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
Bitcoin Is Used in Illicit Activities
Can Bitcoin be made 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.
Why shouldn't Bitcoin be a legal currency? ›
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.
What are the bad things about Bitcoin? ›
Cryptocurrency Risks
- Cryptocurrency payments do not come with legal protections. Credit cards and debit cards have legal protections if something goes wrong. ...
- Cryptocurrency payments typically are not reversible. ...
- Some information about your transactions will likely be public.
Crypto value fluctuates, but not in the same way as traditional investments. No, they waver from extreme highs and very low lows. While this can yield significant gains, it can also lead to devastating loss.
What are 2 illegal uses of Bitcoin? ›
Most Common Illicit Finance Activities
Illicit finance activity continues to grow in value and variation, especially with the use of digital assets and cryptocurrency. Some of the most common illicit activities in this digital space are money laundering, cybercrime, and consumer scams.
Why can't Bitcoin be created? ›
The maximum total supply of Bitcoin is 21 million. The number of Bitcoins issued will likely never reach 21 million due to the use of rounding operators in the Bitcoin codebase. No additional bitcoins will be generated when the Bitcoin supply reaches its upper limit.
Why do governments hate Bitcoin? ›
Bitcoin Is Used in Illicit Activities
It isn't easy to trace the provenance of a transaction or the identity of an individual or organization behind the address. Besides this, the algorithmic trust engendered by Bitcoin's network obviates the need for trusted contacts at either end of an illegal transaction.
What are the arguments against Bitcoin? ›
Critics say bitcoin doesn't work as a currency, citing concerns like volatility, energy usage, and use in illegal activity. Supporters argue that it's too early to make some of these claims, and that innovation is already fixing many of those concerns.
Why is Bitcoin not safe? ›
Cryptocurrencies are still largely unregulated
If a platform that exchanges or holds your crypto assets goes bankrupt, there's a risk you could lose all your capital. Similarly, your assets could be at risk if an exchange holding your crypto is hacked by criminals.
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's the point of owning Bitcoin? ›
Liquidity: Bitcoin can easily be traded for cash or assets like gold - instantly and with incredibly low fees. This makes Bitcoin a great investment for people looking for short-term profit, as well as those considering long-term investment due to its high market demand.
Who owns Bitcoin? ›
People and organizations can own individual Bitcoin, and people and companies can own software that makes it easier to buy, store, or transfer Bitcoin, but no one owns the Bitcoin payment network itself. Bitcoin is entirely independent of any one person or organization.
Why shouldn't you use Bitcoin? ›
As it grew in popularity, Bitcoin became cumbersome, slow, and expensive to use. It takes about 10 minutes to validate most transactions using the cryptocurrency and the transaction fee has been at a median of about $20 this year. Bitcoin's unstable value has also made it an unviable medium of exchange.
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.
Who is controlling Bitcoin? ›
Bitcoin is controlled by all Bitcoin users around the world. While developers are improving the software, they can't force a change in the Bitcoin protocol because all users are free to choose what software and version they use.
Can Bitcoin be stopped by the government? ›
Bitcoin uses a decentralized system and a decentralized peer-to-peer ledger. It has the potential to become a globally accepted payment method and revolutionize people's access to finances and financial services. However, most governments do not control or recognize it, and central banks cannot influence it.
Could the US government shut down Bitcoin? ›
Just as Bitcoin has never been successfully 51% attacked, it has also never been shut down, even for a short amount of time. As Bitcoin is decentralised, the network as such cannot be shut down by one government.
Is it legal to make your own Bitcoin? ›
- Simply creating and selling one's own cryptocurrency token does not violate criminal laws against fraud or theft absent blatantly false statements or hacking/stealing funds. There may still be civil liability though (see below).
Is it illegal to manipulate Bitcoin? ›
The legality of manipulating cryptocurrency markets varies by jurisdiction and depends on the specific actions taken. Using dishonest or misleading tactics to manipulate cryptocurrency markets is prohibited in many jurisdictions and may even violate securities or financial laws.
