The cryptocurrency world has been abuzz with indignation about a provision within the recent US tax bill whose implications, under the guise of filling a loophole, threaten to render crypto trading a no-win proposition. But before committing digital hari-kari, let's dive in and see how it might all play out.
The basic premise is that beyond capital gains on profits, by simply converting one currency to another in order to facilitate a purchase order, every step of crypto trading is considered taxable. But can the letter of the law actually be implemented or enforced? Or is this whole “like-kind, taxable event” scenario just a fear tactic to discourage crypto trading when there is neither the brainpower nor the capacity to follow through?
Perhaps in truth it is the IRS bogeyman that should get chills down his own spine thinking about the impossible workload created by this hastily written provision. A commenter I saw on YouTube said he would set a bot to conduct a million trades valued at one cent each, then send the IRS a single sheet of paper for each trade. Imagine if only one thousand people pulled this stunt—does the IRS even have the logistical capacity, let alone enough skilled analysts, to process this paperwork?
Who would develop the software to track all of the trades? Would people currently working within the blockchain community itself suddenly decide to work for the “good guys?” Or would some hackers be forced into it like Frank Abagnale from “Catch Me If You Can?” Beyond that, how many tax preparers are competent in this area? Probably close to zero!
Back to the IRS, this is nothing like auditing people in the 1960-2000 era when there were real assets like boats and mountain lodges to confiscate. Today's young Americans at best only got to taste that kind of wealth if their parents were affluent—and as adults all they have for the government to take is their time, energy, and brainpower.
This is a profound change because for so long people in the affluent West have been able to achieve fulfillment in a way that people in the Third World have not. The impoverished billions who lack access to infrastructure or banking languish like a fallow field or an oil cartel's reserves—but now we also struggle just to maintain our quality of life, let alone reach our creative potential while battling through inflation, outsourcing, market crashes, costly wars, and staggering debt loads.
So why hold on to the America Dream when it's been taken from us and there are no institutions to believe in anymore? With such small room for error compared to previous generations, how many of us can break through economically via traditional methods to extricate ourselves from the thirty day cycle of terror and live comfortably?
The maturing web has established deep roots of connection across the world, and as mankind comes to the realization that we have all been artificially stunted, we are screaming to be set free. As painful as it is to think that your own country's policies and muscle contribute to this status quo of stagnation—one step forward, two steps back—but the past seventeen disillusioning years speak for themselves.
And yet out of the frustrating ashes of the 2008 financial crisis came Bitcoin and blockchain technology, because we can't all write punk rock anthems or protest in the street wearing Guy Fawkes masks. Today the Crypto Revolutionaries are withdrawing billions from the petrodollar system in a quiet civil war that's part John Galt and part Tyler Durden. But unlike Iraq or Libya, which also sought financial independence, the system can't invade or bomb us because we live within their cities.
The prescient see this technology as a fresh breeze that will clear away needless paperwork, regulations, and systemic inefficiencies. Meanwhile political manipulators use the potential loss of jobs as a fear tactic to stall new infrastructures that altogether bypass the need for their grandstanding. It's this typical “jobs at any cost” mantra that is too shortsighted to consider that many obsolete or pointless occupations will be replaced by new, more relevant work.
Perhaps the government will try some high-profile prosecutions like Wesley Snipes to keep people in line, but if so, it means they just don't have their finger on the national pulse—which is disgust, punctuated by exhaustion, that has morphed into fearlessness. People are quietly “going off the grid,” and not by moving to a yurt out in the country, but by sending their dollars down the escape hatch away from fiat tyranny into the open horizon of the crypto realm.
So the longstanding dream of abolishing the IRS may not be necessary if it simply ends up starving—and therefore the recent sneaky tax provision is likely a “too little, too late” salvo from this desperate and ossified bureaucracy. It is up against too many sharp minds competing in a technological arms race that will have its own winners and losers, but ultimately may very well change the world.
Right now within the microcosm, we're witnessing the timeless tale of mediocre people who fear not getting any credit for what the producers create. Their shortsighted greed cannot grasp that a rising tide lifts all boats, let alone that disruptive innovations can create opportunities that are more significant and meaningful than the tax-chasing and compliance-enforcing banality that comprises their lives today.
So grab your wallets and saddle up, we're riding deeper into the Digital Wild West...