Earlier this week, the IRS announced plans to treat Bitcoin as property and not currency. That means Bitcoin will be subject to capital gains tax, a wrinkle that could derail the crypto-currency on its path to global domination. Why? Because as Kevin Roose explained when the ruling was handed down, if you buy a fractional Bitcoin for $2 and use it to buy a $5 beer a few months later, you'll owe the IRS taxes on that $3 difference. The additional paperwork, not to mention additional cost, involved in a simple Bitcoin transaction could be enough to sink it.
It’s too early to know how the rule will affect the behavior of those who actually use Bitcoin, but that hasn't stopped them from rapidly cycling through the five stages of grief outlined in the Kübler-Ross model. We dove into the sea of crypto-currency message boards to find out how the news is going over among those who've spent the past couple years buying, selling, and mining Bitcoin.
The “who cares?” breed of Bitcoiner is the rebellious type. His reaction to the IRS ruling is defiance, or as one Redditor put it, “fuck governments.” This contingent is not planning on changing any of its Bitcoin behavior. The IRS wants them to track the value of Bitcoins they’re spending? “Nah im not going to be paying this douchebag tax,” wrote redditisscum.
At least one member of the rebel group declared an intention to ignore the IRS and go to jail because, “I’m young, no family, I can sacrifice five years and the fines.” For what? “Anarchy is my mission. Mayhem is just a project.”
ToTheGroundGuy on Reddit wants to get a protest going. As a miner, he’s more worried about the IRS rules that says mined Bitcoins will be treated as gross income. His plan? To follow the IRS rules to a T, overwhelming the agency with paperwork and letting it know “what a nightmare they're really inviting on themselves.” Given the replies to his proposal, he might have trouble recruiting the “couple hundred miners” he needs to send the IRS “several encyclopedia brittanica [sic] volumes worth of information that ultimately results in a tax liability of meager $ amounts.”
Other rebels, after declaring their intention to ignore the IRS, began collecting ideas on how to do that without getting thrown in jail. “Be careful with buying things with it too, for example if you have all kinds of stuff being shipped to you from Overstock/Tigerdirect every month, the IRS might get suspicious,” warns skilliard4.
The clear winner of this IRS ruling is anyone who devises a Bitcoin wallet or separate service that keeps track of the value of a Bitcoin when acquired and then when spent, turning the onerous burden created by the ruling into an automated task. One Redditor claims to be developing one such service now. “Soon enough, Bitcoin will help make filing taxes easier than it is now. Wait and see.”
For some, sadness is warranted because of the burden placed on those who want to use Bitcoin in everyday transactions. “I thought bitcoin was supposed to eliminate the middleman? Seems to me it's becoming more complicated and therefore more middlemen/opportunities for middlemen will pop up,” MinorError wrote on BitcoinTalk. One Redditor took a different path to the same conclusion, complaining that the IRS ruling would mainstream Bitcoin and make it more popular. “Govt Regulation is always bad. It is force. Negative consequences are unavoidable. I want back to the days of the wild west of btc.”
Certainty is the word of the day for a lot of those closely watching the IRS ruling. As Walter Frick at the Harvard Business Review heard from several people entrenched in this world: “Lack of regulatory certainty is a major factor holding the Bitcoin ecosystem back.” The IRS ruling changes that. It allows businesses to accept Bitcoin without fear of wading into murky legal ground. As Jdoss on BitcoinTalk writes, “Only a few people have the balls to actually do business in a totally unregulated, OTC currency that has no tax law associated with it. By regulating it, the IRS is going to open the flood gates. New businesses will now have the ability to use BTC and in the end it is the use by business that will add value to BTC.”