Dec 062016
 

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The U.S. government has always taken a somewhat hands-off approach concerning Bitcoin. With some countries around the world flirting with the idea of recognizing Bitcoin as legal tender, or officially adopting it, U.S. financial regulators instead classified the cryptocurrency as a commodity. This means that it’s viewed in a similar way to a stock or precious resource, rather than as a peer for the dollar or any kind of foreign currency.

That doesn’t mean Bitcoin has free reign, however. In fact, the Commodity Futures Trading Commission cracked down on cryptocurrency trading when it made the ruling that Bitcoin was a commodity, requiring trading platforms to comply with its own registration and regulation processes. But this didn’t really constitute any kind of direct government involvement or endorsement of Bitcoin.

This is in keeping with policies we see around the world, despite the aforementioned tendency of a handful of nations to get more involved. As one analysis of Bitcoin’s place in world markets put it, countries do not accept Bitcoin as a transactional currency between individuals and the state, even if they allow it to be used as an alternative to everyday currency. This is the case for several different reasons—among them the idea that many governments are wary of the fact that Bitcoin can be used as an “imaginary” currency aimed at purchasing illegal goods.

Interestingly enough, while Bitcoin cannot be used in financial transactions with the government, the government still wants to keep an eye on what exactly people are doing with it. A couple of years ago, the IRS referred to Bitcoin as property, which was significant in that the acquisition and sale of property must be tracked for taxing purposes. The alternatives were for Bitcoin to be taxed as capital gains, as currency, or not at all. But now it’s expected that anyone mining or being paid in Bitcoin must record the amounts (in U.S. dollars) as pieces of property.

Now, things are getting a little bit more complicated. Because Bitcoin grew so rapidly and wasn’t initially addressed by the IRS or the U.S. government, there are a few years’ worth of uncertain data that the IRS suddenly wants to get its hands on. Recently, the organization has ordered the release of customer records from Coinbase—the largest provider of Bitcoin services in the United States. While the IRS has not accused Coinbase itself of any wrongdoing, it stated that there may well be Bitcoin users who have (presumably either knowingly or unwittingly) committed tax fraud by failing to comply with policy regarding cryptocurrency.

Coinbase appears poised to fight the Justice Department regarding this order, and it’s likely to become a fairly big story in crytpocurrency circles. The idea of a service releasing specific customer information and transaction records is antithetical to the very purpose of Bitcoin, and what happens in this developing case could set some interesting precedents for how Bitcoin investors operate in the near future.

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