TThe best Sundays are for long readings and deep conversations. Earlier this week, the Let’s talk Bitcoin! Show gathered to discuss the Coronavirus and its potential impacts or disturbances on the decentralized world of bitcoin.
Later, we hear correspondent George Ettinger talk about indications of a “singularity of the silent currency” that is currently taking place at the IRS (also presented in full text below).
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In today’s podcast, we discuss coronavirus and:
- Bitcoin mining industry and slower hash rate increases as halving of 2020 approaches
- Safe haven, uncorrelated accounts of risky assets as bitcoin price rebounds defies expectations
- The potential for changes in the way society thinks about money as a result of a highly communicable global disease
- Plus a brief introduction to virus families (go to 13 minutes for blockchain content only if you are already up to date)
Credits for LTB # 429 – Impacts of the coronavirus on Bitcoin (and the stupid singularity of the IRS)
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This episode starred Stephanie Murphy, Andreas M. Antonopoulos, George Ettinger and Adam B. Levine
Today’s episode was produced by Adam B. Levine, edited by Adam B. Levine with music provided by Jared Rubens and Adam B. Levine
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The stupid singularity: cryptocurrencies and game currencies are late for a collision
Therefore. It came this.
One of the biggest barriers to the entry of disruptive technology is the incompetence of the average consumer. On the other hand, the simple act of tackling consumer illiteracy can be a boon for some really terrible inventions. It was in the clash of these two ideologies that we reached the singularity of dumb money.
Digital currency has been running for the dumb singularity for over a decade, and we finally passed the horizon of events at the end of last year. In late 2019, the IRS quietly released a set of virtual currency guidelines that largely bundled traditional cryptocurrencies such as Bitcoin and Ethereum with honest Fortnite V-Bucks and Roblox Money.
I have just been informed that the legal term for the Roblox currency is “Robux”. It seems … fair.
My point, as devious as it may be, is that someone in a position of influence with the Internal Revenue Service of the United States saw his grandson begging for a Roblox card in the Walgreens payment line and thought: “MY GOD, THE BIT PIECES HAVE COME FOR CHILDREN.” And then, when he put his horror in print, enough phalanxes of colleagues from the IRS looked at him and thought “yes, it sounds good “that it was lit green for public consumption.
This notice (which the IRS claimed that Fortnite and Roblox players should report any purchase of “Bucks”, whether “V” – or “Ro” -) was monolithic for almost three months before being escorted from the stage as silently as it had arrived. In a Streisanding bout, this change drew more attention than the addition had initially garnered, and the IRS gave a formal explanation. “The IRS recognizes that the language on our page could potentially worry some taxpayers,” they said. “We have changed the language to reduce any confusion. Transactions in virtual currencies in the context of a game that do not leave the gaming environment (non-convertible virtual currencies) would not require a taxpayer to indicate this in his tax return. ” “
It is, surprisingly, rather huge. Huge in that they got this relatively fair follow-up explanation, and huge in that they persist in making mistakes about the so-called “virtual currency”.
You see, the IRS has been taken up and down every time the cryptocurrency has spread. They’ve been slow enough to recognize the growing importance of Bitcoin that it wasn’t until 2013 that they appointed a team to start planning how to manage the currency … and they still haven’t understood how to manage it. Yet going back even earlier than that, the IRS has also been blinded at every turn by non-crypto “gaming” digital currencies. Their official language confusing the two is not only a red flag, it is a canary in the coal mine.
Game currencies – for simplicity, hereinafter referred to as “uh game currencies” – cover a wide range but the majority is exactly what the IRS did not recognize in Fortnite and Roblox: a non-convertible currency , non-transferable which cannot reasonably leave the confines of its game. Your Fortnite V-Bucks and Apex Legends coins and… [SIGH].. Ro-Bux… are just an interstitial medium between your real money and the gameplay. You do not exchange them with other players, and you do not have the possibility to take these tokens at the casino counter and withdraw them: once your American dollar enters the game, it can no longer leave it under a reasonable form. After the original point of sale, a game currency is no different from Sonic’s rings.
