, this is very cool tech.
Photo by sexyninjamonkey/Flickr (CC By SA 2.0) | Remix by fern