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Bitcoin Anonymity
Editor's Notes
- Talking About: Legality Tax Implications Practicality Divided into 4 parts: Bitcoin Anonymity Mining Transacting Exchanging
- Is Bitcoin Anonymous? Tough – boils down to how you use it If you use any currently existing exchange, the answer is no – it's pseudonymous, at best, and you can expect a three letter agency to be logging your transactions. Is anonymity possible? Yes, but it's tough.
- Mining has long been the main way to acquire Bitcoin Anonymously – but as the market shifted from simply using CPU + GPU miners, users began to pool resources through pooled mining services and ultimately gave up a measure of anonymity in the process – mostly in the form of an e-mail address. There are some legal considerations around mining, namely being classified as a money transmitter. The moment you convert directly with someone (outside of an existing exchange) you are classified as a money transmitter in the eyes of FinCEN. There are tax implications around mining as well, namely, if you convert back to USD, that is a taxable event respective to gains.
- This is where things get really cool w/ Bitcoin. Playing off what I just mentioned around mining taxation, if you convert to Bitcoin, they appreciate, then you buy something w/ Bitcoin, that even is not taxed for gains, but there may be other taxes involved, so what we're seeing with a number of individuals is assets acquisition via Bitcoin. Also, if you receive income, that is another taxable event. Legal implications here are pretty straightforward, don't use Bitcoin for things that are illegal in your jurisdiction, and you're fine. Regarding anonymity, it really all comes back to how you entered Bitcoins, and ultimately how you will be exiting.
- This is the point where almost all of the legal and tax engery is getting poured right now – and why is that? Because if you effectively track the in and out transactions of Bitcoin, you can much more easily track in block transactions with associated identity. Legal issues? Almost none for individual users who who a major exchange, some if you are doing localbitcoin transactions (think money transmitter). Tax issues? As I mentioned before, gains are the most readily identifiable taxable items when conducting an exchange.
- So what are the big picture implications of both anonymity w/ Bitcoin, and a lack of Anonymity w/ Bitcoin? Huge I'll answer this question first – is mainstream adoption of Bitcoin or maintaining anonymity a false choice? I don't think it is – here's why I think this way: It's two sided reasoning for me 1. In order to gain main stream adoption, Bitcoin has to be become easier to understand + use, the services that are going to be the easiest to use will be the ones who integrate most easily with existing institutions – meaning no anonymity. 2. Almost no government or existing financial institution will be a proponent or even nuetral to a globally transactable and anonymous value store.
- It's going to be very hard as organizations such as Greenlist, Coin Validation begin to track identity and develop 'clean' addresses – also with the idea of redlisting addresses (which I actually am generally for, depending on the implementation), those on the outside will be left with 'valueless' coins. Essentially, anonymity with Bitcoin is a practical thing of the past – going forward, whether it's explicit or implicit, your identity, eventually, will be tied to an address or addresses if you want to transact.