So for as correct as the IRS finally understood they still manipulate game currencies false, and he informed of how they still get Crypto false. Many game currencies ARE transferable and ARE dangerously viable mediums for trading and money laundering, and they have been around longer than Bitcoin. It’s no secret that World of Warcraft gold is transferable by players: this is why the “culture of gold” remains a legitimate source of income for many. Although less ubiquitous than Warcraft, the seminal Supply Chain Actuary Simulator EVE Online has notoriously monetized its monthly subscription cards in one consumable ingame item. For those who are not familiar, this means that when you buy a month of game, it is not simply added to your account: it becomes an element of your game inventory which can be used to extend your subscription, or exchanged with other players like a dollar-indexed product. Now, the really fantastic economic tales of money laundering, real virtual space hacking, and real million dollar real banking transactions in Eve Online can and have filled several books, so I won’t go into the details here.
The fact is, simply, that tradable items for players have been a huge gray market for years and have continued to slip under the IRS ‘nose. They haven’t ignored the horrific titles of the failed fiasco from the Diablo 3 real money auction, but now, in 2020, they are looking to capture its legacy.
This trial and error is an integral part of their Bitcoin trial and error, and the timeline tells a story. A recent review by the Government Accountability Office of the IRS ‘virtual currency policies painted a somewhat scathing picture of a bureaucracy that has been slow to notice and even slower to adapt. The IRS initiative in 2013 was a decisive response to the first truly successful year of Bitcoin cash trading, where dollar parity was suddenly canceled by hundred dollar parity. The impulse is obvious: disruptive currency changes don’t matter to the IRS until they see it on the “Wacky Stories” segment of their local station news.
Financial institutions that Gain digital currencies were quickly adopted, but monitoring groups were responding to changing conditions and new developments with the grace of a grandparent still wrapping cabbage dolls as a gift for the children’s 35th birthday. The GAO points out that, over three years, the IRS tried to gather clues from the 900 people who had reported Bitcoin capital gains. That’s right – from 2013 to 2015, almost a thousand God-fearing Americans had Holy the humility to self-report their Bitcoin revenue to federal authorities, and it took three years of analysis for these authorities to infer that there could be more over there go UNreported.
Well done, by the way, to those 900 honorable people who tried to pay attention to the watchers when the watchers weren’t even looking.
Over these years, the spectrum of cryptocurrencies has exploded and the applications of game currencies have strangely homogenized. Convertible game currencies like Warcraft gold persist, but they are the exception rather than the rule. Editors have found that the smothering of a multi-stakeholder economy gives them better control over experience and much less responsibility for what is done with this money. Fortnite follows this modern standard; real money is an aggressively optimized one-way flow between player and publisher, with no winnings convertible into taxes. The IRS has long missed the boat on the game’s currency.
Why, then, have they clashed so recently and so awkwardly with cryptocurrencies in the muddled mind of the revenue department? This, my friend, is the beginning of the dumb singularity: desperation and technological illiteracy have finally overflowed, and the office is trying to catch up on the years that have passed. They may have smoothed out the initial blunder, but that indicates their intention to move forward with a more active hand, and the broad use of the term “virtual currency” means that more blunders are waiting.
The GAO praised them for their slowness, their vagueness and their envy of everyone in this regard, but to some extent, it was not the fault of the IRS. The organization has struggled to cope with budget cuts and a dangerous shortage of new blood, and yes, you can read it as younger, more knowledgeable blood. It is this same old blood who struggled to make progress with his internal team of virtual currency problems in 2013 and still has not seriously analyzed the self-reported data of the main crypto exchanges even in 2016. A soft flame finally reached their buttocks sometime after, as in 2018 they started to proactively reach users with obvious crypto gains and attempted to secure accurate reports.
Now that the end of fiscal year 2019 is fast approaching, they are finally faced with the ontological enigma at the center of the dumb singularity: what is the enforceable definition of “virtual currency”? What will make the difference between fictitious money and dangerous money? As they dragged their feet to understand the question, the answers became even more confused as technology led the way without any policies. This year, game currencies completely overtake retail purchases as the primary source of revenue for publishers and more of them are not convertible or taxable; most, but not all. The IRS’s complacency has left it with a massive ecosystem to filter out and a lack of reliable and literate talent to do so. If their random entry at the most obvious game currencies they could think of was an indication, there will be wider and clumsy lines before there are real answers.
The IRS has the unenviable task of writing a perfect definition in a language it doesn’t seem to speak, all because they never got around the question I accidentally stumbled upon twenty years ago.
When my 13 year old car spent 10 dollars on eBay for a multitude of Phantasy Star Onlinhe booty, I asked myself: what laws can really apply to the man who paid his paychecks to Game-Genies?
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